Corporate and startup partnerships are more prevalent and more necessary than ever before.

While the unique symbiosis of the corporate/start-up relationship can be exciting and incredibly fruitful for both parties, the huge variants in culture, capital, and resources can throw some turbulence into things. Add screw-ups by either party into the mix and you can end up with a strained relationship; pile enough of them together and it could derail the entire endeavor.

Neil Soni has been on both sides of the table. He has worked on over 200 deals with startups of all sizes in his role building the External Innovation Group at The Estee Lauder Companies. Before he came to work for Estee Lauder, he sat on the startup side of the table, leading growth at several venture-backed companies and closing enterprise deals with companies like Proctor & Gamble, LinkedIn, Spotify, and Honda. So Neil has a great deal of experience and has lived through (and even made) his fair share of mistakes in the building of startup/corporate relationships.

In his book, “The Startup Goldmine” Neil outlines some of the most common missteps made when forging corporate/startup partnerships as well as some guidance on how best to set your company up to navigate the relationship. In prep for his talk at Innov8rs Miami (20-21 February 2019), we discussed some of the screw-ups he describes in his book, and how some can be avoided with sufficient planning, while others may seem inevitable but can be mitigated with proper awareness.

Screw Up #1 – Speaking Out of Turn

There is usually one person at the corporation that a startup is looking for to be their “internal champion.” – This is usually someone who is ambitious and genuinely doing their best to bring innovative solutions to their company.

Like many ambitious individuals, he or she, in their exuberance, may make promises they cannot keep or act as if they have more power than they actually do.

The best way to avoid this particular misstep is to create as much clarity on the lay of the land as possible, as early as possible.

Consider offering your startup partners a roadmap that outlines:

  • Who ultimately decides on whether or not to move forward.
  • What, if anything, the startup can do to grease the wheels in their favor moving forward.
  • A rough timeline that you can update along the way.

Screw Up #2 – Business-side Promises and Back-Office Backtracking

While well-known to corporate veterans, many startups aren’t familiar with the back-office tango. You give the “yes” – they’re ready to pop the champagne, unaware of the chasm yet to cross that is your back office. Legal, accounting, supply chain, et al still have to be consulted and sign off.

A classic example Neil cites is a simple press release. You’ve agreed to a partnership. The startup wants to put out a press release and put your logo on their website. It’s beneficial to them and costs you nothing so you agree without giving it much thought.

Which is fine until it hits your back-office where legal pumps the brakes and wants to put a nondisclosure clause in the contract.

Legal isn’t trying to rain on your startup’s parade, they’re just doing their job and managing your company’s risks. But now it’s awkward for you and potentially costly and embarrassing for your startup partner.

Payment terms are often a major pain-point that can easily sour a relationship. Neil is a strong advocate for “up-front and startup-friendly payment terms. For example: don’t make the startup pay out of pocket for anything, front-load payments when possible, and increase cash payments while reducing royalty or residual payments. The reason for this is simply that large companies are cash-rich and startups are cash-poor. It makes sense—for both parties—for large companies to use that cash to their advantage.

He cautions, however, that this is another place where it’s easy for a corporate innovator to speak out of turn. Accounting usually has its own rules for payment terms and changing those can be like pulling teeth.

You can avoid these stumbling blocks by simply checking with your back office before making even small commitments. Know how their processes work ahead of time and don’t expect to be able to change major procedures (especially payment procedures) without c-level oversight.

Neil’s biggest recommendation here is to set up meetings with relevant back office team members that INCLUDE your startup partners. That way, they can pitch their terms directly to your team and you can all discuss possible solutions together.

Screw Up #3 – Legal Roadblocks

Many startups and their corporate allies dread the moment that everything gets kicked “to legal.” For everyone in the equation without a Juris Doctorate, this stage feels like sending the deal, along with all the hard work you’ve put into it, into a black hole.

The thing is, as Neil puts it, “You may think certain things are self-explanatory, but that’s because you aren’t a lawyer.” Lawyers are especially careful about definitions and interpretations. How a group of words is interpreted by you is, frankly, irrelevant to your attorneys. They are concerned with how that same group of words can be legally interpreted, and rightly so. That’s their job.

Neil’s advice to corporates for avoiding potentially catastrophic screw-ups in this stage is two-fold: First, stay as closely involved as you can with your legal team so that the sites are set on consummating the deal as much as they are on mitigating potential risks. Second, and more importantly, don’t drag your startup partners into “legal dogfights” over deal terms that are, ultimately, of minimal importance. Doing so can significantly damage your relationship before it even gets started.

“Smart corporations will take this as an opportunity to leapfrog their competitors. By building a more startup-friendly path to reaching agreement on deal terms, you’ll build a great reputation and greatly improve both your deal flow and close rate.”

Screw Up #4 – Payment Delays

Payment delays are a reality of corporate bureaucracy. What is a drop in the bucket for a major corporation, however, can be the lifeblood that keeps a startup alive. These screw-ups happen so often it’s almost a matter of course. Someone in accounting forgot to add a W-4 form to the payment system right before the long weekend and someone else is out on vacation, etc. Pretty soon you’ve got a three-week delay in payment.

The reality is that such delays are usually not malicious, but just an unfortunate side effect of a large bureaucracy. For your startup partner, however, this can be a nightmare scenario. It can also grind them to a halt, not to mention souring your relationship.

Get your startup partner in touch with accounts payable from the beginning and help them be proactive in getting all the appropriate forms needed to expedite the payment process.

The Way Forward: Build a Fast Track

Startup deals are fundamentally different than deals with other sizeable companies and they should be treated as such. Neil recommends the creation of a separate workflow that is specifically built to handle deals with startups. Companies like P&G have done this very well. The last thing you want is for your startup to bleed out while they’re waiting for your bureaucracy to grind out the details of their deal.

Consider shortening your NDA process, and loosening your supply chain rules for deals below a certain size. It’s also beneficial to develop a pre-approval system for certain types of projects, which can be defined by dollar value, by category, or by some other variable. By having this pre-approval system in place, you can avoid delays which are simply due to paperwork getting signed.

It is also crucial to have a single point of contact for your startup person. This doesn’t mean limiting your partner to one person they’re allowed to speak to, it means having a single person for directing traffic. This way you avoid falling victim to the trap of “no one is in charge if everyone is in charge.”

People in corporations and people in startups speak different languages, are judged on different metrics, and are working under different timelines. The many procedures that are relatively normal within large companies can inadvertently be damaging to startups.

As the larger party with more resources, it is our job as corporate innovators to develop alternatives for startups creates added value that will set you apart from your competition. Join the discussion with Neil, and gain insights on the best and latest on corporate-startup collaboration at Innov8rs Miami.