IT leaders looking to accelerate their innovation agendas have a partner-in-waiting in the startup ecosystem. By linking up with startups, CIOs can greatly expand their opportunities to experiment with emerging technologies and augment their in-house innovation programs. And the market for doing so remains robust for corporations looking to make the most of the model.
Despite a volatile economy, corporate venture capital investments in startups fell by only 2% to $192 billion in 2022, compared to a 25% drop in overall venture capital. In addition, the percentage of corporate-backed deals in early seed rounds increased from 10% in 2021 to 18% in 2022. The implication is that while some businesses are cutting costs and many tech companies are announcing layoffs, forward-looking enterprises are investing and collaborating with startups.
While there are several pitfalls to avoid when partnering with startups, there are also best practices that can improve the enterprise’s potential for business success, the startup’s growth opportunities, and the CIO’s career outlook. During a recent Coffee with Digital Trailblazers event that I hosted on how enterprises can work most effectively with startups, several panelists and others shared insights on developing two-way partnerships between CIOs and their leadership teams with startup founders.
Organize frequent startup pitches and demos
With venture capital investment continuing to fall in 2023, more startups should find themselves eager to partner with enterprises, and that presents IT leaders a wealth of opportunities to improve their innovation outlook.
Joseph Puglisi, a former CIO who is now an investor, advisor, and board member, believes CIOs have tremendous opportunities to bring value to their enterprise by partnering and investing in startups. “The CIO may gain an advantage by investing in startups, acquire new and unique capabilities for their company, and gain an additional benefit of steering the development of the product or service,” he says.
But CIOs should remain strategic. They must evaluate a potential partner’s capabilities and customer satisfaction, determine any compliance factors, and develop relationships with founders when considering startup partnership opportunities.
And they should consider this process from the startup’s perspective as well, says Blaine Mathieu, CEO of Pratexo, advocating for a streamlined, standardized process. “Establish a clear, transparent, and efficient process for startups to engage with the large enterprise,” he says. “This may include a single point of contact, an online portal for submitting proposals, and a standardized evaluation framework.”
One best practice is to create a yearly schedule for startup pitches and define a theme for each event. The approach makes it easier for VCs and third-party innovation agencies to propose startups that deliver capabilities aligned to themes selected by the enterprise. The CIO can also maximize the audience by inviting the company’s technology and business leaders to attend events that align with their interests and business needs.
Share your goals and success criteria with the startup
CIOs may need to define alternative rules of engagement when sharing information with startups compared to how procurement organizations lead the evaluation and negotiation of large contracts. Large contract negotiations are driven by pricing and service levels, so what information is shared with vendors is managed through a controlled process.
When evaluating startups, the overwhelming recommendation is to be more upfront and transparent with the startup. “Define the goals of the collaboration from the outset and ensure both parties understand the desired outcomes and are aligned in their expectations. Don’t make the startup guess,” says Mathieu, adding that CIOs should provide clarity around budgets and approval processes in particular. “This may involve adjusting procurement processes, contract terms, or decision-making structures.”
Joanne Friedman, PhD., CEO, and principal of smart manufacturing at Connektedminds, suggests that CIOs envision how the startup relationship might evolve longer term. “Startups are exciting and filled with potential, but CIOs should be clear about what they seek. A digital venture you can nurture and spin off, a collaborator-partner you can deeply influence, or just a very reliable and responsive technology supplier?” CIOs should have plans for the upsides and also develop risk mitigation strategies.
Address culture when partnering with startups
CIOs can use startup partnerships as a catalyst to accelerate organizational culture changes. “We think weeks; they think months,” says Mathieu of the startup mentality. Transformational CIOs can thus use the partnership to illustrate how their organization can speed up decision-making and reduce collaboration impediments, he says.
“Startup culture is intense and hyper-paced, while corporate culture, whether remote or in the office, is far calmer,” says Friedman. “Blending the two can be as difficult as creating a blended family.”
Mathieu recommends being flexible and adaptable. “Large enterprises should prepare to adapt their processes and culture to accommodate startups’ more agile and dynamic nature,” he says.
CIOs should define a specialized co-creation model, optimized for collaborating with startups, that can be very different from their in-house development strategies and partnerships with larger service providers. For example, startups are likelier to have advanced devops practices that enable continuous deployments and feature experimentation. Partnering with startups is a great opportunity to partake in how applying these devops capabilities can improve end-user experiences and accelerate application development practices.
CIOs will likely find people in their organizations who naturally fit startup culture and speeds. But driving a culture change requires exposing more people to how startups operate. Taking people outside their comfort zones isn’t easy, and Friedman recommends that CIOs seek internal partners for assistance. “Get support from HR or bring in a coach to help you get the right atmospheric synergy to create the high-performance team you want,” she says.
Mathieu shared these recommendations on how enterprises and startups can ensure early excitement and enthusiasm for the partnership leads to ongoing success:
Establish key performance indicators (KPIs) to measure the success of the collaboration and regularly review progress.
Celebrate achievements and share the results within the organization to encourage further collaboration with startups.
Large enterprises have a wealth of experience and industry knowledge that can be invaluable to startups. Offer mentorship, advice, and guidance to help startups refine their products, services, or business models.
Build beyond the basic partnership model
CIOs and startup founders should also look beyond their partnership objectives to consider the follow-on benefits of establishing an ongoing relationship with one another.
For example, CIOs should take advantage of the startup founders’ networks and seek introductions to venture capitalists and other startup founders. To reciprocate, Mathieu suggests CIOs help the startup expand its reach and build credibility by connecting founders with other potential customers, partners, and investors.
Frank Diana, managing partner and futurist at TCS, says startup partnerships are just the beginning of a more open operating model. “The future of partnerships centers around horizontal ecosystems,” he says. “Organizations must view themselves as composable building blocks that can be organized and reorganized around emerging disruptors and opportunities.”
CIOs with a systems architectural background understand the appeal and value of composable building blocks and architectures. The implication is that the enterprise can start with a basic or commodity capability, then consider replacing it and experimenting with a differentiating and innovative option developed by a startup.
Diana continues, “Enterprises should prepare to unbundle themselves and work across an ecosystem of startups, educational institutions, and governmental entities to compose organizations around internal and ecosystem assets. Startup partners can fill the gaps in these services by providing specialized capabilities traditionally delivered by internal portfolios.”
Consider the career enhancement opportunities
Beyond the benefits to their businesses, CIOs should view startup partnerships as learning and career-expanding opportunities.
“The CIO can become a startup investor, expand their visibility to new technologies, and learn how to separate the wheat from the chaff through due diligence,” says Puglisi. “The CIO can also become a startup advisor, learn how to sell the benefits of technology in a highly competitive market space, and sharpen their business acumen and communications skills.”
In a world where emerging technology capabilities become mainstream far faster than enterprise velocities, startup partnerships are a significant opportunity for CIOs to drive benefits for their organizations and themselves.
Digital Transformation, Innovation, IT Strategy, Startups