Since GAN’s inception, the community’s mission has been to give startups the power to create and grow their businesses and make a positive impact wherever they call home. Why? Because we believe startups are the job creators, culture-makers, and innovation engines our cities and industries need. Yet, startups can never and will never operate in a vacuum. They need mentors, accelerators, investors, healthy founders, and safe places to work.
Revenue is an area that startups seem to focus on the least and yet, it’s the missing puzzle piece that they need the most. Revenue is the engine to startups’ growth. It allows them to generate the momentum needed for that next investment and enables startups to stay in business if the next investment never comes through.
Because of that, GAN has taken a leap to build bridges between startups and revenue sources. Corporate innovation teams and service provider companies offer startups a unique and essential opportunity to generate revenue, and GAN and GSSN are continually focused on building pathways for startups and larger corporations to work well together. But doing so takes energy, wisdom, patience, and a strategic game plan from both the corporate and startup— from day one.
The GAN team has spent time over the past few months digging into some of the most relevant research on the topic of how startups can do business with corporations, summarized in a freshly minted white paper.
First, what’s inherently great about startups?
Of course, there are a lot of great things about startups (see above!). But, the main one that comes to mind is speed. It’s the essence of startups – and the main difference between a startup and a corporate (think large, Fortune 500 companies). There’s a certain speed to startups that may never exist with a corporate. The reason? Startups have an inherent issue—they only have a finite amount of capital (or runway) to reach certain goals. If they don’t reach their goals quickly, the startup is no longer in business!
What every corporation struggles with.
You may see where we’re going here. The main thing we see corporates struggle with is speed. We’re in a season where things aren’t slowing down. For instance, see the chart below.
Check out the communication industry above, for example. Every major innovation in communications, from the invention of the printing press to the rise of social media, has contributed to making it faster and more efficient. The same applies to the transportation, entertainment, and food industries where the focus over the past few decades has been on maximizing speed, not size. It should be every innovator’s (i.e., corporate and startups) goal not to just grow their enterprise in its current form and in existing markets, but to push for advancement and growth in adaptability, novelty, and speed.
Said another way, corporates (and startups) need speed.
Where is the disconnect, specifically for corporates?
Business and product cycles are accelerating at dizzying rates, forcing corporates to become more agile, bold, creative, and decisive than ever before. If small startups move fast, why can’t their larger corporate counterparts move faster? The answer lies in the size of the impending “crash.” Among other reasons you’ll see in the white paper- enterprises feel the need to protect themselves, where startups feel the need to grow. And it’s that unchecked risk and bad decision making at the corporate level that can result in catastrophic consequences for the corporate. But the irony is the corporate who can’t move fast enough will be left behind and rendered irrelevant — the greatest risk of all.
We’re seeing (successful) corporates take on rapid, low-cost learning via startup engagement.
Corporates who follow a more traditional approach with the classic schema of large-scale research and development, grand product launches, and a focus on wielding size as their greatest strength usually end up not reaching the type of innovation goals they set out to have in the first place.
Corporate innovators who instead focus their investments on startups seem to be prioritizing speed-to-scale. Those corporates are able to innovate inexpensively and efficiently and adapt to a changing market. More specifically, we’re seeing this idea of rapid, low-cost learning, or RLCL, enabling corporate innovators to learn as much as possible, as fast as possible, and at the lowest cost possible, through working with startups. Through RLCL innovators can discover new markets and create novel solutions to unsolved problems.
The distinction here is that the corporates who use RLCL are the ones who we see achieving a successful product-market fit—enabling them to then successfully reach their innovation goals.
What every startup can offer a corporate (and vice versa) to ensure rapid, low-cost learning.
In order for the corporate/startup relationship to work, it’s vitally important that both sides understand what they’re able to offer the other. This is why the GAN team spent a lot of time digging into what corporations can do for startups and vice versa. Here are some of the high-level findings:
There are six main areas a startup can support a corporation, as shown below:
- Focus: Startup founders focus limited time, capital, and in some cases, the trajectory of their careers, on one particular product or project, unlike the sometimes fragmented focus of a corporation. The startup’s ability to focus on a single problem and address a single market makes them capable of avoiding the high costs of splintered attention and work sessions.
- Customer Intimacy: Early startup growth is typically fueled by working in close proximity to customers and gaining a deep understanding of their pains. As startups build solutions for their customers, they also develop genuine and authentic relationships. Customer intimacy naturally enables faster growth and can be harder for large corporates to replicate.
- Rapid Learning: Customer intimacy gives way to rapid learning as it affords startups the ability to build experiments, test assumptions, and gather timely, relevant feedback. This is critical because businesses must ensure they are not only moving quickly, but also headed in the right direction.
- Culture: Just as certain types of flowers attract bees, environments that allow employees to test ideas and quickly execute decisions attract certain types of employees. Earlier-stage companies attract more risk-seeking personalities that are energized by learning, and personalities that crave more certainty and stability gravitate toward established corporations. This makes for very different workplace norms.
- Decision Making: New insights must be acted upon if they are to create results, and startups are able to shed the formal, multilayered, and centralized decision-making processes that large corporations often employ.
- Agility: When all of these components are working together, there is a combined effect that emboldens startup teams to learn quickly, test inexpensively, and discover the right path to scaling products and solutions inside of previously unexplored markets.
And, three things that corporations can offer startups:
- Access to Capital: Startup founders spend a significant amount of time working to raise capital and keep cash flowing, where corporations focused on innovation typically have already allocated significant funding for new opportunities.
- Connections: The ability to quickly connect with like-minded contacts at scale, whether they be industry leaders who can share advice and experience, partners that can provide complementary products, or a base of engaged and paying customers, can make all the difference when working to get a new product to liftoff.
- Industry Diversity: The enterprise can often repurpose and cross apply interesting technologies to diversify revenues from different verticals. Examples of this include Tesla repurposing its battery technology for the home market through its Powerwall product, and LinkedIn using its platform to move from advertising into the recruiting market, which now generates most of its revenue.