Indian Startup ecosystem has evolved over the last decade with emergence of over 40.Unicorns making their mark over the Global map. The momentum has picked pace and it is expected that another 15-20 Unicorns will be added to the elite list by the end of March 2022.
These startups and many more have challenged the dominance of established corporates and made them take note of pace of innovation and disruption, which, if not acted in time, can potentially cause irreparable damage to the Corporates
As aptly put by Jack Welch, former CEO of GE, “if the rate of change on the outside exceeds the rate of change on the inside, the end is near.” Not to be left out, corporate sector has started showing keen interest in the startup sector. They have been organizing and aligning specific initiatives to take advantage of the vast potential of working with promising startups.
Most commonly seen structure of engagement is Corporate Accelerator; which bring together the established corporates and agile startups under one umbrella.
A corporate accelerator is sponsored by an established for-profit corporation with an
objective to support early-stage start-up companies through mentorship and often capital and other non financial resources. In recent times, corporates from various industries such as Reliance, Mahindra, Tata Group, L&T, Microsoft, Amazon, Intel have launched different initiatives and structures to work closely with start-ups. The association can be either to work closely on seeding and scaling an idea or product and/or to establish funnel for strategic investments. These initiatives spur innovation, helping corporations innovate and evolve to stay competitive in a rapidly changing market.
Why there is sudden increase in Interest?
As is well documented by research professionals, as companies become larger and more
bureaucratic, innovation is stifled due to excessive red tapism. This is because in larger
organizations there are several layers of decision making, which is incongruous with a start- ups way of functioning. Start-ups revel in a flat organization structure and critically they require freedom in decision making and rapid execution that flat-footed large organizations cannot put into action. But at the same time large firms are astute enough to realize that they cannot afford to miss the action and dynamism intrinsic to the start-up sector. Thus, to get the best of both worlds, leading corporates have ventured into the start-up domain.
From the perspective of a start-up while it may have a great idea it will typically lack strong financial management skills, adept human resource faculties and a brand that signals
consistency of experience. Established corporates has all these attributes and they can offer these benefits to the start-up on a platter, thus bringing to the table a significant value proposition.
From a strategic viewpoint it makes eminent sense to enter a new line of business via a start- up. If the idea for instance does work out, then the corporate can simply enter the new business line via the start-up. The start-up would have undertaken all the research and effort and the corporate can simply piggyback on the start-up’s success, thus resulting in productive usage of pecuniary and human resources.
Even for tech companies such as Intel, Microsoft and Cisco it makes natural sense to enter
the domain as many techies who work for such firms normally leave and start their own
firms. Since, these companies want to continue to be involved in the work of these exited
employees they invest in the start-up started by their former employees. In this manner, the relationship is preserved bringing mutual benefits.
From a temporal perspective, the Indian start-up scene has witnessed much activity in recent times and the corporates due to the aforesaid reasons want to cash in on the rewards, thus acting as a catalyst for their entry into the sector. Hence, the marriage between corporates and start-ups if cordial and stable can bring advantages to both parties, thus resulting in tangible benefits.
Is the Grass really green?
Despite all these developments, there are disadvantages to this strategic alliance between
start-ups and corporates. There is very likely to be a culture clash between start-ups and
corporates as the former are likely to be more entrepreneurial and nimble while the latter may be more Return on Investment (RoI) focussed. This will result in a clash as the start-up’s founders may not be happy at this excessive focus on RoI as they may be more concerned with other parameters such as augmenting customer satisfaction.
It is very important for the startups to understand the purpose behind the corporate
association; some corporates are looking for start-ups that they can buy out, on board as
suppliers, or use their platform to promote their services. At times, the corporate is too
focussed on the start-up to solve the problem of sponsoring corporate which might make the whole purpose too myopic. In essence, each of these purpose will call for different level of expertise and maturity of start-ups and hence the likely success of the association.
Additionally, start-ups are usually led by youngsters lacking business maturity while
corporates usually put a premium on leaders with considerable years of experience. This may result in a generational clash between the start-ups and the corporate, thus resulting in a weakening of ties. As in case of any association, there are advantages and disadvantages for both sides however on a broader level corporate accelerators do provide the much needed platform and resources to early-stage entrepreneurs prepare for the dynamic market conditions, help them test assumptions and prototypes, and provide structure and process to become self-sufficient.