Your Corporation Wants to Work with Startups? Buy Their Stuff

Corporates that want to work with startups could do worse than start by buying some of their product – and paying immediately upon receipt of the invoice.

A couple of years ago in the City of London, I walked into a medical technology innovation event hosted by a friend and got an offer I couldn’t refuse.

“Great to see you, Nick”, he said, “I need a favor. Someone just cancelled on a panel we’re hosting tonight and it’d be grand if you could stand in for them.”

“Of course”, I replied, “what’s the panel about and when does it start?”

“Startups and corporates, innovation, that sort of thing. We’re on in five.”

Say anything you want, as long as it’s interesting

It’s important to know your role on a panel. There was a government innovation expert and two senior pharma industry people. I was the only panelist in jeans and a scarf, so I was clearly there to be the startup guy. My role was clear: make things lively.

Sing for your supper

As the mike slowly worked its way towards me, my three colleagues all shared variations on how innovation was vital and they were working jolly hard at it. I was the wild card,  so when I got the mike, I asked the big pharma guys the obvious question. “What do you actually buy from startups?”

Show me the money goes both ways

There were cheers and applause from the startup people in the crowd. It was an after work event and startups love a free bar, so I had a vocal base of support. To their credit, the pharma guys were game. The conversation turned away from the all-too-frequent discussion of what startups need to do in order to be attractive to corporates. It became a more equal talk about what both sides need to bring to a relationship.

Sometimes being rude isn’t rude

There were claps on the back from a couple of folks after the event and talk of speaking truth to power, but the fact of the matter was much more straightforward. You can’t bridge the gap in understanding between corporate innovation and startups without helping both sides see the other’s perspective. The big pharma guys needed to hear my question.

Pro tip: Pay their invoice upon receipt

There’s a varsity-level follow up to the “have you bought anything” question, which is “under which payment terms?” If you’re a corporate and you want startups to love you, pay them upon receipt of the invoice.

But that’s not how we do it normally

Yes, that’s not how your firm pays bills normally, but your usual terms are asking a cash-strapped startup to wait three months or even longer for payment. What seems like a detail to you can cause serious cashflow problems at a startup. Be a hero. Do the right thing. Pay them when you get the bill.

Mind Blown

The power of perspective, an overlooked basic process tool

A couple of months back, I did a workshop for a group of senior engineers in Western Denmark who build big projects in the North Sea. The North Sea is rough, so the things they build are tough, but now their job is mutating in a way seen by countless others. Their customers want digital services to go with the steel and concrete. My engineers needed help.

I showed up from the big city with my scarf and my sneakers and I did my magic. Engineers and I generally get along well and we had a good afternoon. As we wrapped up, we did a round of lessons learned and their main take-away brought a smile to my lips. The big revelation for them was the need to look at their product from their customers’ point of view.

Your obvious is not everyone’s obvious

Startup people tend to shake their heads at stories like this, but the engineers’ lack of awareness is much closer to the norm than the opposite. Customer focus is a hard thing to create across an organization. We hire specialists for specialized tasks, but we rarely give them KPIs that ask them to judge their work by the customer’s standards.

It’s easy to imagine that rust prevention is a major issue in the North Sea. It’s just as easy to imagine an engineer over-engineering 100 years of rust prevention into something only meant to last for ten. Managing the expectations of both the customer and the product development team can be a challenge.

Make that challenge your product differentiator

An ounce of prevention can fix a lot of things. We can all look at our products from the customer’s point of view. From designers to developers to sales to HR, the whole team can contribute to a product’s development by looking from the outside in. This is a tool for everyone – and it ain’t complicated.

Look at your work the way the customer would

Have your whole team to look at your product from your customer’s point of view. Your experts can play the customers’ experts as well, so follow the first question with a second: “If you did what you do for our customer, how would look at our product?” The more complex something becomes, the greater the risk that we lose sight of the details. Your experts can help catch those missed details.

Don’t miss the obvious, just because you can’t see it

In college, a friend of mine edited the school newspaper, which came out twice a week. One night, something about a big photo on the sports page of two football players leaping for a header didn’t look right. Everyone seemed to notice it, but no one could put a finger on it.

It remained a mystery until someone’s girlfriend came by with pizza. She asked why there was a picture on the sports page of a guy with his penis hanging out of his shorts. The photo was edited promptly. She had looked at the newspaper as a reader, not a journalist.

Fear and Shame Kills Corporate Innovation

How well do your people deal with failure?

Most corporate innovators I meet happily point to the Apples and Ubers of the world when they talk innovation. They don’t mean the Apple that launched the Newton or the Uber that treated female engineering staff scandalously.

To talk of success without discussing failure misses a vital ingredient in creating innovation. It almost guarantees they will fail in their attempt to innovate. How do you treat failure? I’ve met it and I know. Do you? Do your people?

Luck can be fickle

We don’t like to admit how much we owe to luck. It’s uncomfortable to think that we might be where we are because of who our parents knew or that we were at the right spot at the right time. Fortune isn’t always random, but sometimes it is.

We embrace failure for a reason

Some see our embrace of failure in startups as arrogance, but this completely misunderstands the case. We understand failure is unavoidable. No amount of analysis can predict the future perfectly. We believe that experimentation is necessary to prove or disprove a business hypothesis. We think real arrogance is believing that proper attention to detail can separate good prediction from bad.

Look to Fuckup Nights

One of my all time favorite event series is “Fuckup Nights”, where startup people retell some of their biggest failures. I’ve spoken at the Copenhagen event twice. Last time it was within an hour of admitting my latest project wouldn’t make it. We do it in part to share the lessons learned, but just as importantly to take the sting out of failure, so we can use the failure to build what we do next.

Startups learn with childlike fearlesness

I have a theory that little kids are great at learning because they’re rubbish at everything. They consequently don’t stress perfection. My four-year is more interested in playing with his monolingual English-speaking cousins than in correctly conjugating their verbs. His mission is to play with them and at this he succeeds wildly. My eight-year old can be a shy English-speaker, but with her cousins, she’s more eager to play than she is shy, so she chatters away.

Guess who the self-conscious teenagers are?

Startups are fearless little kids and corporates are cautious teenagers. When young kids learn to speak a second language, their grammar is just as imperfect in the new language as it is in their mother tongue. Teenagers are self-conscious in all things and struggle with foreign languages, especially because their peers laugh at their mistakes.

Mistakes get you fired

A teenager’s fear of ridicule is real, because the pain of social exclusion is acute. The cost of a mistake in a corporate is just as real. You don’t get hired to make mistakes. You get fired for making mistakes. Couple this with the fact that most corporates hire very selectively, and the fact is that very few corporate employees have ever made a mistake.

If you want your corporate warriors to think innovation, teach them to manage the shame and embarrassment that comes with making mistakes. Teach them how to fail.

Show Them The Money

It pays to know more than one language: Speak numbers.

I hosted a case competition called the CBS Finance Competition a while back at Copenhagen Business School and it was an eye-opener. The case was the Danish manufacturer Danfoss and the focus was their acquisition of startups. Two things stuck out: it was a boys club and it was all about the numbers.

It’s a pickle party

Do not confuse the society we want with the society we have. All twelve of the participants in the competition were white men in dark suits. There were only two women in the first two rows of the auditorium. Both worked in HR. All of the men wore dark suits, except for the professor, who wore a blue blazer, and a member of the Danfoss merger team, whose suit was gray.

Plan for today. Change tomorrow.

By all means be depressed by the current gender-gap and work to change it, but plan based on fact, not aspiration. Danfoss is an impressive company and they’re socially engaged, but facts are facts. If you’re looking for a corporate acquirer, know that the odds are overwhelming that you’ll be talking to a white man who studied finance. The ratio will change in the future, but plan for the ratio that exists now.

Your focus isn’t their focus – and this makes sense

Startups often focus on team and product. Most corporate investors focus on the numbers. They are buying for very specific reasons and usually have very specific KPIs. They may be how many customers you have or the size of the markets to which your product will give them access.

Like the jury in the competition, you’ll most likely be talking to finance people. Their degrees, surprise, surprise, are usually in finance. The exceptions work in an environment dominated by finance. To them, your product is not something that does A for B, but something that can generate X revenue over Y time. Know how to talk their language.

It’s all about the Benjamins

I ran into an old friend shortly afterwards who used to run an accelerator. After a year off spent working for a corporate, he had spent a couple of months helping a handful of his companies raise money. It had gone well. Why? He’d spent a year working on the other side of the table from the startups.

“You can talk about team and product,” he said, “but it’s all about the money.”

 

Penetrating The Corporate Immune System

Startup mentors can be great executive educators

I was on a mentor panel at a big event once with a corporate executive who was really organized. Unlike the rest of us, he’d actually read the startup profiles. He had a tidy list of questions. The questions were mostly common to all and were along the lines of ‘Do you have a patent?’ and ‘What are your profit margins?’

He quickly caught on that many of his questions weren’t relevant in the given context and that he was applying big company, established product KPIs to products and services that were only just being developed. As the day progressed, he discretely put a line through one question after the next. He probably learned more than any of us that day.

What matters and what does not

We didn’t care about patents. (One question crossed out). We talked to customers before we had a finished product. (Another question crossed out). We didn’t worry if all the bugs were fixed before showing a product to customers. (Another question crossed out). We didn’t put much weight on projections that went past two years. (Another…).

Learning effect

The panel was a great example of the power of peer teaching. Our corporate panelist was obviously competent. His insights on how big businesses work were concise and crystal clear. At the same time, his shrinking list of stock questions was clear proof that he was learning plenty about startups and innovation from us.

Having trouble embracing failure?

CEOs who want their managers to use failure productively first need to help them learn when and how to accept failure. A day on a panel of peers who accept that some failures are inevitable, and even laugh as they tell stories about their own failures, can do more to change perceptions than a lifetime subscription to the Harvard Business Review.

Even experienced managers hate mistakes

They usually focus on efficiently doing something they already know how to do. They’re used to incrementally improving performance. Step change improvements require bold experiments whose outcomes cannot be known with certitude beforehand. Mistakes are common in rapidly iterating startups because they focus learning by experimentation.

Like scientists, startups do experiments to create the data they need to find the answers they need. A negative result is just as important as a positive result. Mistakes that teach you something are valuable. Alexander Fleming’s failure to keep a tidy laboratory gave us penicillin. In most firms, he would have been fired.

This makes perfect sense

You can read about the benefits of learning from mistakes, but a career in a climate that punishes mistakes makes it hard to accept them in practice. Companies that want to change their view of failure need to help their leaders’ change their view of failure. We can’t expect people to learn this on their own.

Mentoring can take the edge off learning hard lessons

Entrepreneurs, investors, and startup mentors appeal to corporate types for a number of reasons: the dynamism, the perceived freedom of action, the innovation, and the hoodies. It’s also a world where, for once, they’re not expected to have all of the answers. They can lower their guard and be open to suggestion.

Like a lot of corporate people new to startups, he wasn’t used to being in a stuation where he didn’t have all the answers. Unlike some, however, it didn’t take him long to see what he had to offer startups and how to present it. Our panel’s corporate guy was a quick learner – and it turned out he also had a lot to teach the rest of us mentors.