Why Most Corporate-Startup Partnerships Fail—and How to Fix It! (My lessons from judging top corporate startup competitions)

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First published in the Business and Financial Times

 

Having had the privilege of judging numerous business pitch competitions across various industries—including the USAID Armyworm Challenge, the MTN Challenge for several years, the Africa Engineering Prize, MIT Solve, the Ghana Government Presidential Pitch, GSMA GLOMO Awards, and most recently the Ecobank Fintech Challenge—I’ve gained deep insights into the intersection of corporate and startup worlds. These competitions are a testament to the corporate sector’s desire to stay attuned to emerging trends in technology and innovation, a vital step in avoiding irrelevance. However, beyond the excitement of the pitch, I’ve observed a consistent gap: many corporates struggle to effectively capitalize on the potential of startup partnerships to truly drive growth.

In this article, I will outline a clear, step-by-step framework for large corporations, especially in the banking and insurance sectors, to not only engage with startups but also build sustainable partnerships that foster strong corporate growth.

1. Streamline Integration Processes

When working with startups, it’s important to make it easy for their solutions to work within the larger corporate system. The aim is to make the process of joining forces as smooth as possible so that both the company and startup can see results faster. Here’s how to achieve that:

Key Elements to Simplify Integration:

1. Assess Compatibility Early:
   • Tech and Business Fit: Before getting started, it’s crucial to check if the startup’s solution can “plug in” to your existing systems and business processes. This means understanding if the new technology is compatible and if it can easily be added to what you’re already doing.
2. Create Safe Testing Spaces:
   • Provide testing environments (think of these as test versions of your actual systems) where startups can experiment without affecting your current operations. This allows you to spot any issues early on, before they become major problems.
3. Provide Easy Ways for Solutions to Connect:
   • Offer well-defined connection points (like simple integration tools or guides) that make it easy for startups to connect their technology to yours. This is like offering clear instructions for a new device, ensuring no time is wasted figuring things out.
   • Example: BBVA, a Spanish bank, created a tool that allowed startups to easily connect their new features to BBVA’s banking systems, cutting down on complexity.
4. Fast-Track Compliance and Contracts:
   • Simplify Legal Steps: Startups often aren’t used to heavy legal paperwork, so create a faster, easier process that helps them meet all the requirements without unnecessary delays.
   • Quick Contracts: Offer pre-drafted contracts to speed up the legal process. This way, instead of long negotiations, both sides have clarity from the start.
   • Example: Deutsche Bank streamlined their processes by using standard, pre-approved contracts, cutting down on time and effort for startups to get onboarded.
5. Assign Integration Support:
   • Have someone on your team dedicated to helping the startup navigate through your organization—someone who can open doors, solve problems, and explain corporate processes.
   • Example: Santander Bank appointed “Integration Champions” to help guide startups through the bank’s systems, ensuring their work remained aligned with Santander’s expectations and avoided delays.

Benefits:

By making integration straightforward and fast, you can see benefits sooner. Streamlining these processes saves resources, reduces frustration for both sides, and helps the startup demonstrate its value effectively.

2. Develop a Partnership Governance Model

A clear partnership model is about setting expectations, agreeing on roles, and having a shared understanding of how things will work together. This structure is essential to make sure both sides are on the same page from day one.

Different Partnership Models:

1. Venture Client Model:
   • Here, your company becomes the startup’s first customer, buying their solution to see if it works for you. This helps the startup validate their idea while you get early access to new innovations.
   • Example: BMW uses this model by hiring startups as direct suppliers, allowing BMW to benefit from new technology without making a big commitment.
2. Joint Venture/Co-Creation:
   • In a joint venture, you create something new together. You combine the resources and stability of your company with the creativity and agility of a startup.
   • Example: AIA Group partnered with a health-tech startup, WeDoctor, to co-create new health insurance products. This allowed both sides to build something they couldn’t have easily done on their own.
3. Corporate Venture Capital (CVC):
   • Your company invests in a startup, not just buying their product, but also owning a small part of it. This is a way to stay close to their innovation while giving them financial support.
   • Example: AXA created AXA Venture Partners, which invests in startups working on new insurance technology, providing funding and a way for AXA to learn and grow through the startup’s progress.
4. Accelerators and Incubators:
   • Your company provides a place where startups can grow. You offer support in the form of mentorship, office space, or connections, often in exchange for a small ownership stake or priority access to the startup’s product.
   • Example: Allianz operates a startup accelerator to help young companies develop insurance-related innovations. Allianz gains early access to these solutions, while the startups benefit from mentorship and market knowledge.
5. Licensing or White Label Agreements:
   • Here, your company uses the startup’s solution but brands it under your name. This is an easy way to adopt their innovation without needing to develop it in-house.
   • Example: ING partnered with Minna Technologies, using their subscription management tool but branding it under ING’s name, helping them offer a new service without starting from scratch.

Governance Structure Components:

1. Joint Steering Committee:
   • Establish a Joint Steering Committee with representatives from both the corporate and startup sides. The committee oversees the progress of the partnership, makes strategic decisions, and manages issues that arise during the course of the collaboration.
   • Example: In ING’s partnership with Scalable Capital, both parties had representatives in a steering committee that oversaw operational decisions and ensured alignment with strategic growth objectives.
2. Clear Contractual Framework:
   • Define the roles of each partner clearly, specifying:
     • Intellectual Property Rights: Who owns the IP of co-developed products?
     • Revenue Sharing Model: How will revenues be split between parties for the new product?
     • Exit Clauses: In case the partnership fails, outline exit terms that protect both parties.
3. Regular Performance Reviews:
   • Set up periodic reviews (e.g., monthly or quarterly) to track progress against agreed milestones. Reviews help keep both parties aligned and address any issues before they become major roadblocks.
   • Example: Mastercard’s Start Path Program conducts quarterly reviews with participating startups to discuss challenges, progress, and next steps.
4. Risk and Compliance Management:
   • Startups may lack experience with risk and compliance matters, which is crucial for sectors like banking and insurance. Develop a governance structure where the corporate helps the startup comply with necessary regulatory standards while managing associated risks.
   • HSBC partnered with startups and provided access to compliance specialists who worked alongside the startup’s technical team, ensuring all solutions were regulation-compliant from the onset.

Benefits of a Partnership Governance Model:

• Alignment on Goals: Ensures both parties work towards shared objectives.
• Conflict Resolution: Provides a clear pathway to manage disputes or misunderstandings, reducing risks of failure.
• Sustainable Value Creation: A structured model means there is continued focus on capturing and maximizing the value from the partnership rather than just short-term gains.

Benefits of a Partnership Model:

• Clarity: Both sides know what’s expected, which reduces the risk of conflict.
• Accountability: With a structure in place, everyone stays accountable, making it easier to hit goals.
• Long-Term Value: Structured partnerships tend to be more sustainable and lead to better long-term outcomes than one-off deals.

 

Build a Long-Term Partnership Network

Key Actions:

• Create Continuous Engagement Programs: Beyond initial collaborations, corporates should keep startups engaged via community-building initiatives, such as alumni networks, innovation days, or ongoing mentorship programs.
• Expand Partnerships Beyond Initial Use Case: Corporates should look to collaborate with startups on new projects over time, building a portfolio of innovations that align with their broader corporate objectives.

Real-Life Example:

ING’s Fintech Village: ING created a Fintech Village in Brussels, where it not only partnered with Fintech startups but also developed a long-term ecosystem that supports innovation beyond a single engagement. Startups that go through the Fintech Village continue to work with ING through mentorship programs, workshops, and alumni events. Many startups from the first cohort still collaborate with ING on new projects, allowing ING to remain at the forefront of innovation in financial services.

Data:

A Boston Consulting Group (BCG) report found that corporates who foster long-term partnerships see an average 2x increase in the value created compared to those that do one-off deals. Additionally, corporates with continuous startup engagement report 30-40% higher innovation success rates over a 3-5 year period.

 

Conclusion:

For corporates to fully leverage startup partnerships, they must focus on streamlining integration, establishing robust governance models, measuring impact for scaling, and building long-term engagement networks. By following these data-driven approaches and learning from real-life examples, banks and insurance companies can unlock sustained growth and innovation from startup collaborations.