In this syndicated blog post, Nedim Efendic (Director of the Stockholm Founder Institute), outlines the various benefits that major companies can get out of establishing relationships with early-stage tech startups that are currently enrolled in accelerators.
The article, "Partnering with startups in accelerators make corporations more innovative", originally appeared on Linkedin, and has been republished below with permission.
Large companies have traditionally been good at innovating around their current business and optimising their existing operations. At the same time, they have much more difficulties engaging in breakthrough innovation, due to their focus on incremental innovation. This predisposal towards incremental innovation among corporations can be a cause for concern, as studies have shown that high-performing firms tend to focus more on disruptive innovation, while low performing companies, to a higher degree, invest in continuous improvements of existing products and services. Startups, on the other hand, excel in delivering radical innovation. Large corporations often overlook that collaborating with startups is crucial for staying innovative and competitive. Engaging with startups provides an opportunity to diversify and challenge thinking beyond what’s often possible inside the large corporation.
Large corporations and startups have complementary skills
Whereas startups are better at discovering and proofing innovative concepts, large companies are usually better at scaling an existing business. Hence, startups and established firms, each on their own, possess important skills that are highly complementary. This suggests that collaboration between startups and corporations can be of mutual benefit, as corporations can bolster innovation by collaborating with startups, while the latter group receives help from corporations with improving the execution. The benefits of bringing together startups and corporates can be demonstrated by looking at the collaboration in the pharmaceutical industry during the last decades.
It has been shown that compared to large pharmaceutical firms, biotech startups are much faster when it comes to both performing research and product development. For example, a HBM Partners report shows that 63% of all new prescription drugs approved during the last five years are the results of research that stems from biotech start-ups. Hence, many of the key biomedical discoveries have been made by biotech startups, while the pharmaceuticals have used their sales and marketing organisation to drive sales of the drugs that were initially discovered by small biotech firms. These and other types of collaborations should be further expanded across all industries, as they bring benefits for both the startups and large established firms. In the case of biotech firms, that could for instance entail increased R&D collaboration at an earlier stage than what is common today.
Accelerators bridge the gap between startups and corporates
Startups are a major source of innovation, and corporations often need to access their knowledge in order to generate breakthrough innovations. Nonetheless, the substantial differences between startups and large corporations have traditionally been a major stumbling block for collaborations between them. A crucial question then arises: how can corporates and startups interact more efficiently going forward? An important component in bridging this gap are business accelerators. They support entrepreneurs with a variety of resources, some of the more important ones being assisting with education, mentorship, and financing. These fixed-term programmes focus on compressing years worth of applied entrepreneurship know-how into a programme that lasts a few months.
From the corporates perspective the accelerator serves as a listening post for understanding where the industry is heading. This gives corporates increased awareness on what disruptive technologies are in the making, and helps them choose which they want to engage with. In addition, the accelerator functions as a test laboratory for incubating new business ideas. For instance, accelerators can give the corporates the opportunity to create innovation around a specific business problem or platform. Positive effects that are created from working with startups also include help with rejuvenating corporate culture as well as attracting and retaining talent.
