The corporate-startup handoff is broken. Here’s how to fix it

Successful startup-corporate partnerships — the full adoption of startup tech or integration into a corporation’s business unit — are a relatively rare outcome. Corporate executives want to know how startup adoption will help their bottom line: will it open new markets and increase efficiency? Is it relatively easy to adopt? 

Even when there is a good match, the transition often gets lost in corporate friction and complexity, because of corporate incentives, a lack of capacity or mismatching expectations or a combination of those three.

“If we want to move slow [on decarbonization], it’s working just fine, but we don’t have time. If we factor in the time horizon, the incentives to move at the pace we need are 100 percent broken,” said Cyrus Wadia, CEO of Activate, founded in 2015 to bring scientific innovation to market, and former innovation lead at Nike and Amazon.

Sources of friction 

In order to hit sustainability goals at the speed that is needed, corporations need to get this handoff right. Let’s look first at the obstacles to success: 

Corporate incentives

Corporate boards are conditioned to respond to quarterly results, managing risk and profits on short time horizons. At a fundamental level, sustainability is at odds with traditional corporate governance because sustainability initiatives are long-term strategies, taking years to materialize.

The same is true for innovation within corporations, particularly on climate tech. Not every startup is built to become profitable in a three-year window, and not many large corporations have the patience to nurture new technology, build markets and the infrastructure to access them. 

Lack of capacity

Startup adoption in corporate business units is hard. 

Technical challenges are common; it takes time for business units to understand the tech and even longer to integrate it, and corporate bureaucracy slows down the process as innovation managers need buy-in from corporate leadership to run with a startup partnership, which can take months or years. 

Mismatch of expectations

Startups and corporations operate differently: startups move fast and corporations move slow. Startups need corporations as a partner to help prove their technology and collect impact metrics; corporations want to see proven capabilities and existing markets before taking on the pilot or deployment. This mismatch causes friction from the outset. 

How can corporations work better with startups?

• Align incentives: Corporations should reconsider their governance structures to incentivize sustainable innovation on par with other business objectives. This could involve reshaping incentive models to reward long-term sustainability outcomes.
• Create demand signals: Corporations can proactively help shape market demand for sustainable technologies. By providing clear signals of their needs, corporations can guide startups and investors, streamlining the innovation process.
• Enhance risk tolerance: To expedite the adoption of climate technology, corporations must become more risk-tolerant. Streamlining approval processes and greenlighting pilot projects more swiftly can facilitate faster technology testing and deployment.

Corporate innovation managers work to de-risk the startup adoption process as much as possible to get buy-in from leadership. “When applicable, we favor ‘venture clienting,’ where we pilot startup solutions in a shorter, low-risk trial period to test the product fit. When we prove a solution works in a smaller pilot in our business, it’s a more compelling argument to invest in a startup,” said Gus Manke, venture clienting manager at Siemens Energy Ventures. 

How can startups work better with corporations?

• Research the corporation: This seems obvious, but I’ve heard numerous stories of unprepared startups. Startups must understand the corporation’s products and services and clearly communicate how their tech valuably plugs in. 
• Know whom you’re talking to: To effectively navigate corporate bureaucracy, startups must understand whom they’re talking to: engineers, product managers, business development? Asking the right questions will help startups find the right business unit to champion and adopt their technology.
• Clarify benefits: Startups must demonstrate clear measurable benefits on how the corporations would be better with their solution vs not.

“Startups can get lost in the amorphous pilot mode,” said David Cutler, CEO and co-founder of the circular materials startup Fortuna Cools. “Corporations take on risk when working with sustainability startups because procurement teams aren’t evaluated on innovation or sustainability metrics; their entire job is focused on purchasing the lowest cost materials with the lowest risk.” 

The keys are finding the right internal champions and communicating effectively — understanding the audience. Fortuna had to win the C-suite with the story and impact potential, and win the operations and procurement teams with metrics tied to their KPIs, such as low cost and low risk adoption, said Cutler.

The simple partnership agreement  

Activate created a simple agreement template, known as SIPA, for startups and corporations to accelerate the startup-corporate handoff. It’s designed to address handoff bottlenecks and is free to the public.

There are plenty of incredible entrepreneurs, climate solutions and early stage resources out there. We just need to get them in the corporate ecosystem faster and help them and their partners navigate these friction points better.