How to Talk to Corporates
Is that corporate you’ve been talking to for the past six months really interested in working with your startup or just stringing you along, or worse, copying your idea? There is a cultural gap between fast-moving startups and global scale corporations and sometimes it’s hard to understand where you really stand.
Here are a few tips that can ensure your conversations with a corporate focus on substance without getting hung up on style.
The Corporate Mindset
Before going much further, let’s understand why a corporate would initiate a conversation with an emerging startup. Successful corporations have spent many years building their brand, customer relationships, and distribution channels. They generally have their own internal Engineering capabilities, but those efforts tend to be focused on incremental improvements on existing product offerings.
In order to complement their own internal R&D efforts, companies have recently embraced the Open Innovation movement, which is focused on bringing in outside ideas – as well as sharing internally developed innovations with other companies in non-competing industries.
If a corporate contacts your startup, it generally means that a rough determination was made that your idea, if properly adapted, could be of interest to the corporate’s customers and distribution channels. Significant efforts will be required by the corporate “scout” to build support for your idea internally – after all, it is likely a radical departure from the products being sold today or the incremental improvements in internal development. During the initial conversations, the scout will determine whether your startup is worth spending the significant internal effort required to adapt your idea and insert it into the corporate product development pipeline.
The potential at the startup level is quite serious – you could gain instant access to a global customer/distribution base, perhaps even a recognized brand, and position yourself for an acquisition exit. The key outcome of these initial conversations is to convince the corporate scout that you can be counted upon as a reliable partner as he/she advances the cause for doing business with your startup through his/her internal leadership structure.
This brings us to our first rule:
Understand Your Role
As an entrepreneur it’s easy to dismiss a large corporate as just another “dinosaur” that is doomed to become irrelevant within the next 5-10 years. Check that attitude. Learn to appreciate the decade(s) of experience that the corporate has gained in learning to improve its product, and manufacture and sell at global scale. Let the corporate take the lead in the discussion – this ranges from accepting/adapting their NDA form, letting them set the agenda, patiently listening to whatever is near & dear to this particular corporate (be it organizational structures, history, culture, etc) and agreeing on follow up actions. The quickest way to kill a deal is to signal from the outset that you want to take the lead in the relationship. That is not what the corporate is looking for. It sees an interesting idea lurking within your startup, but an idea that requires significant join development work to adapt to its customer base, and a significant amount of work to convince internal executives that a deal with your startup is worth the effort and risk. Your role is to help the corporate scout build that internal support within his company. Your initial corporate contact is likely the friendliest face you will deal with at the company – so at the outset, show him/her that you will take direction on the best ways to deal with the intricacies of this particular corporate relationship.
Focus on Your Product
As a side-note related to understanding your role in the conversation, keep your focus on describing the product you have built and what you have learned from your customers. This is where your enthusiasm will shine. Don’t spend too much time discussing market trends (the corporate probably has access to better information than you) or worse, talking about how your startup is superior to the corporate’s product set and/or execution strategy. Keep the focus on your product – that’s where everyone agrees that your expertise is unrivaled – or the conversation wouldn’t have been initiated in the first place.
You may have had a good initial meeting – but then you hear nothing for two weeks. Emails are not answered. You conclude that the deal is dead – yet three months later the corporate contacts you with follow up actions as if nothing has happened! From a startup perspective, three months sound like an eternity, but from the corporate side, that time can pass in an instant. While you have been laser-focused on sending out several new releases to your customers, at the corporate level there has been a flurry of vacations, conferences, executive retreats, mandatory HR training, reorganizations, budget setting and review meetings, performance assessments, board member visits, executive tours, move to a new building, etc etc.
You’ve just experienced the inefficiencies of scale. Your four person team has no coordination overhead, so you have the luxury of spending all your time on product tasks. When your company scales to 10,000 employees, you will experience the same inefficiencies – it’s the side effect of scale. It’s nothing to get upset about or to rail against - just practice Acceptance. As a company scales, its rate of progress will slow.
If you play your cards right by not showing your frustration with corporate slowness, the corporate will be less defensive and more appreciative of what you bring to the table: speed. When that corporate calls after a three month hiatus, give them an update on the various features you’ve added to your product and the new markets you’ve opened up, as well as the multiple experiments you’ve conducted and what you’ve learned. They’ll be impressed!
Execution is Key
From a corporate perspective, startups are unreliable – heck, they may even disappear from one day to the next. One way to counter this (unfair?) stereotype is to consistently meet your commitments. Demonstrate your execution savvy by producing proposal documents and delivering milestone demos on time. A record of quality, on-time releases will take the wind out of the sails of the inevitable number of naysayers within corporate – especially as the internal R&D teams continue to slip their schedules.
Beware the Constructive Acquisition
When you construct a joint development or OEM distribution deal, corporates will likely insist on some sort of exclusivity. It makes sense – the upside of a corporate relationship should be shared between both parties, especially recognizing the time and expertise that the corporate will be investing in the relationship.
But don’t take it too far by agreeing to highly restrictive terms that limit your ability to do business with other corporates. In a constructive acquisition, you may have only signed a, say, $500,000 OEM agreement with a corporate. But if the terms of that agreement are too exclusive, that corporate has essentially acquired you – for far less money than your full valuation!
One way to ensure good corporate partnerships is to sign deals in areas adjacent to your main market. For example, if your startup sells a consumer wearable device, an adjacent market may be in enterprise. You could work together with a corporate focused on enterprise deals to create a special version of your product to use on the manufacturing floor, for example. As part of the joint development agreement, you would be happy to give this corporate exclusive rights and perhaps even joint IP ownership for the industrial market segment.
Of course, an outright acquisition by a corporate within your main market segment is also always a possibility. As you work together on a few small projects (and avoid signing highly restrictive deals), the corporate will become more and more convinced that your company is the real deal. Both entities will also get a feel for the respective company cultures and can assess if there is a fit.
Speed creates Win/Win scenarios
A successful corporate engagement builds winners on both sides. For startups, the key challenge is achieving scale – corporates can help, either with their industry know-how or their established distribution channels. For corporates the key challenge is introducing a stream of innovative products – this is where startups excel with their MVP (Minimum Viable Product) mindset. The right partnership relationship, based on mutual respect, can create win/win scenarios for everyone.
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