Nowadays, big companies and organisations are investing in business development initiatives and startups because they need fuel for innovation, they have a desire for top talent, and they need to maintain a competitive advantage. They are holding entrepreneurship contests, investing in startups, and bringing on entrepreneurs in-house. It’s for this reason that, in the war for talent and innovation, investing in startups is an avenue that many organisations leverage.
With this in mind, it can still be baffling to some that such corporations often promote a business strategy of actively seeking out and investing in promising startups. There are a variety of reasons as to why startups and business development initiatives can prove to be invaluable investments for large organisations – I’ve highlighted a few in the sections below.
Large companies are significantly accelerating their pace of growth-oriented innovation, augmenting internal ingenuity by aggressively tapping into a broader marketplace of ideas and business opportunities – innovative startups. These startups allow big companies to sample new technologies or product categories that might become a part of their businesses without the direct expense of staffing an in-house unit.
Investing in an existing startup or in initiatives that foster business development with a product/service that has already proved its value is often seen as a faster and more reliable source of innovation than traditional Research and Development teams. Corporations such as Google utilise investment wings of their company to identify unique economic opportunities and innovative startups across the globe.
Part of this trend is driven by economic necessity. When both profit margins and a corporation’s position in the global marketplace are endangered by Research and Development projects not fully blooming, providing funding and networking opportunities to existing technology is often a far more attractive solution. Typically, investment teams will seek out startups to complement their own niche within the industry and/or expand into an entirely new venture. Such a strategy ensures a corporation can maintain a focus on its brand while also extending upon the functionality of its services.
Everyone is looking for the next big thing. This is especially the case for any corporation looking to maintain its edge within the marketplace. However, as any entrepreneur knows, market disruption can come from a number of places. This is why corporate investment branches may also be on the lookout for potential competitors or market revolutionaries still in their early stages to get them on their team early on.
Identifying market game-changers in advance can be the best way to ensure a large corporation is able to get in on the game or successfully adapt if a market change is imminent. The best startups typically have products and services that have the critical edge to outperform existing groups within their respective industry.
Occasionally, it’s easier for a corporation to rely on the groundwork already provided by a startup when working within an unfamiliar region or locality. Rather than focusing on funnelling money into researching potential market entry points and understanding local trends and tastes, turning to a startup with a pre-existing foothold or an insightful outlook on an area can be a safer way to spend money.
By teaming with start-ups, large companies can take advantage of the smaller partner’s nimbleness to enter new regions, using newer channels of engagement. For example, Unilever recently backed seven innovative digital companies as part of its “Go Global” program, giving each company funds, mentoring, and a range of services in exchange for a customised digital marketing pilot for its brands. The campaigns will go live across Africa, Europe, and Asia.
A smaller company is more agile. Therefore, it’s easier to make decisions and implement plans without multiple layers of management having to sign off on each action item and being bogged down by various bureaucratic formalities.
This, of course, is just a few reasons as to why corporations often seem to take interest in startup investment. There are a plethora of other reasons why organisations may venture into adopting a startup into their investment portfolio, which we’ll explore in subsequent articles. Until then, for more information on the complex interactions between startups and larger corporations and how they shape the economic landscape of today visit JumpStartMe.