Co-Innovating for Startups and Enterprises—Better Together?

People say that opposites attract, but big differences in economic or social background, education, and personality can sometimes lead to misunderstanding, conflict—and a weekly appointment with a marriage counselor! The same can be true when unevenly matched companies—such as a large enterprise and a startup—try to collaborate on an innovation initiative. Differences in size, culture, expectations, and behavior often get in the way of a truly collaborative and productive partnership—and create problems that no therapist could fix!

Despite these challenges, however, co-innovating between startups and large enterprises can be good for both parties, if you approach it right.

Let’s look at some of the advantages from a large vendor perspective. First, by working with a nimble startup, vendors can often fill in a missing piece for their solution—and deliver it to customers—faster than they would be able to do it on their own. Additionally, many large vendors such as Cisco focus on providing broad platforms, or developing common horizontal modules that can be used to deliver vertical solutions. They often rely on channel partners, application developers, integrators and yes, startups, to develop these solutions for specific markets. And finally, startups can differentiate a large vendor’s offerings, providing specialized capabilities that help make the sale to customers that might otherwise go with a niche player.

From the startup perspective, co-innovating with an industry giant can be scary, but if done right, it can boost the startup’s credibility and help propel it into the market. When startups co-innovate with large vendors, they gain access to customers and channel partners where they might not get in the door on their own. As Brian McGlynn, COO and co-founder of IoT startup Davra Networks, said recently, “When you partner with someone like Cisco and are validated in their ecosystem, you have a stronger play.” If the startup is co-innovating directly with a large customer, they develop a targeted product that they can then sell to other customers, using the original customer as an important reference account.

Co-innovation between a startup and an enterprise works best when each party fills a gap in the other’s capabilities, and when they share equitably in both the work and the rewards. In recent conversations, leaders of two startups that have worked with Cisco and other enterprises shared some of the factors that have contributed to their win-win co-innovation experiences.

Josef Brunner is CEO of relayr, an IoT startup that won Cisco’s IoT Innovation Grand Challenge two years ago. He pointed out that it’s important to be guided by your overall strategy when evaluating co-innovation opportunities. “Sometimes it’s hard to say no to a big company,” he said. “Founders and CEOs want to take the opportunity to partner with an industry leader, but you have to make sure it’s the right thing to do strategically. Otherwise, it’s easy to lose your identity.” Another guiding principle for relayr has been to always keep the focus on the customer. “Don’t fall in love with the technology. Co-innovation should be about helping the customer be commercially successful. The most important thing is to keep the customer at the very center of what we do, understand their challenges and always think of the business case.”

Davra’s Brian McGlynn pointed out the importance of good governance in a successful co-innovation project. “You can bring in partners by having the right architecture, but you need the right governance to make it work,” he said. It is important to have explicit agreements around who owns what, who decides what, how prices are set, and how revenue is shared. “With the right governance environment, both sides can make money.”

Of course, there are also some things to beware of, for both the startup and the enterprise. Having participated in many co-innovation projects between large companies and startups, here are a few lessons I have learned:

• Startups should be careful not to be drawn into custom development that doesn’t result in a scalable solution that brings in revenue
• Startups should ask, is it real—or is it a science project? If you are working with a large customer, make sure you are working with their production team, rather than an advanced research group. If you’re working with a large vendor, avoid projects that are focused on thought leadership or “innovation as a sales tool.”
• Make allowances for a possible culture clash—the enterprise may not be able to move as quickly as the startup is used to, and the startup may not have all the formal processes in place that the enterprise looks for.
• Enterprises should think about how to scale the joint solution if the startup doesn’t have a global presence to support it.
• When enterprises bring a new startup solution to their customers, they take ownership of the success and reliability of the solution, so choose a startup partner with a good chance of stability and longevity.
• Both partners should have a commitment to the long-term roadmap of the solution and their partnership, not just short-term revenues.
• Start small and build on incremental successes. As Josef Brunner said, “A lot of companies want to boil the ocean in one day, and that’s very challenging. We take an approach of, ‘crawl before you walk, walk before you run.’ Have achievable milestones, fail fast, quickly correct things that are going in the wrong direction, and move on.”

So, do opposites attract? Yes, they’re often better together. The differences that cause potential conflict can be the very things that make for a strong relationship – complementing each other’s strengths, filling gaps in one another’s capabilities, bringing new perspectives, and sparking creativity. By approaching a co-innovation project with shared goals, good communication, and clearly defined expectations, you’ll have a good shot at mutual success. And you can skip the weekly trip to the marriage counselor!

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