Collaborations between startups and big companies: a proposed typology

In a recent post, we have underlined the reasons why big companies are so interested in developing ties with startups. The question that arises is what type of ties are built, and in fact, what can be

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3 major issues concerning the project of the startup impact its needs and thus determine the way collaborations between startups and big companies are set up.

Issue n°1: What is the maturity stage of the project?

In broad outline, the project of a startup goes through 4 major maturity stages:

  • Concept: The value proposal is not yet clearly established and validated by the market. The company does not necessarily have a functioning prototype because the research effort can still be important. At most, in certain activities which allow it, a MVP (Minimum Viable Product) is available. At this stage, such a project is very unlikely to meet any market.
  • Incubation: The startup has defined its value proposal and owns an operational prototype. It seeks to validate its concept at all levels: market structure, technical feasibility, « manufacturability », legal, business model etc. Primarily, the start-up must validate a concept on its market.
  • Industrialization: The startup has already had positive signals from the market and experienced a « pull effect ». It now needs to scale up for successful development. It is finalizing the development of its product / service. Operation means or partnerships are set up so as to offer the same quality of production or service to larger sales volumes. This phase is often the most critical for resources and funding.
  • Market: This is the last step of the startup development cycle. It seeks to accelerate its development by developing a range on its offer and by developing its distribution channels, which usually also means an international diversification effort.

It is clear that depending on the maturity stage of the startup, the way big businesses consider it and the type of potential collaboration will be different, at least because of the underlying risk and the level of support to be granted.

Issue n°2: What is the capitalistic intensity of the project?

The answer determines the extent and the kind of resources to be allocated by the big company to the project. Basically, we distinguish 2 cases:

  • Product industries: an innovation can necessitate huge industrial developments and/or investments. Clarifying some incertainties may require physical means, infrastructures, test benches, research competences, and an industrialisation effort. Big companies have a crucial and demanding role.
  • Service industries: innovation is most usually based on already-industrial or digital technologies, with a lower capitalistic intensity. Clarifying incertainties relies more on the opportunity to establish contact with potential customers and invest in promotion actions.

Issue n°3: How close is the project to the core business of the big company?

The positioning of the startup with regard to the core business of the big company is also a major element. There are 2 opposite cases, with all the range of intermediary situations:

  • The project of the startup does not question directly the business model of the big company.The value proposal of the startup can easily be integrated into the offer portfolio and give more value on the market. In that case, the cohabitation is never conflictual. The startup is considered as a potential provider or sub-contractor. The main difficulty for the big company consists in managing the relationship with its Purchasing Department so that the statup is accepted as a provider. The group will have to help the startup to industrialise its production to reach necessary quality standards. In addition, the big company will have to be careful not to strip the startup of what makes its difference on the market: a highly risky situation if such a difference is easily copied and not enough protected.
  • The project of the startup upsets the current value proposal of the big company.We may expect a cultural clash whose outcome is a transformation of the big company. For the big company, the purpose is not to integrate the product of the startup into the current offer, but to change its own offer and business model. In the most extreme case, there is only one conclusion: buying the startup in order to nip it in the bud or take control of it for its own benefit. In other cases, building a close partnership, often with acquiring a majority stake.

By mixing these 3 criteria, one can imagine a large diversity of situations. Nevertheless, we can propose a synthesis with 5 types of collaborations.

  • Type 1 « R&D »: The startup still needs a very significant R&D effort. The collaboration relies on technical means, infrastructures, expertise, bench … that can offer a big company.
  • Type 2 « BM »: The business model of the startup is not stabilized yet. To do so, the big company provides an experimental field to establish contacts with potential markets and validate its value proposal. The collaboration is based on providing a real-scale market test environment, anchor accounts in B2B …
  • Type 3 « Provider »: The startup is more mature, its business model is validated and it is a potential provider of the big company with an innovation that may make a difference on the market. A collaboration may develop according to how a big company will let a startup become a key partner by financing the industrialisation efforts.
  • Type 4 « Core Biz »: The business model of the startup is validated and challenges seriously the business model of the big company. To collaborate, the big company must be able to transform itself internally in order to provide an (exclusive) business platform encompassing promotion, production and distribution for the project of the startup.
  • Type 5 « Scale up »: This type is close to the provider one, but for a less mature market, requiring more promotion efforts. As an « early adopter », the big company is a launching ramp. The collaboration will rely on marketing synergies and internationalisation.

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