Three months on from the referendum on EU membership, there remains some ambiguity around how companies, both big and small, will cope with any ensuing fallout. So how can management teams make the most of the opportunities that remain?
While the pound’s value and FTSE 100 stocks have see-sawed, on the ground not much has changed. Business-wise, other than a few attempts by European cities to poach British talent and woo company founders across the Channel, initial indications are that the funding landscape remains the same and, in fact, spending volumes might actually be going up. This is especially true of corporate venture capital, as international firms look to spend their stockpiles of cash on UK companies following the fall in the value of the pound. The recent sale of Cambridge-based computer chip maker ARM Holdings to Japanese tech giant Softbank is the most notable example.
With this climate of uncertainty, it is imperative that businesses continue to innovate at low risk to themselves and at a reduced cost. Given start-ups’ reputation for being ‘disruptors’ - some reaching billion dollar plus valuations such as so called ‘unicorns’ Uber and Airbnb - greater collaboration with start-ups is an obvious route for many management teams to consider. The benefits are vast and include helping to instill an entrepreneurial mindset among employees, attracting new partners, customers and talent, solving business problems quickly, and expanding into future markets.
Although 80 per cent of start-ups fail within their first three years, those that do go on to succeed have the potential to shake up entire industries. Think of the impact food delivery service Deliveroo has had in just three years, serving 80 cities worldwide and raising $275m (£213m) in a recent funding round. It therefore makes good strategic sense for management to consider collaboration with start-ups at an early stage, while they can benefit from bargain prices on equity investments, and avoid being upended by potential technological shifts.
However, one size doesn’t fit all and businesses need to consider what they want to get out of any relationship with a start-up. If the purpose of collaboration is to rejuvenate corporate culture among employees, options include one-off events like hackathons, or providing business support via incubators or accelerators which can result in so-called "innovation by osmosis".
If the objective is to solve business problems cheaply and at low risk, or expand into new markets, formal partnerships such as procurement, product co-development and corporate venturing might be the solutions. Sky, for example, works with start-ups by entering into strategic investments and commercial partnerships and has invested in over a dozen start-ups in the media and technology sectors, including Roku, a leading streaming platform which helped Sky to launch its Now TV product.
Beyond refining their output, management also needs to consider cultural issues. Corporates and start-ups are very different - not only in terms of dress but mindset - and a lack of entrepreneurial culture, aversion to risk and job sensitivity within the former can lead to internal opposition. Hiring a champion who has the diplomatic ability to navigate the corporate’s organisational structure, and who is also a start-up cheerleader is key.
There are also strategic barriers and different internal departments are often at odds as to the purpose of external collaborations. A practical manifestation of this, which a third of start-ups surveyed by Nesta complained about, is the ‘transfer of responsibility’ problem - when a relationship suffers as it is handed between business units. Matching objectives with specific programmes and getting senior management on board from the start will help overcome these common pitfalls.
Procedural issues can also crop up when start-ups have to endure long decision making times, complex qualification requirements and lack of proper communication. Take Italian energy and utilities company Enel who successfully changed its processes - and culture - to make collaboration easier. Enel set up a preliminary screening process that established clear expectations from the get-go, appointed an Advisory Board that monitored for bottlenecks in the process, streamlined the commercial due diligence process to take no longer than a month, and ‘hid the wiring’ as much as possible so it seemed both timely and simple on the surface.
Finally, structural complications such as a strict decision making hierarchy can deter start-ups from wanting to collaborate with corporates. A structural audit might be a good exercise to undertake in this instance and could result in the commissioning of a new entity to spearhead internal innovation.
We know that despite having differing and sometimes opposing business cultures, corporate institutions and start-up founders are keen to collaborate but often lack the knowledge of how to do so ‘in real life’. If the objective is simply "corporate innovation theater" - PR and CSR masquerading as innovation - then the collaboration is doomed. But as the post-Brexit socio-economic jitters continue, management has a key role to play in ensuring they embrace and engage with their potential usurpers.
Siddharth Bannerjee is a digital technology and start-ups researcher at Nesta