The Academic Perspective on Venture Clienting and it’s Success Factors

Why Corporations Should Consider Collaborating With Startups

Corporations can benefit from collaborating with startups for a number of reasons. First and foremost, radical and complex innovations are developed through collaborations with external partners [1].

Corporations can also leverage the disruptive innovation power of startups to accelerate their innovation cycles or make processes more efficient and cost-effective through innovative techniques.

‍Startups in the high-tech sector are particularly important for corporations because they represent an essential source of technological innovations [2].Corporations can also benefit from startups through the way of working in startups showing established companies new and agile organizational approaches. Those often face a risk for increased inertia and path-dependency but working with startups can open the corporations' work culture and broaden their horizons [3]. In general, research finds that collaboration with startups is positively associated with firms' business transformation [4].

However - just like startups - corporations have to evaluate the benefits of collaborations against their costs. Hence, corporations are advised to better understand and evaluate their capabilities and based on their various capabilities build a portfolio of different startup collaboration initiatives in order to manage a more holistic transformation of their business [3].

When Startups Should Think About Collaborating With Corporations

‍Startups often seek resources to survive and progress but also face risks when partnering with established players. The benefits of startups collaborating with corporations are clear, spanning from reduced development costs and market risks, thanks to access to knowledge and resources, to early engagement with the corporation's market and customers for valuable feedback on product-market fit, and leveraging the established company's brand, customer base, and distribution channels.

However, there are also risks to collaboration with corporations for startups such as resource misuse or expropriation. Research suggests that collaborations with established players can be beneficial for startups if they engage in a strategy of relational pluralism, creating diverse and deep ties with partners [5]. This approach grants legitimacy but becomes less effective if the startup becomes overly reliant on a few partners or gains redundant resources.The benefits of collaboration must outweigh the costs of dependence and redundancy. Corporations particularly turn to high-tech startups for strategic collaborations to gain the knowledge and capabilities required for new technological product development.

While such collaborations can be beneficial for high-tech startups, hastily formed collaborations may risk the startup's proprietary knowledge and competitive position. High-tech startups may thus struggle to effectively select and contract partners due to limited resources and experience.

Empirical research shows that startups should not only evaluate the availability of experience and resources for entering a collaboration but also their degree of specialization in technological capabilities. In particular, high-tech startups should carefully align their technological capabilities with the goals of the collaboration [6].

Success Factors for Corporate-Startup Collaborations

‍Collaboration between corporations and startups can be highly beneficial if risks are effectively mitigated and a suitable match is found. A good match entails not only the contribution of complementary and available resources by both the established player and the startup but also the alignment of their strategic goals for the collaboration.Grasping the nuances behind why corporations and startups collaborate can prevent counterproductive partnerships that impede performance and threaten survival.

For corporate managers and entrepreneurs, this implies a critical need to transparently evaluate the strategic goals of both parties in detail, if they can achieve these goals together better than alone, and how each of them will contribute to goal achievement. If corporations and startups match in their strategic alignment, resources and competences, this will be the basis for a successful collaboration, i.e., a joint value creation process [7]. ‍While the fit in objective characteristics between established company and startup may be comparably easy to determine if made explicitly transparent, determining the fit in soft factors can be a bit more challenging, if not made explicit. Crucial soft factors to consider when seeking to enter a collaboration are if both companies match in their interorganizational trust, uncertainty tolerance, and communication.

‍Trust is based on benevolence, competence and integrity and if these principles guide the behavior of corporations and startups they can alleviate concerns about opportunistic behavior [8]. Uncertainty tolerance describes the way complex situations are handled and how decisions are made given incomplete information [9].

‍Communication deals with how corporations and startups communicate on a regular basis and how they decide in conflicting situations [10]. If corporations and startups match in their soft factors, this additionally increases the likelihood of a successful collaboration on top of their fit in objective characteristics.

‍About the Author: Prof. Dr.Theresa Treffers

‍Research group leader @TUM

‍Theresa's research focuses on the prediction of startup success based on the team, on diversity, equality, and inclusion in startups and corporates, and on the transformation of work, collaboration, and leadership through digitalization and AI.‍

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‍Footnotes:

‍[1] Tether, B. S. (2002). Who co-operates for innovation, and why: an empirical analysis. Research policy, 31(6), 947-967.

[2] Kohler, T. (2016). Corporate accelerators: Building bridges between corporations and startups. Business Horizons, 59(3), 347–357.

[3] Steiber, A., & Alänge, S. (2021). Corporate-startup collaboration: effects on large firms' business transformation. European Journalof Innovation Management, 24(2), 235-257.

[4] Steiber, A., Alänge, S., & Corvello, V. (2021). Evaluating corporate-startup co-creation: A critical review of the literature.International Journal of Innovation Management, 25(07), 2150073.

[5] Knoben, J., & Bakker, R. M. (2019). The guppy and the whale: Relational pluralism and startups' expropriation dilemma inpartnership formation. Journal of Business Venturing, 34(1), 103-121.

[6] Haeussler, C., Patzelt, H., & Zahra, S. A. (2012). Strategic alliances and product development in high technology new firms: Themoderating effect of technological capabilities. Journal of business venturing, 27(2), 217-233.

[7] Kohler, T. (2016). Corporate accelerators: Building bridges between corporations and startups. Business Horizons, 59(3), 347–357.

[8] Gulati, R., & Nickerson, J. A. (2008). Interorganizational Trust, Governance Choice, and Exchange Performance. OrganizationScience, 19(5), 688–708.

[9] Furnham, A., & Marks, J. (2013). Tolerance of ambiguity: A review of the recent literature. Psychology, 4(09), 717-728.

[10] de Wit, F. R., Jehn, K. A., & Scheepers, D. (2013). Task conflict, information processing, and decision-making: The damaging effectof relationship conflict. Organizational Behavior and Human Decision Processes, 122(2), 177-189.

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