How to Talk to Startups
Photo: Waag Society
Feeling under-appreciated and maybe sensing a hint of mistrust when meeting with an early stage startup? It’s the cultural gap that exists between fast-moving startups and global scale corporations. Here are a few tips that can ensure your startup conversations focus on substance without getting hung up on style.
The Startup Mindset
Before going much further, it’s important to understand the overall mindset of an early-stage startup. At this stage of growth, funding (and therefore staffing) is quite limited, and the to-do list of the founding team is large and overwhelming. A conversation with a global corporate is likely to be viewed as a two-edged sword – corporate involvement can be used to demonstrate traction to investors – on the other hand, it can also prove to become a source of great distraction, since it is highly likely that the corporate is interested in pursuing an opportunity that is not a complete match with the product currently being built.
The key to a successful conversation is to convince the startups that the benefits of collaboration (early traction) far exceed the costs (distraction with corporate process).
This brings us to our first rule:
Keep It Light
In initial conversations, it is important to keep the corporate overhead to a minimum. Startups are used to executing mutual NDAs, so that should not be a problem as long as the language and provisions are standard. But that should be the extent of the overhead! Be prepared to shelter your startup from contacts with Purchasing, Legal, and especially any Six-Sigma or ISO 9000 “blackbelts”, who are all too eager to smother & kill your startups with corporate process and procedure from the get-go.
The first focus should not be on forms, but a quick project. Pay for delivery of a prototype. Push all concerns about IP ownership until later. Your first priority is to signal to the startup that you mean business, and for you to test-engage with the startup to see if they are even worth all those contract negotiations that you will get into later.
Don’t Try to Impress
Do you think the startup you are talking to is impressed by your company? In most cases, they aren’t. As I have covered in my inaugural blog post on arrogance, successful startup entrepreneurs develop a mental model that re-imagines the status quo and establishes a blind faith in the future success of their particular idea. As a successful global corporate, you represent the status quo and are thus, at best, irrelevant to their vision of the future, and at worst, an obstacle to their success.
Are you impressed by the startup? In your initial conversation, you will probably come up with at least ten reasons why the startup will fail within the next twelve months – and you will likely be surprised with the actual outcome. Great conversations with startup entrepreneurs develop when they sense that you believe in their product, vision, and mission. It’s best to suppress your judgement until later in the process, when you are working together to scale to global production.
Emphasize What You Bring to the Table
Once you’ve convinced the entrepreneurs that you “get it”, you can start talking about what you bring to the table. The biggest challenge for an early stage startup is market access. A good conversation topic at this stage would be to provide an overview of the customers you already serve.
Another key challenge for a startup is imagining how to build a global product at industrial scale. Now that you have built some trust in your initial conversation, you can point out some flaws in the operational plan and how your corporate resources can help.
Be Nimble
Startups operate on a different time continuum. Time frames are extremely compressed – when working inside a startup, it’s common to feel like a month has passed in the actual time frame of a short week. If your typical decision making process requires weeks of internal collaboration before a response can be formulated – it’s best that you let the startup know beforehand – otherwise, they have likely forgotten about you by the time you get back to them on their engagement proposal.
Better yet, of course, is pre-baking your decision making parameters so you are empowered to make your own deals (within limits) and thus can get back to the startup sooner rather than later!
Filter for Success
Lastly, as you begin to engage with the startup and get a few pilot projects under your belt, you’ll gain valuable inside information on its chances for achieving its vision. Does working together prove to be painful, because the cultural or expectation gap is too wide to cross? It might be best to filter out those companies from your engagement plans. On the other hand, you might find a company where the learning is mutually beneficial and the cultures, while different, prove to be co-operative. You are now perfectly positioned to negotiate a strategic investment or even an acquisition!
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