Most small business owners start their businesses with dreams of making it BIG. Along the way, it might make sense for a start-up to partner with a large corporation to springboard their growth to the next level. The start-up brings energy, disruptive thinking, agility and new technology, while the large corporate can provide capital, market access, industry-specific advice and a sandbox for fruitful experimentation.
This is the ideal scenario, where both sides benefit equally. Unfortunately things don’t always go smoothly when David and Goliath shake hands on a deal. All too often the start-up is disrupted, slowed down or outright obliterated by the large corporate, with nobody being able to point the finger of blame specifically at anyone. It just happens that way because the two sides of the coin are very very different.
In 2016 my company was invested in by a large corporate - an insurance company with a well known brand and millions of customers. We also partnered with a Big Four accounting firm for our international expansion a year prior to that. In the years since of working with them I have learned a lot. I wanted to share what I have learned, what shocked and surprised me, from the perspective of a small tech start-up. These observations may be obvious to anyone who has worked in a large corporate, but they certainly represented a steep learning curve for me, a self-taught entrepreneur. Hopefully my experiences are useful to you, and make your corporate venturing partnership a success.
This is what I learned from working with large corporates:
SPEED
Start-ups are super fast. We can ideate, prototype, launch and evaluate a new idea in hours. This is not so for large corporates. Getting things done takes a very, very long time - think weeks, months or years. There are so many layers of approval required to get simple things done, for example just changing a logo on a website: copywriters, department heads, legal, brand advice, marketing, accounts and more all have to be consulted and give sign-off. It makes sense that as a company grows, it develops more and more processes and controls to keep the ship on course, but the downside is that the ship can’t steer quickly and this can get very frustrating when you come from a rapid prototyping, experimental, explorative start-up mindset.
In our case I very quickly found out that the timescales we anticipated for our partner collaborations to ripen and bear fruit, took many months, if not years to get off the ground. So be warned: Things will take a LOT of time, like more than 10x what you are thinking. If you think a deal with a large corporate will make you “go big, fast”, please be warned. Make sure you have the financial support to survive much much longer than anticipated before the partnership bears fruit, and even then, have a backup plan for revenue. Try not to be bound to one corporate either (check that exclusivity clause) - competition is one of the few things that make big corporates stand up and take action. Also, if you are not a top priority, you might get “pushed to next year” – an absolute aeon in start-up terms. So be ready for this and have a plan to survive the ice winter.
PROMISES
Start-ups are usually run by small groups of committed individuals who know their businesses very well and for whom trust in their word is everything. When it comes to dealing with large corporates, the person you are speaking to, making plans and drafting dreams with, is probably quite far removed from the actual gears of the machine that you intend on working with one day. What this means is that any topics discussed are usually not to be taken as literal truth from the big corporate side, simply because the person you are dealing with doesn’t know, or doesn’t have control over all aspects of the business that will be involved.
In our case, we took as gospel the word that our corporate partner would be able to distribute our product to millions of customers within a year. We thought that they are a big, organised massive machine filled with very clever people – they MUST know their business and its capabilities extremely well. Unfortunately they achieved only 2.5% of their target by year end. To add extra disappointment, we had signed a milestone payout contract based on achievement of a shared goal – so my co-founder and I both lost out on a heck of a lot of money. I will never forget this blow and how much it decapitated my excitement about the partnership.
This is why I want you to be super super sure that when you make plans or agree to specific goals, and those goals are stored in a contract, that your start-ups’s committed deliverables are completely separate from your partners, because sometimes big corporates don’t actually know what they are capable of.
FEELINGS
Corporates don’t care about your feelings. Their shareholders aren’t interested in that, nor their department of lawyers. For an entrepreneur, passion, confidence and enjoying the fruits of occasional success are all that matter in driving you to stay motivated. Don’t expect big corporate to care about whether your partnership succeeds or not, or if they meet the promises on their end. Don’t expect them to compromise or make a plan to keep the relationship good. Don’t expect the warm feeling of trust and mutual good faith that entrepreneurs bank on to return interest. The bottom line matters most. That's it. End of story.
REDUNDANCY
In a large company, people come and go. It is normal staff turnover, business as usual. In a start-up there is mourning (or celebration) whenever someone leaves, depending on how well they did their job. What this means for you is that the people you are dealing with and building a relationship with - perhaps even signed a contract with because you liked them and their mindset – will probably move on one day. I would advise that any matters discussed informally which have a strong bearing on the success of your partnership should be recorded in a contract, or at least recorded in writing over email. Also bear in mind that the person who is being nice to you is not the person who writes your legal contract – they have their own job to do and it isn’t protecting you.
Another aspect to this is that in a large organisation, there are many centers of expertise. There might be several divisions for “rewards points” or several marketing departments. My co-founder and I were often completely mystified by how X didn’t know Y, despite us telling Z, like a thousand times. The reason is that on their side, there are just so many more people. To counter this problem, write once and email many times. Make an ongoing live document that records all the briefings that you have given previously into one comprehensive document describing everything, so that new people can be brought up to scratch fast. This will *hopefully* stop their marketing department thinking that you are a paid-for online document store, when you are actually a tax service (true story).
RED TAPE
If the deal you are signing involves investment to a significant degree, you can anticipate waving goodbye to some of your start-up freedoms. Like any marriage, some partners come with baggage, and big corporates have a lot of it. This is called “corporate governance” and may sound innocuous, but can slow your start-up sprint to a light jog. It might be worth talking through as many points as possible or making commitments defined to contracts beforehand, to try to limit the unexpected fallout.
Some adventures we had to go through:
• Our contract specified that we hire at least one additional professional of a certain calibre at a certain (rather high) salary
• We had to suddenly be audited annually, by a real Big Four audit firm – this is not cheap
• We were requested to change our financial year to match theirs, which mucked up our stats, ops plans, reporting and KPIs
• We were told we can’t give our usual Christmas bonuses because the financial year hadn’t finished in Dec and we hadn’t been audited yet (our staff loved this)
INFO SEC
This one annoyed me the most as CTO. We were about to launch our software in Nigeria as a JV with PwC (proud and exciting), after pursuing this deal for over a year. In the last week of our potential launch window, their IT security team pulled out a broadsword and slashed us with a fatality – an IT audit. From the moment I was emailed the multi-tabbed, hundreds of rows, information security questionairre, I knew the launch was doomed. Our company did not have a fingerprint scanner on the printer, use barcoded lanyards to access the office, control what filetypes people sent as attachments over email, have an Information Security officer, and other ridiculous requests for an 8 person company. It wasn't so much that we lacked these security controls, but that the questionairre itself was designed for massive companies, and we were not one, so every point had to be justified. I luckily managed to sidestep the majority of concerns by simply pointing out that our server and data are hosted offsite on AWS. Amazon is ISO27001 compliant so they had all the required standards, certificates, acronyms, badges and white-papers required to satisfy most of the audit concerns. We still lost a year in our collaboration with PwC due to this, and I certainly gained a clump of grey hairs.
MOLE
Start-ups are composed of small groups of individuals – so ideas penetrate easily. Large corporates are composed of hundreds if not thousands of people. They are very busy doing their things, so your things are not of much interest to them. Your priorities are going to get lost and forgotten, unless you have someone on the inside. You need someone in their building whose job it is to make you successful. With our insurance company investor we had three such people – a strategist, an actuary and a dogsbody to do the legwork between departments. It took us 4 years to get this combination of people on their side, but it made all the difference in being able to actually get campaigns going. It helps if that person has specific job KPIs that include making you part of their ecosystem – perhaps you form part of their long term strategy, or they are a partner manager, etc. This is something to get clarity on when you are courting, because without a champion or hard-coded targets (and consequences), your partnership is going to go nowhere. Another option is to find a way for one of your team to occupy a desk in their offices, to meet with and bother people daily.
MARKETING
I keep on being surprised at how little large corporates know about their marketing activities. They can tell you how much money they put IN to campaigns, but they can rarely tell you the measured outcomes. I was amazed by this because as a tech start-up on a teeny tiny budget, we need to know with crystal clarity where our marketing budget is going and whether it is working or not. By nature every campaign we do is tracked with URLs, voucher codes, surveys, Google Analytics etc. This blew our minds with every corporate we worked with. We would assume that they 1) know what campaigns work and why, and 2) have space in their year-long campaign plan to insert us. On both counts they failed. Summary: Do not trust that a large corporate can market you – they don’t know how to, they don't understand you, don’t have space, don’t have authorisation, can’t prove that they did, and often enough, don’t have a very engaged membership base anyway. Any goals that include marketing from their side should be inked into the contract as minimums with consequences. Don’t have faith, and don’t assume they can, because they can’t.
SO WHY BOTHER?
The previous paragraphs paint a bit of a gloomy picture. It hasn’t been all bad, more an enlightening character-building journey of... “learnings” (I say with a knowing smile). Because I believe in delivering bad news between the buns of a tasty compliment sandwich, I will end off with some reasons why working with big corporates can actually be great:
1. CREDIBILITY: You get to paste their logos all over your homepage and every email possible, making you seem properly credible, trustworthy and like you are “playing with the big guys” – a household brand.
2. LEVERAGE: If you get one large corporate to be on your side, the rest will be a lot more keen to play – just because their competitors don't want to miss out.
3. RESOURCES: Sometimes if you request politely enough, some chesspieces can be moved in your favour. For example we had access to an actuary for financial modelling, an HR department for recruiting our CEO, an offshore dev team for some low cost programming, a labour laywer for staff disputes, and some of the best forward-thinking strategists in the business.
4. MONEY: You might have a global pandemic one year. Having a big corporate on your side can help with easy terms lending if you find yourself in a pinch.
Working with a big corporate is exciting and it's something that can bring rewards if you do it right and know how your partner differs to you. Make every step a conscious one, plan for the worst, and let's hope you don't get smooshed!