Open innovation and building strategic partnerships fuel disruption from the outside-in, rather than just focusing on the inside-out- but it's far from easy.

To understand how to get results from strategic partnering and open innovation, we recently hosted a conversation with Kevin Ye, Partner at Mach49, who works with global businesses to help them improve their external venturing activities.

Here’s how Kevin recommends you avoid the most common pitfalls.

How to Create Successful Partnerships?

For large corporations, understanding what’s happening outside of their walls and working with innovative startups finding mutual win-win scenarios to work with these startups – through partnerships, vendor relationships, or even just technology scouting – is crucial to stay competitive and alive. If that sounds like quite an undertaking, don't panic: you don’t need a dedicated team to do partnerships. Successful partnering is all about one effectively managing the project, bridging within the organization, and bringing together all of the relevant groups that need to be part of the discussion.

However, there’s no one way to create successful partnerships. It’s rather a matter of understanding the boundaries and the constraints of all the different creative approaches that you can take to get to that outcome and to overcome any pitfall that may occur when diving into strategic partnerships and open innovation. In this context, learning from the success and failure stories of others is crucial.

“Experience is actually mostly just pattern recognition, is knowing which pathways lead to disaster”

Kevin Ye shares five main “don’ts” that frequently and unintentionally are allowed during these processes and the best practices that should instead be followed.

DON’T Lose Sight of the Big Picture

Most strategic partnering and open innovation groups are pretty reactive when approached by a startup with a well-liked idea and, in the end, they somehow find a way to collaborate. While that's okay to a small degree, it doesn't work in the long term, because there's no coordinated and effective framework that actually organizes all of the strategic partnering efforts. So the best practices that come out of this are:

  • Establish objectives and decision-making frameworks upfront to ensure all teams understand the goals of partnerships and can then communicate them to startups interested in working together. Having a coordinated framework that organizes all of the efforts for a strategic partnering team is especially important when many partnerships and innovation teams are working together.
  • Frame up your activities in the context of an “opportunity universe”: Everything should be built with a long-term vision and framed up in the context of an “opportunity universe”, i.e., all of the different innovation hotspots that are happening in your sector that may have strategic relevance in terms of partnerships or investments to your company. Take your time to prioritize them so that every single time a new opportunity will come in, you can easily evaluate and treat it against that universe.
  • Establish internal communications: Internal communication is one of the key things for effective strategic partnerships. Getting the message of what your team is doing outside of the BUs’ heads is crucial because you really want to be the “Nexus” or the go-to resource when it comes to evaluating these partnerships, figuring out the tactical plans, and even vetting that these are the right startups to work with. But it’s not their job to know everything about startups and partnerships, they just meet someone charismatic and think they can do something with them. It is then your job to monitor it, to prevent duplications, to check that they're the right partner and that their project falls within the priorities of the framework.

“BUs are a little bit like teenagers, they fall in love with the first girl to ask them to the dance”

DON’T “Move Fast” to the Impairment of Internal Alignment

Kevin tells us about when a science and commercialization team talked to a company about an interesting technology. They really wanted to do a go-to-market strategy together and have been in conversations for weeks. Suddenly, it turns out the person in charge of commercialization for the company hasn't been to the conversation and that area isn't even in their top priorities. The big saying in Silicon Valley is “move fast and break things”, so you need to find a balance: if you move too slow you are no longer respecting the startup’s time, but don't move too fast and neglect to get all the appropriate internal controls. To find this fine balance and prevent any issues:

  • Understand the incentives, the bandwidth, and the capabilities of your BUs: The BUs execute the plan as they have the assets and the industry knowledge. And if you don’t talk with BUs upfront to understand what types of partnerships they’re interested in, what they can/can’t do, what areas they should steer away from, they can even let the ball drop. And it's not really their fault, because they have daily jobs to worry about. So, if these things aren't adjusted in advance and if the BUs aren’t incentivized to support the partnership as much as they can, the partnerships will fall flat.
  • Gauge internal temperature be on top of your approval process: The C-Suite is ultimately going to approve the long-term vision, as such the chain of command needs to go far high up for everything ranging from a PLC to a full-blown joint go-to-market strategy, and it gets more complicated the higher up you go. This process requires a lot of management to ensure that throughout every single stage of a partnership, you're keeping in very tight lockstep not only with your direct manager but potentially all the way up to the board.
  • Get top-down support and leadership advocacy: Everything always has to come from the C-Suite down. The C-Suite needs to be bought in and convinced first of the value that the partnership can bring.

DON’T Neglect VC-style Due Diligence

This one may be new to many partnership teams. However, true strategic partnerships that are beyond just vendor relationships and are meaningfully moving revenue really have to think about not neglecting VC-style due diligence and:

  • Understand the business health and future roadmap of the startup: One of the partnership leads that Kevin knows, got really excited by a startup because it was pushed for by the CEO. They found out much later that it's because the CEO was actually an angel investor in that company already. The second thing that they realized after setting up the PLC is that the company revealed they only have six months of cash runway left. In the worst-case scenario, this company was going to go bankrupt and fold in completely. For any long-term partnership, try to answer all the main questions that are crucial in a VC due diligence:
    • Is the company the best of all the options available?
    • Is the company going to stick around for multiple years?
    • Are they going to be able to survive until their next fundraising round?
  • Talk to the existing investors: You have to understand what level of influence the existing investors have over the company, what their goals are, etc. You need to know these things in advance for long-term planning.
  • Last but not least, work with the ventures team to avoid duplicative efforts

DON’T Unintentionally Silo Strategic Partnering from Other Innovation Initiatives

Coordinating with other teams within a corporate is a tricky point yet very important because unintentional siloing of strategic partnerships from other innovation initiatives is detrimental to innovation over time. To help prevent this, follow these best practices:

  • Share and request existing knowledge: Commit to creating synergy for the company as a whole by archiving and sharing knowledge so that, for example, when the investing team is firstly looking into an area that you've explored, you're able to share the documents with them and accelerate the process.
  • Draw clear lines of delineation and understand internal process dependencies upfront: Get to know where one group is dependent on the other and where it isn't. make sure that anyone does their own part and make it clear with startups in advance. This will help set expectations upfront.
  • Stay involved and up-to-date with conversations: All the different teams have to stay involved and attend meetings. As such, startups will remember and recognize that there are different teams with some differences so that one decision should not impact the overall impression of the corporate.

DON’T Forget to Put Yourself in the Shoes of the Startup

One of Kevin’s colleagues was in the middle of negotiating a deal when the partnerships lead went on vacation for two weeks without being replaced by a delegate or a proxy. What ended up happening is they lost the momentum and killed the deal. You're a large corporate with your own processes, many of which are going to be foreign and seem overly restrictive to a startup. As such, to make a partnership work you have to adapt to them and also:

  • Don’t waste their time and your time as well just because you can. Reputation matters and when it comes to a strategic partnership, avoid delaying the deal so much that everyone loses steam, momentum, and engagement.
  • Monitor requests to make sure they're reasonable to avoid ending up killing the deal.
  • Be empathetic and respect their goals and timelines: Startups are always going to be pushing to move things pretty quickly. That's normal, but they also understand that corporates, by nature, move slower, have more processes and more compliance checks. They understand that there's more of everything that corporates have to deal with. That's usually not what annoys them. What they usually get the most annoyed by is the mismanagement of expectations. It could sound silly and trivial, but it's these tiny little things that translate into building good relationships with startups.

“Make sure that you represent your mothership and the ecosystem as well as possible because words travel around very quickly in Silicon Valley”

The "don’ts" Kevin shared above may seem and sound pretty obvious, but the reality is that it's all too easy to fall into some of the traps- even without even realizing it.

As such, one might ask: is there one framework or checklist to follow to get strategic partnering and open innovation right?

The short answer is- no, but there are some red flags you have to pay attention to. For instance, if you're in a meeting and both parties are not actively pushing towards the collaborative relationship, that's probably a very good sign that even if there is a good business opportunity, the partnership over the long term may not be as successful. At the very least, do a quick assessment rating how you're currently doing following Kevin's advice, and what or where to improve. The future of your company may well depend on it.