We need to take a step back from the accelerator fairytale to ask ourselves a fundamental question: why?

Christian Lindener, Managing Director at Wayra Deutschland, connoisseur on the start-up-venture-capital scene and speaker at Innov8rs Helsinki (5 September 2019), tells us how we identify whether or not engaging with startups is a complete waste of time.

A recent report from Techstars says that “best practices for leveraging startups in corporate innovation’ are not working: despite all the best intentions, ambitions are not being fulfilled:

  • 19% of corporates have no goals for startup engagement in place
  • 49% have no clear ‘point of contact’ defined
  • 38% have no impact metrics in place

Of the 5% of corporations with the highest level of experience with startup engagement, providing mentorship, sponsorship, and participation was at a much higher rate (88%) than corporations with less experience (57%).

Partnering with startups to co-develop new products (79%) was more likely than corporations with fewer startup touch-points (51%).

Participating in university startup programs (85%) was more likely when compared to less experienced corporations (45%).

The above metrics only describe a snapshot of possibilities to engage with startups or, ventures (I would also describe internal innovation projects as ventures).

Below, I separated the myths from the wisdom to list which innovation vehicles and reasons for start-up venturing I’ve seen work, and which are more fairytale than fruitful.

You want to invest in startups because...

We need a proof of concept or pilot tests: wisdom

This should definitely be your ultimate goal when engaging with startups. Whereas I would skip the word “potential” and substitute with ‘pay guarantee’, POC is a watertight starting point to scale-up. You need a structured approach by first assessing the needs of the corporation, and further, critically challenging the need and capability of your corporate partner.

Scout and prove products, approaches and technologies which have the potential to reach the overarching goal of commercializing and scaling up solutions within the corporate infrastructure.

We want to drive internal cultural transformation by adopting startup tools & methodologies: myth

I still often see this on the websites and brochures of accelerators, but this is my favorite innovation vehicle fairytale.

With a small unit as a lab, incubator or accelerator, how could you possibly impact or even change the culture of an entire workforce?

This isn’t only nonsense, it’s undesirable: the corporate culture focuses on executing on, and protecting, the core business. The core must be kept profitable to allow parallel new business to be funded and stabilized.

These are two different tribes, and neither one should have to transform to fit the other. And yet you can spark little impulses on either side, by cultivating an appetite for risk and curiosity when it comes to your ventures. This, at the end of the day, will foster the acceptance of your model.

We want to better understand customer or tech trends: wisdom

Sad but true, yes. Often, big corporates have lost their fundamental connection with the needs of their customers.

As a startup, you have the chance to build a product or service that is tried and tested, and what customers really need and want. It is a mistake to bring this into an environment that will slow down the development, deployment, and commercialization of what you have built.

Beware areas of tension within the corporate - like legal, IT, HR, and Brand. These all have their part to play in the corporate picture, but can cloud product launch with requirements and safety nets, often watering down your venture offering into something no one needs. Discovering trends is something that should be done before engaging with startups, in addition to the technology discovery phase.

We want to be an early customer through licensing or buying (startup) technology: wisdom

Agree on this one, however, the emphasis should be on “one of the early customers”. Big companies tend to be very good fourth or fifth customers, but awful pilot customers. The corporate is not a sandbox to try out new MVP-staged technologies. It needs customer validation, runway, and stability to then be scaled up and commercialized.

We want to increase brand awareness within the startup community: myth

Launching a vehicle alone will not get you there. To get you closer to your goal, you need success stories on removing the hurdles within the corporate - hurdles such as people, legacy and processes.

When it comes to technologies, creating interfaces through corporate processes and allowing startups to build on top of the tech stack is a good starting point and an attractive value proposition for the teams.

We want to support the local entrepreneurial ecosystem where we are based: wisdom

Corporates have assets that are valuable to pay into the system: their brand, a capital-intensive technology stack, their salesforce, expertise, and real estate add value to the entrepreneurial ecosystem. It gives credibility and visibility to teams that hustle with you to get this by themselves.

Just don't ask anything in return at first... if your offer is good, the ecosystem will accept it.

We want to invest in startups to generate a return on investment: myth

The BS alarm is loud and clear. Leveraging a P&L of several billion euros will not be done by investing in seed or early-stage startups.

Either you invest heavily in growing companies or you see an investment as means of supporting the scaling of the teams. No unicorn has ever gone through a corporate accelerator, and exceptions confirm the rules.

We want to identify, recruit and hire innovative entrepreneurial talent: myth

Even if your startup fails, as a founder you would not want to end up in a corporate environment and vice versa. There may be exceptions to this rule, but these exceptions would certainly not justify investing in an accelerator rather than in intelligent employee branding and winning the best candidates for your business.

We want a potential acquisition: myth

This reason seems obvious and would be the logical next step after gaining a small initial equity stake, yet I have not seen this working in many companies. Probably because the motivation of later stage CVCs generates a massive ROI and you don't find this in startups linked to the core business? Food for thought.

So, to wrap up:

  • Set your goal(s) before setting sail to charter through untapped territories and undermine them with objectives and clear KPIs
  • Anything that cannot be measured; don't do it.
  • Depending on where you want to go, unless it is completely delusional (talent, cultural transformation), there is a right vehicle for it

Don't fall into the trap of thinking this is something you accomplish by just throwing budget at it.

Instead, dedicate the right people full-time to manage this project and have a defined process — from structuring the corporate technology needs to scale up a startup solution which is open to being redefined.

This is an article intended to prevent more accelerators, labs, and incubators from being ramped up without sense, cause, purpose or impact. It seems easy when I read through my own article, but it took many years to get where we are now, a patient and risky investor and numerous people involved to realize the advantages of our learnings.

And it all starts with ‘why’.

This is a guest post by Chrstian Lindener, edited from a previously published version here.