Startups for increasing the income or cost-effectiveness of a large organization
You can clearly see in the world of large organizations the interest in building added value together with startups. 68% of companies on the TOP 100 Forbes list are involved in relations with startups (source: 500 CORPORATIONS_-_How_do_the_Worlds_Biggest_Companies_Deal_with_the_Startup_Revolution_-_Feb_2016.pdf)
Are startups an opportunity for the development of large companies? If so, how does it work?
Every business organization needs at least five elements to serve its customers, settle liabilities and bring profits to shareholders.
- Cash – is an essential element because it is the bloodstream of the corporate organism. No cash is knocking on the door of the company, there is no possibility of efficient functioning. Regardless of whether we are talking about a non-profit organization or a profit-making organization. Cash is a proof that a company has a product that is accepted and desired by the market.
- Margin – is, among other things, proof that a company has or does not have an effective cost structure. The ability to build and maintain an effective cost culture is the result of the organization’s maturity as well as its management team skills and experience. Any organization that does not care about the cost structure will sooner or later end its life. Taking care of costs means also investing in new technologies and new business models which influence profit margin as well.
- Team. Talent – is the third, important component of effective business organizations. The fight for talents is fierce and will be even more in the future. Companies that want to take the lead in the high-tech industries need outstanding specialists led by outstanding leaders. Building highly competitive teams is extremely difficult. The supply of talents has always been incomparably smaller than the demand for them reported by companies.
- Organizational structures adapting to market changes faster than competition are critical. In this respect, the challenge is also not trivial. Heavy, costly structures that will adjust to the market with a significant delay will have to die. This has been proved by such enterprises as Nokia, Blockbuster, Polaroid. The same time Amazon, Apple, Dropbox have shown that flexibility allows you to build new business titans and steal markets from the old boys.
- Customers and, to be more exact, knowledge about them, the ability to address their needs – that is, obvious matters and clear for most managers. The more you know about customers, the better a chance you will ship what is expected.
So how can startups help large organizations and, above all, where is the motivation of large organizations to cooperate with these small, weak creatures such as startups (please remember 9/10 dies, only one becomes something)?
The answer lies in the way how startups are created and what is their DNA. Great startup team, before undertaking the challenge of entering the market, ask itself if the product that the startup intends to build has business sense. Whether the assumptions the startup team made about the product are right. So, from the first days of startup existence, startup holds out ear (or at least it should) and tries to be customers driven. It dreams about customers screaming loudly “add this functionality at such a price please, and remove this one because I do not need it.” Startups strives for customers voice.
Startup has mostly no chance to blow up its costs, which is why in the initial stages of development the cost structure of the best startups remain highly effective. The teams are small, the task list is precisely tailored, the resources used as productively as possible. Startups, for example, use freelancers to keep up with light cost structures.
In the space of talents, examples of companies such as Apple, Google, Yahoo, Tesla, SpaceX show that the creators of these companies have this amazing ability to glue the best minds around the mission of the company. Especially in the early stages of the project. Leaders of startups can connect many beautiful minds around the next big thing.
Now, however, the most important – cash. Can a large company have more of it thanks to startups? If it chooses a startup properly, of course it will.
In 2010, Apple acquired Polar Rose, a company that specializes in face recognition. The takeover amount was microscopic, $ 29,000,000. If any of you own an iPhone X, you can certainly answer the question how the acquisition of Polar Rose influenced the amount of cash on Apple’s bank accounts.
Another example is the takeover of TaskRabbit by IKEA. What is the acquisition for? Why does IKEA bother with a startup that helps people to clean the garden or find a plumber? For shortening the time that people need for assembling IKEA furniture. Accessibility affects the consumption. Therefore, TaskRabbit will have a positive impact on IKEA’s revenues due to the fact that it takes away the problem of furniture assembly for little money. Easier to have a furniture set up means more transaction in IKEA stores. Lower installation costs and there is a positive impact on the margin as well.
Similarly, BMW cooperates with ZenDrive, a startup whose aim is to give drivers points for safe driving, reading data from a smartphone mounted in a car. Has BMW made it for fun? Certainly for revenues from a completely new market. The motor insurance market. The safer you drive the less you pay for your insurance, as simple as that.