California Management Review
California Management Review is a premier academic management journal published at UC Berkeley
by Stefan Kurpjuweit and Stephan M. Wagner
Large, established firms face increased pressure to innovate amid competition from smaller startups. As a result, “outside-in” programs have been developed that can connect larger companies to the entrepreneurial vitality of the startup ecosystem.
One example is corporate accelerators (CAs) - startup accelerator programs that are managed or sponsored by one or more established firms. They offer entrepreneurs access to funding, mentorship, and certain of the firm’s resources. CAs have already become popular among leading companies like Microsoft, Coca-Cola, and Bayer. One major downside to this model involves talent: only the most prestigious companies can attract entrepreneurs who would otherwise be drawn to competing accelerators like Y Combinator.
An alternative to the corporate accelerator model has been explored by firms like AT&T, BMW, and Telefónica. These firms have established startup supplier programs to facilitate short-term, flexible collaboration with startups with the intent of integrating newly developed technologies into their core businesses. Under this model, the larger firm will help develop the startup, eventually becoming the smaller company’s first client. Startup supplier programs offer an advantage over corporate accelerators and corporate venture capital, because they allow firms to facilitate direct collaboration between entrepreneurs and their own teams.
For large firms, the goal of working with startups is to increase competitiveness. There are certain key features of startup supplier programs that make them particularly suited to this purpose.
First, startup supplier programs are focused. Unlike CAs, whose goals are broader, startup supplier programs are oriented toward integration of a newly developed technology into the core business. Because existing prototypes are a requirement, startups that participate in supplier programs are often more mature, and may have previously gone through an accelerator program.
Additionally, startup supplier programs offer more flexibility. Unlike CAs and corporate ventures, where funding comes in a fixed round, startup supplier programs work to develop a startup and can provide a variable amount of funding and resources based on the startup’s expected development costs.
Since the startup’s main contacts are in the larger organization’s business unit, direct collaboration in the development of new technologies can be more efficient. This has the added side effect of allowing startup supplier programs to work with more participants that CAs, where collaborations are limited by the amount of innovation personnel running the accelerator program.
Startup supplier programs can also be more appealing to entrepreneurs. Because the collaborative process is oriented around the development of key technologies with known applications, the likelihood of becoming a viable supplier with paying clients is high.
Startup supplier programs share similarities with “stage gate” processes, which emerged in the mid-1980s and sought to bring more discipline to product development.
When applied to the development of a startup supplier program, these stages include identification, where promising startups are evaluated; matchmaking, where the corporate clients determine a potential application of a startup’s technology; piloting, where a short project between a startup and a business unit is conducted; and transfer, where the partners either continue to collaborate on product development, or fully incorporate a completed technology via sourcing. To successfully progress through each stage, the company pass through each requisite “gate” - formal evaluations where leaders decide whether the project should proceed.
To find out more, please read the full article in California Management Review, Volume 62, Issue 3.