Are Corporates Trying to Solve the Wrong Problem When Partnering with Startups?

Meeting Theme

The May gathering of the Corporate Innovation Club’s members took a slightly different format from usual. Showing that the Club knows when it is not the time to innovate for innovation’s sake, the day was built around a more traditional presentation format. It just happened that the presentation was from entrepreneur, investor, and non-executive director Simon Devonshire OBE. Devonshire’s talk was friendly, enthusiastic, heartfelt and even modest in tone. But it asked an important question, and shared themes that dared the Club’s members to consider unlearning much of what they might have come to understand as conventional to Corporate innovation.

Devonshire’s opening question got straight to the point. ‘Are Corporates trying to solve the wrong problem when partnering with Startups?’. Devonshire’s talk was sometimes thought-provoking, sometimes entertaining, and without fail to inspire. Indeed, the presentation encouraged fascinating group conversation afterward, with the Club embracing Devonshire’s frank, open-minded and sometimes leftfield approach to considering innovation in a Corporate context.

As such, Devonshire offered a distinct lens through which to consider innovation as a practice, process, and principle.

About the Speaker

Simon Devonshire OBE, Entrepreneur. Investor. Non-Executive Director. Simon has an extensive corporate career and is also a serial entrepreneur. He previously ran O2 Business, the business division of the mobile-network and co-founded Wayra Europe, the business accelerator belonging to Telefonica. He served as Entrepreneur in Residence (EiR) for the UK Government for three and a half years, reporting to Dept BEIS. Simon co-founded One Water which has donated more than £20m to providing clean water in Africa. He also helped scale-up Zopa.com at seed-stage.

Key Takeaways

There has never been a better time to innovate

Setting some context for the wider discussion, Devonshire suggested that today innovation – and indeed modern life in general – is empowered by rapid increases in computer processing power, far-reaching connectivity and more means than ever before to share information. As such, the efforts and output of Corporate innovation have the potential to reach and impact global audiences. Innovation today can change things on a global scale. Platforms and services like Google, Facebook, Netflix, Amazon, and Instagram demonstrate how far innovation can go in the modern digital era. Equally, many such platforms have become tools that can amplify any effort that strives to connect with and impact people. Social media is both an innovation itself, and a tool for innovating.

Understanding the reality of digital ‘disruption’

‘Disruption’ is often heard as a term delivered with boundless enthusiasm. The idea of disrupting sectors and services through revolutionary innovations is understandably appealing. In such a context ‘disruption’ is ultimately understood to suggest improvement through bold new ideas. However, Devonshire noted that the notion of being disruptive may warrant a more nuanced understanding. It is true that in the era of the platform economy – where many of the world’s most high-profile companies offer digital services – have disrupted a great deal.

Netflix has disrupted the TV and film industry. Amazon has disrupted retail, logistics and consumption habits. Instagram has disrupted the way in which young people communicate and understand a sense of self. Google Maps has disrupted travel, mobility, and the ways in which we interact with cities.

But, Devonshire pointed out, disruption is also a process of seeding insecurity and anxiety; worry about jobs, falling behind, failing to adapt and more besides. Businesses can struggle to keep pace with disruption. Some twenty years after internet access became an everyday entity for the masses, today 49% of UK-based SMEs still do not have a website. Disruption can leave people behind, or vale real-world experience.

Disruption is all well and good, but focusing on it alone can leave one out of step with reality. Moving to embrace a digital future is something that should be encouraged, but those millions of UK SMEs without a website represent the reality of the market as it is; not as the disrupted space, we like to imagine it might be.

Life-changing innovation can seem ridiculous at first

Devonshire noted that in the broadest sense of innovation, meaningfully innovative developments can often seem ridiculous at first, and often attract ridicule. The electric toothbrush was derided early on but soon became fundamental to dental hygiene. The dishwasher was once laughed off as an unnecessary novelty. iPads attracted smirks at on launch. Even lightbulbs were greeted with fear, suspicion and the notion that they were a fad. The impact of electric light on modern living can, with hindsight, hardly be overstated. Today many of us still like to make throwaway jokes about supermarket self-service machines, at a time when some stores are doing away with checking out at all.

The takeaway, perhaps, is that you should not be put off if people deride your innovation efforts. Equally, don’t fear that an innovation you are undertaking may feel ‘too ridiculous’. Do not confuse or conflate the novel and novelty. Be confident in what you believe in.

Understanding ‘cognification’ as a powerful trend

Devonshire also highlighted the value of ‘cognification’ to innovators. Cognification is essentially a term to articulate and clarify an increasingly familiar – if relatively abstract – technology trend. Put simply, cognification refers to the act of making things smarter. This comes about through intelligent coupling of the Internet of Things (meaning internet-connected devices) and artificial intelligence. Essentially, even existing, established and traditional technological ecosystems can be granted the power of artificially intelligent learning and decision making through an internet connection.

Devonshire provided the example of Howz – of which he is a non-exec director – which lets consumers cognifiy electricity meters with a view to enabling the elderly to live independently. With the sensor connected to a meter, data on an elderly person’s energy use is sent to Howz, who – using advanced algorithms and analytical tools – can interpret that data into meaningful information that can be shared with those involved in caring for the person in question. Most importantly, they are shared as meaningful, practically-minded updates. As such, Howz is using the cognification of electricity metres to innovate the care sector, while helping older people be more independent from constant checks. Visits can instead be more about socialising; and less about monitoring the home.

It is Devonshire’s belief that cognifcation will create many jobs, and potentially impact the economy and our day to day lives more than the arrival of electricity as a useable force. It is essential, then, that anyone in Corporate innovation is aware of the cognification trend.

Necessity is empowering the potential of innovation

Innovative solutions, Devonshire proposed, are essential to face many of today’s most pressing challenges. In 100 years one billion combustion engines have come to be. As the threat of environmental collapse starts to feel like a more pressing need, innovation is required – and not just desired – to maintain the environment, mobility, transport, economy, the automotive sector and much more besides. The practice of innovation should feel empowered by the fact that it is increasingly a requirement not just for business growth, but potentially to maintain and manage life on Earth. Sometimes Corporate innovation is seen – from outside the discipline – as trivial and self-indulgent. That perception may be set to change a great deal. Corporate innovation may increasingly be and essential function beyond business.

Devonshire later posited the notion that today we live in ‘an era of accelerated extinction’. While that notion maybe less than encouraging at first, it means there are many problems that Corporate innovation can offer a solution too. Devonshire included examples such as obesity, smoking, overcrowded roads and unintended loneliness. The takeaway; choosing what you want to ‘eliminate’ can be a powerful lens to focus and guide the effort of innovation. It may also help guide your Corporation through pivots needed to embrace changing times

Are Corporates trying to solve the wrong problem? Framing the context.

Devonshire presented a relatively streamlined guide to the fundamentals of business growth and development, as a framework to consider the effort and aim of Corporate innovation.

• A business’ aims and objectives should not be confused with its strategy. Overall purpose and immediate priority are not the same things.
• Only two objectives should guide fast business growth. Becoming the most investable company on Earth, or becoming the most acquirable.
• For factors alone grow P&L: Selling more to existing customers; selling to new customers; keeping customers longer; cutting costs.

All that considered, innovation in a Corporate context is largely a means to grow sales (though in certain contexts it can, of course, cut costs).

What is the problem you are trying to solve through Corporate innovation? When is a Startup not the right partner?

Knowing the problem you are trying to solve is founding to the success of a given Corporate innovation initiative. Devonshire shared a list of the five problems – or even motivations – that he most commonly sees driving Corporate innovation and collaboration with Startups. Here they are listed, along with Devonshire’s suggested solutions and strategies:

Corporate problem: ‘We need new revenue’

Solution: The easiest path to new sources of revenue is from existing customers. However, new revenue from new customers is hard and expensive. Therefore, adjacency/synergy with existing product portfolio is key.

Strategy

• Unlock the asset that is the Corporate’s existing customer-franchise.
• Look for ventures that want to leverage fast-track access to your existing customers.
• Don’t be fixated about ‘white-labeling’.
• Know how you are going to cross-sell and up-sell. Do so fast. Have the routes to market worked out in advance.

Corporate problem: ‘We need incremental revenue’

Solution: Collaborate with businesses that are already generating substantial revenue. Look for ventures that have been trading for more than five years (i.e. not Startups). Look for adjacency/fit/synergy with the existing product portfolio – the easiest path to incremental revenue is via existing customers.

Strategy

• Avoid Startups.
• Look for established businesses.
• Look for ventures that are immediately relevant to your existing customers.
• Drive-up ARPU via cross-selling and up-sell.
• Have a highly efficient sales machine already operating.

Corporate problem: ‘We need to innovate’

Solution

• Know what you want to innovate: back-office systems or frontline customer propositions.
• Back-office innovation is today often about automation, robotics, AI and ML.
• Frontline customer propositions are inherently B2C; they are branded, and actively try to recruit consumers.

Strategy

• Find ventures that demonstrate authenticity.
• Recognise that working with B2B is entirely different from working with B2C.
• B2B solutions tend to exhibit at trade shows.
• B2C solutions are more vibrant on social media.
• Hang out where your targets hang out.

Corporate problem: ‘We want to be entrepreneurial’

Solution

• Entrepreneurs are activists – become one. Stop talking and start doing.
• Be demonstrably participant-in and supportive-of the entrepreneurial ecosystem.
• Unlock your Corporate checkbook.

Strategy

• Encourage your staff to create new ventures, and hang out with entrepreneurs.
• Entrepreneurialism is all about skills training – it can be taught and learned. Teach animal instincts too.
• Create an accelerator.
• Procure from small businesses.
• Invest in ventures.

Corporate problem: ‘We want to hang out with cool Startups’

Solution: Figure out why before embarking, and never waste a Startup’s time.

Strategy

• Don’t allude to procurement and/or investment if it has not been approved strategically.
• Actively encourage staff to Startup.
• Rent space in co-working offices.
• Be active on social media.
• Be authentically interested and engaged.
• Go to demo days.
• Collaborate with accelerators and innovation consultancies.
• Look to procure. Start the conversation with: ‘What can I buy from you?

Understand the different factors that can derail Startup partnerships

Devonshire pointed to three common factors that can mean a Corporate innovation partnership with a Startup can fail. They are misalignment and lack of buy-in within the Corporate; insufficient authority and/or lack of approval; Corporate bureaucracy. On a related note, Devonshire highlighted the factors that can cause a Corporate innovation effort to stall. They can become ‘stuck’ thanks to fear, over expectation of early revenue generation, conflict with the legacy business, the lack of precedent or convention, or even simply a lack of intuitive thinking.

Don’t Collaborate? Bucking the Corporate innovation trend

Perhaps capturing the very spirit of innovation, Devonshire, and with all the previous point considered, Devonshire put forward an idea that arguably ran contrary to many conversations at previous gatherings of the Corporate Innovation Club. He suggested that Corporate innovators should not partner or collaborate, but instead consider investing in scaleable ventures and procuring from them.
Innovation doesn’t always mean technology

Devonshire offered a number of examples where businesses had delivered meaningful innovation without technology being a core tenant of a given initiative, idea or concept. Examples offered included budget supermarket Aldi going against convention by reducing the breadth of its product range, allowing it to further drive down prices. Eatery chain Pret, meanwhile, found a means to simplify waste (and minimise waste processing costs) and deliver social good (and the inherent PR value) by giving end-if-the-day stock away to the homeless community. Pret additionally lets the staff give away stock for a number of reasons, with a view to improving customer experience, customer retention, and even staff morale.