This book reports on a 15-year research effort to explore how large corporations might effectively partner with much smaller startups, so as to be able to tap into the originality and innovation drive that such startups may have thereby ensured, continuing innovation also in the large, established firm. The book addresses this critical issue from the vantage point of the large established firm. A corporation that has received the bulk of the researcher’s attention is Microsoft, but many other large firms have also been examined including Unilever, IBI, Bosch and BMW (see a list of the firms examined, in terms of date, location and companies studied on pp 280 – 282; 47 entries). A main conclusion is that this type of cooperative venture can work, but it is typically difficult, demanding, calling for long-term thinking and patience.
The author, Professor Shameen Prasantham, works at the Shanghai business school CEIBS, where he is also Associate Dean for the MBA program. He is a British national and received his doctorate at Strathclyde University, Glasgow, going on thereafter to teach at Glasgow University.
Paul Polman, the outgoing CEO of Unilever, states the research issue that the book addresses very: “It is imperative for large organizations to partner with more nimble startups, to help create a better world”. Let us now delve into how this book prescribes how this might effectively be done. In the book’s introduction, a compelling case-study of Microsoft is described. Three phases are identified: First, getting startup partnership off the ground. The next phase calls for an extension of this engagement, by selecting various one to one partnering relationships to engage in. In the third and final phase, key lessons from the startups are to be adopted as part of the case strategy of the established firm. A major element here is to focus on how core ideas from a startup might be scaled up, now as part of the bigger firm’s domain. The author calls this “scaleators”.
The rest of the book then falls into three parts. The first considers why, i.e., why entrepreneurship matters to large corporations and why partnering with startups is typically not easy. Considering the first of these issues, the author highlights the different mindsets of managers, usually found in large firms, versus entrepreneurs, typically driving innovative startups. The main point, according to the author, is to launch on a process, which often takes quite some time, which “merges” the best of each of these two groups, so that more of an entrepreneurial behavior might now be instilled among the managers of well-established, larger firms, while startup entrepreneurs come to acknowledge the importance of scalability. Critical factors that might bring such an amalgamation along might include the fear of disruption when it comes to so-far established business models of the larger firm, as well as growing sense of “win-win” for all parties.
So why is this process so difficult, despite the compelling arguments just given? The author identifies a so called asymmetry between the two types of firms as critical here, and he discusses three types of these: goal asymmetry, as seen in the different planning in the two types; structure asymmetry, having to do with how the two types of firms are organized; and finally, attention asymmetry, which has to do with how a given strategy now to come out of a joint venture might be extended. Each of the three sources of asymmetry come about due to legitimacy issues (such as lack of confidence in the given startup), learning (incompatibilities here) and leads with in the wider ecosystem of the large firm, such as stringency of criteria.
In the second part of the book, two sets of questions are addressed relating to how— first how to partner more systematically with startups, and second, how to build relevant capabilities to make such partnering work. The first issue, to come up with a more systematic way of partnering, seems to represent a quite involved set of issues. The overall approach is to follow a sequence within the following six issues:
Clarifying synergy; The author distinguishes between so-called building block synergies (incorporating a feature from the startup to become part of the large company’s offering, to extend the “power” of what is now being offered. This might result in joint marketing) and point point synergies (the large firm “misses” a particular feature that a startup might be able to offer and buys this from the startup).
Forming a partnership.
Creating so-called interfaces, i.e., areas where the two entities shall specifically interact. There may be so-called cohort-based interfaces, where a startup might work with a number of managers cum interfaces at the level of the larger company, often involving mentoring and coming up with unforeseen innovation solutions. Funnel-based interfaces, on the other hand, would involve a much more specific focus, say, through a pilot project, often to “solve” a pain point. We thus might have fewer types of interfaces, as seen by the 2x2 matrix of cohort-funnel versus building block – pain points.
Given an evolution of the pattern of interface, the nature partnership itself may have to be “consolidated”.
Example of outcomes from a partnership would then, hopefully, come about.
This, in turn, might call for another revision of the partnership, at times, perhaps even a takeover of the startup by the established firm.
It may be important to deviate somewhat from the main focus of the book at this point and take the startups perspective instead. This might be seen as a shaping process evolving through the following three stages:
Forming
Consolidating
Extending
The “smoothness” of such an evolution has a lot to do with the more established company's ability (and willingness) to build capabilities to partner with the startups. Capability shall typically be related to the acknowledgement of the fact that there shall be several phases of this building process: initiation, expansion, and systemization. There are different foci: purpose, people and process. Again, we have a matrix, this time with 3x3 elements, i.e., nine distinct capability building elements for the established firm. When it comes to the initiation stage, the involvement of entrepreneurial manager seems particularly key: “can do” perspective! When it comes to the expansion stage, the key issue is to galvanize support. Internal champions and so-called opportunity generators are paramount and must be involved! The systemization phase has a lot to do with integration, for example with the planning process, keeping in mind the corporate culture.
The third part of the book deals with where, i.e., where to partner with startups around the world, and where to find societally good synergies through cooperation between startups and established firms. Regarding reaching a better understanding of the global reach issue, the author identifies three basic options:
Think global, act local. This is the most common way to think about the issue of venturing. To adapt the output of a venture to local circumstances is typically critical. Although the author does not seem to fully acknowledge my viewpoint that ventures with Indian or Chinese startups tend to fall into this category, my sense is that this is often the case.
Think local, act global. This is what we might find when startups located in what are typically highly innovative locations, such as, for example, Israel, come up with truly breakthrough innovations that clearly might have much broader applications. Israel's drip irrigation system is, for instance, a great of great interest to established players in the fertilizer area, such as Yara. The author indicates that this type of venture might be to tap market hotspots.
Think global, act global. This would be the case when combining the two above options. Even though the author cites several examples of what he claims to represent this, I do not necessarily follow his reasoning. For me these examples seem to fall into one of the first two categories.
Partnering with startups as a force for good is the next theme covered in the book. Clearly there is an element of “polyannaism” in this chapter. The basic messages are however important and highly relevant. Keys here are societal development goals (SDGs), Societal Synergy and Inclusive Interfaces. The author also discusses so-called hybrids, as well as what are termed SDG cool coalitions (the African cocoa growers association with its links to major chocolate producers, for instance).
There is also a 24-page epilogue. Here the author discusses SDGs in the light of global crises, including the COVID pandemic. He rightfully points out that there are ample needs for cooperation, say, when it comes to manufacturing and distribution of COVID vaccinations for most of the developing world. The author rightfully claims that that these complementary mindsets are called for – an entrepreneurial, a collaborative and a global mindset, all three interacting with an individual actor in the middle. To harness all of this is, of course, crucial.
There is no doubt that this is an important book. It is very well researched and conceptually strong. As J. Woetzel, head of McKinsey’s Global Institute says, “Shameen’s insightful work on partnering between established corporations and startups, breaks new ground in identifying the why and how of effective alliance building”. Growth is more important today than ever for established corporations. The stock price hinges on this, and so does cost of capital. And the key to putting up a strong defense against unfriendly takeovers is growth. But growth no longer comes easily. Innovations, to fuel growth, seem to be harder and harder to pull off. To look towards the sector of innovative startups might however be a plausible way out of this lack of innovation and growth dilemma. The present book provides a lot of guidelines for this, thus in essence indicating how to revitalize large firms. I strongly recommend this book!
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