Companies are changing the way they develop new technologies, products and services in response to growing competition, shortening product lifecycles and increased product complexity. A more open model of innovation has developed as companies realise they can no longer rely solely on their own R&D and need to acquire ideas from others.
To this end, small technology start-ups frequently form partnerships with much larger, established firms. These partnerships offer many potential benefits to both sides, but research has shown that they can be highly problematic. So why do problems arise, and how can they be avoided?
One potential pitfall lies in the frequent misconceptions start-ups have about their role in a partnership. They see themselves providing a technology that a large company can incorporate into its product. Their larger partner, however, may expect a finished system that’s ready for the market. Many start-ups do not appreciate the time and cost involved in moving from a technology demonstrator to fully supported product.
Other possible areas of difficulty include the larger company’s need to carry out checks on the start-up’s financial stability. Young firms are frequently run by individuals who are impatient for progress and may be unwilling to submit to the schedules and disciplines that larger firms require.
In addition, small companies can find it very difficult to identify a clear point of contact in a large company. Sometimes, even the big firm’s own staff are unable to help a start-up get in touch with the right people.
Alternatively, contacts may change. A start-up may begin by talking to its larger partner’s technologists, with whom they have a lot in common. Later, they will have to deal with procurement and legal teams who might treat them quite differently.
Compared to start-ups, large organisations are frequently slow at taking decisions. They may fail to realise the problems this can cause their smaller partner. They may also place quite unrealistic demands on the start-up, failing to understand the limited resources it has at its disposal.
How can these pitfalls be avoided and partnerships made to work? Research suggests there are ways to avoid some of these difficulties and achieve more successful partnerships.
First, it helps negotiations if both the start-up and the large firm prepare ‘roadmaps’ that clarify their respective positions. The start-up’s roadmap should highlight the various opportunities for its technology and the resources needed for implementation. The large firm’s roadmap should indicate its technology capabilities and needs (including an assessment of the level of criticality) and identify different opportunity areas.
As for the technology itself, the start-up needs to make a realistic assessment of the technology’s readiness and identify the requirements and costs of bringing it to manufacture. The bigger partner should carry out a similar assessment, and show what extra resources are needed to bring the technology to market. The commercial viability of the start-up also needs monitoring.
Start-ups will find it useful to check whether the large company has ever worked with a small firm before. If the smaller firm lacks experience of large companies, it should seek advice from non-executive directors, mentors or investors who have worked with large firms. Talking to the larger company’s suppliers can help to develop a sense of its working methods.
Meanwhile, the large firm should spend as much time as possible helping the start-up to understand its requirements, internal processes and culture. Some large firms use a nominated team or individual to act as the first point of contact.
When the time arrives to set up the deal, the start-up needs to have a clear idea of what is expected from both sides and how things may change over time. Legal advice should be sought from the outset.
The large company should be as open as possible with its smaller partner about any concerns. Working with the partner on a small-scale, cash-generating project can help give both sides a feel for how the other operates.
When the deal is finally done, the project will need ongoing management. The start-up needs to keep in regular contact with its larger partner, not wait until a problem arises. Documenting all interactions should be standard practice in case of later disagreements, and regular reviews of the partnership will ensure the relationship continues on the best footing.
Communication could be encouraged, for example, by inviting the start-up to attend the large company’s internal conferences and by identifying impending milestones and their relative importance. If under-performance is noted, the start-up should be informed as soon as possible and helped to address the problem.
Dr Tim Minshall is a lecturer in technology management at Cambridge University.
This is an edited version of an article written for the Institute for Manufacturing’s IfM briefing.