A Field Guide to Doing Business With Startups the Right Way

Corporate / StartupInnovationPlaybook

INTRODUCTIONTHE CASE FOR STARTUPS

Innovation is becoming harder to achieve, yet more critical than ever, creating a near-impossible job description. While feeling pressed on both sides, corporate innovators are turning to startup engagement as a reliable path to solving busi-ness problems, creating innovation results, and unlocking new growth. However, the field manual for innovation through startup engagement is still being written, which creates a challenge because entrepreneurs and the enterprise couldn’t be more different. But, when corporate innovators and startups find ways to work together, they can become a force of unstoppable momentum in new markets.

What’s more, startups are the job creators, culture-makers, and innovation en-gines that 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. And most of all, they need revenue. Revenue is often the missing puzzle piece and the engine to every startups’ growth.

Corporate innovation and venture teams can offer startups access to unique, essential revenue opportunities, so GAN and GSSN—GAN’s startup studio arm—are continually building pathways for startups and larger corporations to work together. But a successful corporate-startup engagement takes energy, wisdom, patience, and a strategic game plan from both the corporate and startup—from day one.

ENGAGING STARTUPS THE RIGHT WAY

This playbook represents a compilation of the collective knowledge and practic-es of hundreds of innovators in the GAN Community from all around the globe. Those who contributed to it believe in an additive approach to innovation — one where the success of one equals the success of the whole, and where every busi-ness has the power to create and grow their impact, wherever they call home.

Effective startup partnerships are built on an understanding of what your future partner needs to succeed, so this playbook will show how to think like a startup, adapt as a corporate, and build a highly successful and founder-friendly engagement process.

INTRODUCTION

CONTENTS

SEVEN STRATEGIES FOR SUCCESS

START WITH THE RIGHT MOTIVES

LEAD WITH VISION

CREATE INTERNAL CORPORATE BUY-IN

BUILD A CLEAR STARTUP ON-RAMP

STRUCTURE STARTUP-FRIENDLY ENGAGEMENT TERMS

USE THE 3 C’S: COMMUNICATE, COMMUNICATE, COMMUNICATE

ESTABLISH TRANSPARENT, TIME-BASED OBJECTIVES

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CORPORATE / STARTUP INNOVATION PLAYBOOK 03

Before engaging startups, ask your team, “Why startups?” What do you hope startups bring you that you don’t already have, or can’t find elsewhere? Startups approach cor-porates hoping to grow their revenue and establish their credibility, sending a positive signal to customers and investors. So, what are you hoping to get out of this? Faster product development? Cheaper R&D? A more agile culture? Insights on new markets?

Whatever the reason, successful engagements are always born from an authentic, two-way relationship where both sides have the best intentions, and fight to create the outcomes their other half is looking for. Beginning a relationship for the right reasons is key because when the engagement gets tough and your cultures clash, the right motives can be the difference in calling it quits or pushing through to success.

Start With the Right Motives

A STORY

The Estée Lauder Companies—the global leader in prestige beauty products and a GAN Partner—has a Digital Innovation team who engages startups to stay on top of the latest web and e-commerce technologies. When a startup founder launches a new engagement with them, they find more than a partner. The founder discovers a true ally.

Startups receive advice on everything from the beauty market to their product, even pricing—including, when it means the innovation team may ultimately pay more to license the startup’s technology, because they know it’s the fair and the right thing to do. Is there any better ex-ample of a genuine, authentic desire to see the startup succeed? To learn more, visit Estée Lauder Companies.

https://www.elcompanies.com/en/openinnovation

While internal goals such as revenue growth, new market share, or faster product devel-opment create your business case for engaging startups, your vision describes what the world will look like as a result of your work.

A vision can be created by your innovation team specifically (for a certain initiative or long-term goal), or by your company more generally. Different from a mission which describes how you’ll achieve your vision, your vision paints a picture of where you’re leading your startup partners and internal stakeholders. Leading with vision instead of internal metrics will unite, inspire, and motivate others to join your work.

Lead With Vision

CORPORATE / STARTUP INNOVATION PLAYBOOK 04

A STORY

Volvo crafted an ambitious vision over a decade ago: “Our vision is that no one should be killed or seriously injured in a new Volvo car by 2020.” Inherently aspirational, this vision paints the picture of a world where people move from place to place in safety, without fear of harm.

Volvo’s narrative was successful in uniting every stake-holder around one shared dream; startups contributed breakthrough technology in computer vision and sensors, engineers developed novel ways of including that tech-nology into the driving experience, and customers com-mitted loyalty to the Volvo brand. Leading with this vision has been far more uniting and exciting than any internal metric could have been. To see more, visit Aiming for Zero.

https://www.volvocars.com/en-om/about/our-stories/vision-2020https://www.volvocars.com/en-om/about/our-stories/vision-2020

CORPORATE / STARTUP INNOVATION PLAYBOOK 05

Even if you have the word “external” in your innovation or R&D title, you should expect to spend a significant portion of your weeks engaging your internal stakeholders. Cate-gorize your internal work into two major groups:

Your Executives When was the last time your executives shared how you’re engaging startups during a quarterly earnings call? When this happens, it’s a great way to know you’ve moved from executives who simply fund or permit your work, to those who are fully bought into it. To get there, you’ll want to:

1. Lead with your vision. Give your executives a story they can’t help but share with investors and board members.

2. Outline how you plan to structure a portfolio of startup activities to enable this vision, including your milestones and success measures along the way.

3. Don’t stop at the outcomes, detail potential risks and pitfalls with enough candor that your executives expect that learning through cheap and well-managed failure — not recurrent success — is how your vision will come about.

4. Dive one level deeper into the details and man hours of how you’ll get the job done, what resources you’ll need, and what trade offs must happen.

5. Ensure you’ve dedicated resources commensurate to your vision. If startup engage-ment is only a fraction of many people’s jobs, it will fail. But if it’s 100% of one team’s job, it will create a better startup experience and corporate outcomes.

Your Business Units Your future startup partners need champions inside your company who are willing to dream, invest their time into exploratory conversations, and educate founders about their end goals and current constraints. To create these champions:

1. Schedule a series of conversations to share your motives and vision with each busi-ness unit, with the goal separating the startup advocates from those who are apa-thetic.

2. Convert the willing, don’t convince the skeptical. Begin identifying potential oppor-tunity areas and business problems with your advocates, and allow stories of their success to win over other business units, over time.

3. Coach your advocates on why startups aren’t just “vendors” or “suppliers.” They’re extra-curious problem-solvers looking to make an impact. This will inform their expec-tations and how they approach meeting with new startups.

4. Understand how your business units are evaluated and compensated, too. This allows you to point out unique startup strengths that are well-aligned with corporate incentives.

Create Internal Corporate Buy-In

Finally, schedule quarterly review and planning sessions with both groups. By meeting to review the past quarter’s learnings and confirm the next quarter’s goals, you’ll make sure you’re still on the same page, and continue to emphasize fast failure as the path to success. This is how culture is built over time.

CORPORATE / STARTUP INNOVATION PLAYBOOK 06

A STORY

When a mid-level engineer wanted to convince the executives of a large energy company that a safer and cheaper — but a startup — technology was right for them, he leaned into his emotional intelligence (ensuring it was a win for all levels of management), backed it with evidence from peers, and called on an outside expert. His approach, and a number of other tips on how to sell your ideas internally, like framing the issue and nailing the timing, are detailed in the Harvard Business Review article, Get the Boss to Buy-In.

https://hbr.org/2015/01/get-the-boss-to-buy-in

CORPORATE / STARTUP INNOVATION PLAYBOOK 07

High-impact startup engagements won’t happen organically. Ensuring timely and right-fit connections between startups and corporate leaders is a full-time job that should focus on building a clear “on-ramp” by:

• Curating exploratory conversations.

Getting an initial meeting scheduled with the corporate is one of the startup’s most difficult jobs. In fact, the odds of a startup successfully navigating the thousands of corporate employees is like you jumping on a high-rise elevator, closing your eyes, pushing a button at random, and winding up on the right floor, five times in a row. Startups with potentially game-changing technology need you to put them on the fast-track to meeting the right stakeholders by maintaining a clear and current set of innovation criteria—which should be developed with your internal champions—and identifying everyone who needs to be present in an exploratory conversation. Win-ning the game of calendar “tetris” isn’t something a startup founder can do alone.

• Crafting well-developed problem statements.

Before that exploratory meeting takes place, make sure to circulate a specific agenda that outlines one specific problem statement. While this problem statement should be broad enough that it doesn’t prescribe a singular approach or solution—allowing the startup to identify novel ways to apply their tech-nology—it should be specific enough that it focuses the startup on the root of the problem, instead of snowballing into a variety of adjacent issues that haven’t been fully investigated by the internal team. Nothing is more frustrating for both sides of the table than “moving the goalposts” around the field.

Build a Clear Startup On-Ramp

A STORY

Comcast NBCUniversal LIFT Labs is the first place entrepreneurs building technologies in media, entertainment, and connectivity to access opportunities across a vast portfolio of networks and brands. LIFT Labs represents a dedicated, full-time team that creates thoughtful, founder-friend-ly programs that help startups navigate Comcast NBCUniversal, understand its current challenges, and launch new tests and pilot projects. For more details on their work, visit lift.comcast.com.

http://lift.comcast.com

Startups are not smaller versions of corporates. They’re an entirely different category of company. While that may seem obvious, it’s an often-lost fact when it comes to structuring engagement terms. Working capital, in-house counsel, third-party security audits, and a procurement team are all things early-stage startups don’t have. Here are ways you can accommodate this reality, without compromising your own company’s needs:

• • Pay all invoices in 60 days (or less). Pay all invoices in 60 days (or less).

Startups have a finite amount of cash on hand, or “runway,” as it’s called, so if they’re unable to generate enough revenue, they crash. Facilitating prompt payment will help the founder avoid that crash — and continue to support your business units.

• Use dummy data and sandbox environments where possible.

A proof of concept should be just that — validation that the technology will create the outcomes you need if scaled, not the delivery of the outcomes themselves. Pair down the scope of your engagement to a minimally-viable set of activities you need to prove the concept and lower barriers by substituting customer data for dummy data, operating in a sandbox, and testing traction in a single city or region.

• Keep legal contracts to no more than 5 pages.

For early-stage startups especially, the legal review is conducted by a founder, not an attorney. Make sure there are standard and reciprocal indemnity, warranty, and liability terms that are easy to understand and accept. Over time, as your work moves from pilot to scale, layer in more complex terms as required.

Structure Startup-Friendly Engagement Terms

CORPORATE / STARTUP INNOVATION PLAYBOOK 08

A STORY

Unilever’s Foundry Group puts startups at the heart of its mission. Every year, it launches more than 60 pilot proj-ects with 20+ brands in the Unilever portfolio. Each startup is given 45-day payment terms, simplified legal contracts, and a clear timeline on when to expect the partnership to start. This process has enabled standout successes, like its engagement with Digital Genius. This engagement allowed customers to text what ingredients they had avail-able to an algorithm-based “Digital Chef,” which replies with recipe recommendations. The pilot was ultimately scaled to build a database of millions of customer prefer-ences. To read more, see The Unilever Foundry.

https://www.theunileverfoundry.com/

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• Set regular check-ins. It’s rare to have everything go right in an early, exploratory relationship. Because of this, startups need a steady diet of check-ins, feedback, and critique. This allows them to adjust in real-time and manage your expectations, as well as their limited time, staff, and precious cash.

• Create owners, not committees. When a group of stakeholders own a project, nobody owns it. That’s called “collective disresponsibility.” Identify a single point of contact who’s the startup’s ambassador — likely, you, the innovator — and responsible for getting people, dates, access, and data when needed, while working through others.

• Over-communicate in between those check-ins. Corporates and founders both need to be brutally honest about what they do well, and what they don’t, in order to stay on track and meet their goals. Remember, you’re both in this together. When stumbling blocks arise, don’t leave it until your next check-in to see if things are on track or derailed. It’s also important to open up more informal ways of communicating like texts, Slack messages, or 2-minute phone calls. This cre-ates the added benefits of trust and vulnerability, too. Did we say communicate?!

Use the 3 C’s: Communicate, Communicate, Communicate

A STORY

GSSN member Pioneer Square Labs (“PSL”), and Fortive Corporation (“Fortive”) recently formed a joint innovation studio to create new industrial technology compa-nies from scratch. The studio is a part of Fortive’s broader innovation strategy, and creates startups that either continue standalone as venture-backed businesses, or become part of the Fortive family. After establishing the studio, it took just six weeks to spin out their first company, TeamSense (teamsense.com), in response to COVID-19. That’s nothing short of incredible when you consider it can take six weeks to schedule a single, multi-person meeting inside a large corporate. So what was their secret?

Communication. More specifically, a structured plan for how PSL and Fortive would communicate together. When they created their partnership agreement, each side appointed a single person to serve as the primary point of contact. That contact is the sole person with the ability to green light a new company’s spin out from the studio, or any other major operating decision prior to then. They regularly seek input and advice from others around the business, but there’s zero ambiguity about who is communi-cating with who. What’s more, these two contacts have a rhythm of standing meetings and consistent touch points multiple times per week, so they never lose touch. Congrats to PSL and Fortive for their amazing work so far!

https://investors.fortive.com/press-releases/press-release-details/2020/Fortive-and-PSL-Announce-the-First-Company-Formed-from-Their-Joint-Innovation-Studio/default.aspxhttps://investors.fortive.com/press-releases/press-release-details/2020/Fortive-and-PSL-Announce-the-First-Company-Formed-from-Their-Joint-Innovation-Studio/default.aspx

CORPORATE / STARTUP INNOVATION PLAYBOOK 10

There’s one word that kills all startups — “maybe.” When a startup asks, “Have we hit our goals?” and they hear, “Maybe, we just need to see if…” it can create significant prob-lems. A “yes” validates success. A “no” precedes specific and actionable feedback. But with every maybe, a zombie project is born. You’ll be able to give a yes / no answer if you:

• Align startup metrics with corporate incentives.

What determines whether your business units get a raise in their annual review? What “OKR’s” or “KPI’s” are they managing to this quarter? Ensure there are no con-flicts between these goals and what you’re asking of the startup. For example, could a successful pilot result in recurring spend to license the startup’s tech, when the business unit has been told to reduce recurring costs?

• Begin with your end “state and date.”

What will your world look like if your next startup relationship is successful? If you’re thinking about this in the context of a pilot, think bigger. Think commercial success, your ideal end state. This will ensure your pilot is large enough to be relevant and meaningful, while being small enough to be manageable.

• Determine your most important pilot metric.

To get to your end state, what’s the biggest, riskiest assumption you need to vali-date? This should be the main metric of the pilot. Be transparent and upfront about why it’s a concern, then agree to how you’ll quantify the evidence that this risk can be successfully addressed.

• Agree to your “gateway” metric.

Finally, determine a clear gateway or “trigger metric” that moves you to the next step of scaling up. Conversely, you should also discuss a drop-dead date that says if there’s no budding evidence that your pilot can be successful, you’ll conclude the engagement. Allow the startup to suggest this date, and anchor the total length of the project based on this. The startup should be able to provide a reasonable expec-tation based on how mature their product or service is, and the typical cycle from deployment to outcomes.

Establish Transparent, Time-Based Objectives

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A STORY

Diageo’s open innovation process ensures every startup engagement begins with a clear timeline. A dedicated pilot team works closely with a senior leader to trial the technology with a $100,000 budget, after which a decision is made on whether to scale up. Measured, tightly-managed pilots have created some amazing wins in spaces like anti–counterfeiting and customer experience. For exam-ple, Diageo partnered with Thinfilm to develop a connected ‘smart bottle’. After proto-typing a thin sensor, they were ultimately able to scale the project commercially to track the location of their bottles, collect new data on their value chain, and allow customers to interact with digital content and messages.