A startup company grows and grows until it proven itself, then a corporation acquires it, at least that is how the old story goes. The new story, however, is quite different, at least in the smart building sector.
“Corporations and start-ups have begun working together in fundamentally new ways, with a focus on flexible, early-stage, open-ended partnerships,” suggests our most recent report – StartUps and their Impact on Smart Buildings 2017, a comprehensive evaluation of startup companies in the smart building space.
The report comprehensively explores the fundamental change in the nature of collaboration between the established incumbents and early stage startups over the last two years. The report goes so far as to say that many corporations now consider this new relationship as being critical to their success.
Typically, the first conversation between a corporation and a startup was at the negotiation table. Most corporations have become experts in assessing the value, timing the deal, and negotiating the best possible price with promising startups. It seems now, that both start-ups and corporations acknowledge the advantages of early stage relations, and have been exploring business models for their respective growth.
“The startup – corporate collaborations are becoming “mission critical”. Innovation efforts with startups, it seems, are no longer just nice-to-have programs within corporations,” states our landmark report.
Investments and acquisitions are still an important element of the relationship. However, figures revealed in the report, based on data from more then 250 companies, show definitively that investments are now increasingly occurring well after the initial point of contact. In many cases the start-up and the corporation had been working closely together for some time before any investment was made.
“Rather than ends unto themselves, investments and acquisitions have become strategic levers to deepen or accelerate an existing and productive relationship,” proposes our new report.
It has now become common to see dedicated corporate programs designed to manage this increasingly important relationship with startups. This was not the case just a few years ago. According to a survey by MassChallenge and Imaginatik, 82% of large companies now view interactions with startups as important, and 23% say it is “mission critical” to their business.
While this is true across the business world, it is especially true in the digital and high-tech sectors, such as smart buildings. In these industries the rate of innovation is rapid and ‘the increasingly sophisticated and distributed nature of knowledge transcends corporate boundaries, making it harder to pursue innovation activities in isolation’, suggest Comi, A. and Eppler, M. J.(2009) in their Building and Managing Strategic Alliances in Technology-Driven StartUps.
All this now means that a corporation’s competitive advantage is increasingly being determined by its capacity to set up and foster productive collaborations with startups. A fear factor has emerged too. The relative speed of success of startups like Uber and Airbnb meant that by the time corporations had identified the threat, those startups were too big to acquire. Such stories have brought about a mutual respect between an industry’s biggest and some of its youngest companies.
Developing a mutually beneficial relationship with emerging startups allows corporations to both benefit from collaboration and keep tabs on young companies for later acquisition. Some corporations have even started acting like startups; with open plan offices and cold brew coffee on tap. For startups, they can gain access to the infrastructure and funding offered by corporate partners while keeping their options open for the future.
It is still early days for this new relationship though. The recent shift and the rate of change suggest that something is happening but it will still need time to find its shape. The research shows that, “while 86% of large organizations view innovation as crucial to their future, most of their current attempts to work with startups to further that objective are early stage, underfunded, and scattershot—such that 25% of corporations aren’t even sure how much they’re spending.”
Whatever course this relationship takes, we can be certain that the nature of interactions has changed, perhaps irreversibly. Technology has enabled companies to do big things with little time and small budgets. Corporations and governments have been forced to pay attention and support start-up growth to further their own objectives. We could be on the brink of a very different business world, and smart buildings seem to be at the forefront.