A vibrant growing startup ecosystem needs corporates to be actively involved in helping entrepreneurs with relevant solutions to grow. How are the big corporations also innovating themselves – whether it is business model innovations or products and services?
We dove deeper into the importance of Corporate-Startup partnerships with guest speakers Dr Simon Hassannia, Chief Digital Officer (CDO), Albatha Group, and Kevin Chalhoub, Founder & CEO, EV Lab; Chalhoub Group. Moderated by Roberto Croci, 20+ years with Microsoft & Google.
A survey revealed that 82% of corporations view interactions with startups as important and 32% of corporate CEOs want to collaborate with startups within the next 12 months to foster innovation. (Source: PwC’s 22nd Annual Global CEO Survey 2019)
Steve Denning, former World Bank executive, Senior Contributor at Forbes, author of forthcoming book Reinventing Capitalism In The Digital Age, points out that 50 years ago the average life expectancy of a company in the Fortune 500 list was 75 years and now it is 15 years and is declining even further.
Simon Hassannia: The Albatha Group is diversified in seven industries and has twenty businesses, from automotive and medical to real estate and energy. Their core business model is scaling two hundred global brands, and advanced in digital transformation.
Kevin Chalhoub: Transportation and electricity are the two of the biggest emitters of carbon, so there is a lot of change going on in this industry for the right reasons. From Chalhoub Group’s perspective, we innovated from a business model perspective, and looked at how we could leverage our retail expertise and enter a product category that will continue to grow. EV Lab is a startup, which is not distributing brands but leasing electric cars at present and aiming towards a concept for multi-brand electric vehicles.
Roberto Croci: Companies that are not able to reinvent themselves or if they are unable to respond quickly to the shifts in the market will not survive. How would you define corporate innovation?
Simon Hassannia: It is all about reinventing an organization from a customer-centric perspective, keeping in mind the strengths of an organization. Customer demands are changing exponentially, accelerated by social media, with trends scaling fast. The market is changing extremely fast, and the challenge is not only to have that sense of urgency, but also to make sure your employees get on board and are trained to use the emerging new technologies. Begin to build bridges with startups. It takes time to find the right partnerships. Focus on your core business, but try to innovate in related areas, and build an ecosystem in your company to find the right capabilities and create a more open diverse culture. The corporate and startup culture is quite different, and so this can be a challenge.
Kevin Chalhoub: Corporate innovation is about disruption and fulfilling client needs in a unique way. There are two types of disruption – tech or business model disruption. Self-disrupting your own business by partnering with a startup is healthy so that you can be part of the next wave of change in your industry.
Roberto Croci: What is an innovation strategy? Whether it is new technology or business model innovation, how do you leverage existing competencies versus acquiring new competencies? Why do innovation initiatives fail within organizations?
Simon Hassannia: It is pragmatic to grow a new idea in a ‘lab’ and then strategize for reintegration into the core business. However, the learning from Europe is that reintegration is a challenge because you have two different speeds and culture. Building a bridge is elementary for the success of the new service or product. This service/product needs to be implemented into the current business, which might need to change processes to scale it. The need for some sort of bridge for successful reintegration is critical for the partnership success. Or you will end up talking to a startup which is too far away from the traditional corporate world and neither side will understand each other.
Roberto Croci: It is described as an ambidextrous organization – one that can do both but has a real link. It is connected to the business somehow, and not just an isolated venture.
Kevin Chalhoub: It is about building the right business model. A corporation is a traditional business with a focus on net profits and reinvesting these dividends into the business. The tension in company disruption is caused when you start looking at profitability versus growth, which are different visions of the business world. There is a need for change management strategies within corporations for everyone to get on board with a diversified growth model. It is also important for an innovative culture to embrace startup failures and partner with venture funds and builders for a healthy successful exit. A startup wants to grow, grow, grow, and then exit – through an acquisition, selling the company or via an IPO. Defining success for a startup equates to exiting successfully. Note that in each seed round, the venture funds are specialized.
If successful, the startup could end up being a bigger IPO than the original organization’s core business, so it is essential there is change management for synergies to be best exploited. And venture funds are important to help make this happen and influence the portfolios in which you are invested. Partnering with VCs and venture builders working towards the common goal of a successful exit is the best common goal for both corporates and startups.
Roberto Croci: What are some key elements that define a good innovation culture?
Simon Hassannia: An essential element is ‘curiosity’. This attribute encourages thinking out of the box. It is good to be pushed out of your comfort zone because this leads to creativity. An innovative culture allows employees, across all departments, to try new ideas, even fail and learn from them. Anything is better than stagnation.
Kevin Chalhoub: A healthy innovation culture embraces change – new business models, new technologies and new processes. When you partner with startups, you are already pushed towards change. For example, traditional businesses were built through an initial loan from a bank which they pay back over time. The equity model with a startup is new to them, and the organization must define and implement different processes that tolerates failure and aims towards growth.
Roberto Croci: How do you balance creativity, productivity, and growth?
Kevin Chalhoub: You need to foster innovation, but boundaries are also important. You need a formidable team to make it work, and a sound business growth plan. Set realistic boundaries within corporations and ask questions regarding the timing of financing the startup, partnering for the next stage of growth with venture capitalists, managing the portfolio alongside other stakeholders, nudging further innovation, etc. The corporations should not aim to own all the equity of a startup but partner with different entities because that will set the valuation of the startup and its growth.
Roberto Croci: Please share your views on the upcoming new tech trends and what processes need to be in place to absorb these.
Simon Hassannia: From a corporate perspective, they need to separate the hype from the value of the business. For example, the trend might to go into the metaverse, but what value would such a move bring to the business? The only way you can build this bridge is to translate trends into business value. What problems does the new tech solve for the organization or customers? The corporates care less about proof of concept or proof of work, and more about the value it brings.
Kevin Chalhoub: If you find a clear purpose driven industry or investment thesis, then it is much easier to find business value. The minimum viable product (MVP) really needs to serve a need, and not identifying this clearly is often the reason for failure.
Roberto Croci: Interestingly, 60 percent of unicorns have been raised from a corporate, so this is not a new phenomenon for corporations. What are some of the challenges and lessons learned on both sides?
Simon Hassannia: Culture is a challenge. Also, understanding the different priorities between growth versus value. Also, the process needs are vastly different. A startup does not need burdensome administration policies because they are just 20-30 people, compared to a corporate’s 10,000 employees who need defined standards policies. And then there is the question of point of scaling for the startup. How does this partnership work? For example, a meeting between a deep tech startup and traditional corporation, would first require a conversation on the definitions of many concepts so they are aligned and can talk about the business. For the next ten years, the ability to build and manage ecosystems around your organization will decide whether a company is able to survive.
Roberto Croci: What would your advice be to startups who want to partner with corporations?
Simon Hassannia: They expect a reliable service or technology which can be plugged into their platform and be used by their customers. Understand the complexity of corporations so you are better prepared to know how to scale, what processes need to be changed.
Roberto Croci: What would you advice corporations?
Kevin Chalhoub: If you are not a proven investor and are not aligned with the startups goals, then you are not the right fit. It is important for corporates to find the right synergies and share the same narrative with the startups they would like to invest into.