How CIOs can partner with startups

Gartner senior director analyst, Erik Van Ommeren discusses how large organisations can build a mutually beneficial relationship with Startups

Gartner, CIO

Established enterprises and startups can seem like a match made in heaven. Startups need money, visibility or access to customers, and they bring creativity, speed and an ability to execute. Enterprises need innovation and speed, and can offer funding, endorsements, a sales force and established processes.

A Gartner innovation study showed that working with startups is popular: 95% of large organisations with a structural innovation program invest in tech incubators; 90% of such organisations work with small niche vendors or startups directly; and 84% use the acquisition of startups or small vendors to advance innovation.

So, how do you deal with startups when 90% fail within 10 years? “Startups are strategic bets,” said Erik Van Ommeren, Gartner senior director analyst. “When done well, they accelerate market results. CIOs are interested in the promise of innovation and speed, but daunted by the risks. How do you deal with startups when 90% fail within 10 years?”

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Gartner offers five steps to help you get started.

Define your starting point

The first question to ask is where and why a startup is needed. What can your organisation not do itself that startups can provide? Once you know which organisational capabilities need strengthening, you can choose different types of engagement.

Some organisations are looking for innovative ideas, hard-to-find skills or strategic insight into growth markets. Others need to grow their market or learn how to bring innovation to market quickly. Some have purely financial motives.

Prepare your sponsors for the risks

Startups come with elevated, hard-to-assess risks; there is inherent uncertainty in their long-term direction, independence and viability. For any engagement that goes beyond gathering information, be prepared for the fact that they might fail or change course. Your internal stakeholders should be made aware of these risks.

Be clear on timelines and the need for ongoing support. Some startups take many years to develop. Famous giants of today, such as Google and Twitter, spent years in beta mode. Even Uber, heralded for disrupting transportation, is not breaking even yet.

Appoint a startup liaison: Organisations need a startup liaison. Appoint someone who is a pragmatic fixer, has a strong network in the organisation and is a good storyteller. Having a designated point person will allow both sides to navigate complexity and build relationships with ecosystem partners.

Defining processes is another way to reduce risk. CIOs will need to let startups lead, agree on success measures and create a process to disengage if the partnership isn’t working: Erik Van Ommeren.

Create a reverse pitch deck
Often, organisations new to working with startups expect them to be ready and eager to work together, but find startups can be picky too.

Create a presentation that shows why they should work with you. It’s called a “reverse pitch deck” because, traditionally, a startup pitches its solutions to the larger enterprise, and here, the enterprise pitches to the startup. If the partnership is built on a shared understanding of the opportunities, differences of opinion are less likely.

Prepare for the risks

The easiest way to reduce risk is to have a bulletproof legal contract. However, the legal contract might stifle innovation or become a major bottleneck. Work with your legal and sourcing teams to prepare the legal groundwork ahead of time. Create template contracts for the types of engagements and companies you want to work with. Defining processes is another way to reduce risk. CIOs will need to let startups lead, agree on success measures and create a process to disengage if the partnership isn’t working.

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