The Right Way for an Established Firm to Partner with a Startup

One of the great ironies of digital transformation is that disproportionate impact can so quickly emerge from seemingly tiny steps.

For innovation-hungry legacy firms, partnering with a startup can be appealing. Relatively small sums of time and money can quickly yield generous returns. These partnerships can go beyond good results and energize organizations that have become too comfortable or complacent with everyday routines.

In return, the startups typically get valuable references or valued customers.

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Piloting with startups should be about demonstrating value, not closing deals.

“Startnership” success, however, is all too rare. The majority of aspiring startup partnerships I see go horribly and expensively wrong. Mismanaged expectations, blown budgets, slipped schedules and mutual contempt run rampant. With apologies to Tolstoy, all happy startup partnerships are alike; every unhappy innovation partnership is unhappy in its own way.

Creating value

The key common denominator to success isn’t careful planning and comprehensive analysis but taking fast, cheap and simple pilots seriously. Lean pilots represent the fastest, simplest and cheapest test of a desirable “innovation attribute” to determine – with the least possible effort – its most likely business value to the firm.

Successful pilot partnerships favor fast focus over comprehensive planning. They don’t seek to assess how well an innovation works. They try to measure how well that innovation works for the possible partner. This type of pilot works because it doesn’t prioritize sales or procurement over real-world learning.

Piloting with startups should be about demonstrating value, not closing deals. But that value can’t – or shouldn’t – be incremental because otherwise, the pilot literally isn’t worth it.

The most interesting tension I consistently witness in startup-legacy partnerships is the battle between the business and technical sides of the legacy partner. Technical people hope the pilot effort will seamlessly operate with existing tech infrastructures and processes while business folks look for efficiencies, better customer experience and key-performance-indicator alignment.

More often than not, however, these tensions prove remarkably valuable. Both sides of the firm are pushed to collaborate faster to get the trial done well. Pilots always surface previously unknown or unanticipated enterprise issues.

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A little learning with little startups can profitably redefine how incumbents can co-pilot new value.

Fortunately, they tend to be manageable.

Simpler, safer and more scalable

Smart startups (the ones that survive, anyway) learn how to facilitate innovation adoption, not just sell new products and services. This sharply contrasts with typical legacy reactions to more comprehensive testing or innovation rollouts – in other words, resistance and confusion.

Legacy firms striving to build innovation alliances typically discover that cultural and organizational obstacles matter far more than technical or financial ones. Pilots can help facilitate cultural and organization change.

In this respect, the key to a pilot’s success is its very lack of ambition. Precisely because it doesn’t try to do too much, it appears less risky, less threatening and less disruptive. Pilots become the least disruptive way for enabling disruptive innovation partnerships. They make collaborative learning simpler, safer and more scalable.

One clear sign of pilots’ cultural influence and success is when even “failed” tests elicit the comment, Imagine how much more time-consuming, expensive and wasteful this would have been if we had tried to do more.

One of the great – and welcome – ironies of digital transformation is that disproportionate impact can so quickly emerge from seemingly tiny steps. Even better, a little learning with little startups can profitably redefine how incumbents can co-pilot new value.

This article originally appeared on Harvard Business Review and was republished with permission.

Michael Schrage is a research fellow at MIT Sloan School’s Center for Digital Business.

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