Should your startup apply to a corporate incubation program?

Business medias are crazy about industrials working with startups, but we seldom discuss how should startup apply to corporate incubation programs. Shall we try to do that?

Startups have become a cheap excuse for corporations in lack of innovation strategy. It’s not even breaking news; if you’ve been in the business of guiding companies through the innovation minefield for a while, you’ve already endured several trends coming and going every three or four years. Open innovation, intrapreneurship, design thinking, now startup incubation programs.

These trends pretty much rely on the same narrative:

As a big corporation, our natural inertia drives our competitiveness in the ground. Facing disruption from nimbler and more digital-ready competitors, we need to find new resources to reboot our innovation skills.

This narrative is pretty much an honest one.

What poses problem is that multinationals too often seek straightforward recipes to solve their innovator’s dilemma. It’s way past lazy; it’s irresponsible. But I won’t dwell here on the corporate perspective — I’ve started to write a few things on how to write a dedicated playbook for corporate incubation here and here, and a full article (in French) on the failure of innovation methodologies.

Instead, let’s examine the perspective of startups in that game, which is rarely considered by anyone.

The ways large corps can partner up with startups are many. It’s not limited to corporate incubation, but I’ll stick to this mode because it’s as for now, the most talked — if not spread — about.

I want to be extra sure that you understand I’m not touching straightforward investment or acquisition deals.

If you’re a startup, this is about the fuzzy stage before real money and capital are exchanged — if that happens. This is about the flurry of initiatives where industrials will try to get startups on board of a program with the words ‘incubation’, ‘agility’ or ‘digital.’ This is about you, not wasting your time in a clueless corporate initiative, while you’re still not making money on the market yet.

In term of corporate incubation initiatives, the supply and demand have always been very imbalanced. And, despite what most startups would think, they are the ones in short supply, even if by nature most of them will die by cash flow depletion within six months.

As a startup, if you doubt that you have such a bargaining power, rapidly check in your ecosystem how many industries are calling for startup initiatives, or how many corporate incubators were created around you last year. Wherever you are, the numbers are staggering.

Everyone is fighting to sustain some level of interest and attracts startupers in the gravity field of their market.

What should you do about it?

corporate incubation roulette - merkapt

Well, when you consider partnering with an industry leader or entering a corporate incubation program, things will look like a gamble.

It’s not. Let me offer a conservative checklist of the due diligences you should make before signing up for anything.

Let me offer a compact checklist of five critical questions you should answer in that very specific order before you get into any program:

1. What’s in it for you?
2. What’s the track record?
3. Who’s in charge?
4. What will be on paper?
5. Who’s going to try to kill you?

Let’s examine them step by step, shall we?

1. What’s in it for you?

This question is not as trivial as it seems. For many startups without experience considering partnering with a big name corporation, there are obvious envies that are entirely misplaced.

There are basically two types of fantasies a startup will entertain:

  1. First, their worldwide recognition will put your unknown project in the spotlight, create brand value by association, and give you credentials to convince banks, investors, and potential customers.
  2. Second, they will open resources and contacts that you don’t have access to, speeding up overall time-to-market, and in some cases be the first leading customer, or add your offer to their portfolio.

In theory what’s in it for you should be that simple. In practice, the story is entirely different.

The first fantasy you entertain about sharing brand value is somehow correct, but it’s extremely weak and highly volatile.

As soon as you get in a big name corporate incubation program, if you know how to spin the news, you might get the same brand impact as getting invited to a local news TV show. We’re speaking of a two to three days attention peak. After that? You’re back to normal.

This lackluster result stems for what we evoked about the explosion of such programs. At the end of the day, who’s not incubated by Google or Microsoft? So OK, getting in does indicate your project might have some value, but you’ll be instantly drowned in a mass of other startups that got selected. Right now it seems that provided you don’t want to bomb a plane and write it down in a business plan, you’re in.

There is also the fact that most of these programs just don’t know what they are doing and after two to three years, it starts to show.

Sorry to burst your bubble but the corporate incubation program you find so sexy, might just be there to communicate to the stock-market on the fact that they are close to the high-velocity disruptive actors of the market (that would be you). On the other hand — and this is somehow worse — some of them genuinely believe that putting you in an office next by, will allow their complacent teams to inhale your luminiferous aether energy and morph them into intrapreneurs. More than often, it’s simply a case of a plain bored department in free ride mode trying to work on cool things for a year or two before they’ll have to deliver something real.

Brand value in all this? Not so much.

The second assumption you have about resources, contacts and joining forces with them is plain enough to make sense, except they might have no reason to share.

Let’s go back to the fact that most programs don’t have a solid strategic purpose to work with you. Understand that as such you’ll get nothing past a table in a redecorated office close to the cafeteria, and weekly meeting where they’ll try to understand how you’ll make a million euro next quarter when you only have for now two hundred unique visitors a month.

Unless you’re in biotech or pharma, where everything is pretty much square — if not very friendly –, let me reiterate: they probably don’t know what they are doing with you. It means that there’s no way you’ll get access to anything valuable unless you’re good at corporate guerilla, meeting room backstabbing, or coffee machine politics.

The thing is, you are a startup. You don’t have this kind of time and you have other expertise to develop beside these.

In the end, forget all your fantasies. If you want to move in a big-name corporate incubation start by challenging your assumptions and be perfectly specific about what your startup intends to get out it.

This is how to do it:

  • List specifically what you want to obtain or achieve. Give a metric to each item, a timeline, and a priority. Don't be greedy, but aim for things that will significantly speed up your very own agenda.
  • Present it and discuss it with the formal or informal board of your startup (you have one right?). If it's unrealistic or if it's too vague, stop right there. Pass on the opportunity you're not ready.
  • If it seems doable, then present your clear expectations to your potential corporate partner. Take the acceptable risk of not asking for any contractual document (except if IP is involved) and time how long it will take for them to say yes or no. If it's more than one week, you're unreasonable, OR they are not prepared to commit. Then again, pass on the opportunity.
  • If they demonstrate they understand your precisely explained expectations and are agreeable to them (with unavoidable adjustments), then you can move forward to the next question.

The central idea is that getting your startup on a scalable market before cash-flow depletion is the non-negotiable top priority.

This is about you succeeding at launching a business, not getting selfies with rock-star CEOs, getting invited to high-profile events, or being able to add prestigious logos to your website.

2. What’s the track record?

Unlike the previous one, this is a simple assessment. Once you have identified a program that could work for you and deliver the specific results you aim for, you have to check the track record of said program. The majority of them are now a few years old, even in Europe. They have worked with dozens of startups each.

Ask the question: where are the startups from three years ago?

If anything, corporations tend to be predictable in everything they do. Even if the manager of the program has changed, the infrastructure, the mindset, and the culture will be stable.

In the end, the few really shitty corporate incubation programs are very well-known. Ask around; they are already red-flagged. Unless you don’t want to know, you’ll know.

Most programs though are trickier to assess.

They may not have been through enough startups yet to score a few wins. You may encounter very active and committed potential partners that are just launching the initiative and evangelizing to their own top management…

If there’s no positive track record, assume there won’t be and move away.

This is probably harsh, but again keep in mind you don’t have the time to play around and waste even a few weeks in a dead-end. This is about you, not them and you cannot waste your time on goodwill and positive intents. If they haven’t delivered yet they are a distraction from your core mission. Move away.

In any case, this should be the practical approach:

  • Find out what other startups have been in the program these last few years, and determine their situation as for now. If all of them are dead, go away.
  • If some of them survived or were even somehow successful, track key members of their team on Linkedin, connect with them and ask for an off-record honest debrief of their experience.
  • Match if what they got out of the program will be what you decided you needed from question 1. If it's the case move to the next question!

3. Who’s in charge?

Now, say that you know what you need and have identified a corporate initiative that matches what you expect with a good track-record, what’s next is to determine who’s the executive in charge.

Like the previous point, this one is also very straightforward. I know that I’m about to write will be shocking, and I do have several examples of me being wrong about it, but here it is nonetheless:

If the leader of the corporate startup program you are considering is not a senior VP or a member of the executive committee, move away.

I don’t want to be demeaning for junior managers or senior engineers in charge of such incubation programs. They may be perfectly skilled in leading them, but the thing is that such programs when successful are under immense internal political pressure.

You might think it’s nonsense and that a program that delivers will be on the contrary a gold mine for any corporation. But no, it’s not.

This is real life.

Unless it’s backed up by a key influential figure within the organization, the rest of the managers will try to kill it.

You have to understand that any startup achieving better results than a core business unit or the R&D department will activate the corporation’s immune system. And its antibodies will prove incredibly powerful. Unless there is a high-profile and influential executive leading the program, it will be stalled and eventually stopped, or cornered in a vague HR gizmo initiative.

The only kind of partnering with startups that a corporation will not try to attack from within are vanity programs. And you don’t want to be in these right?

Then you have to deal with reality.

4. What will be on paper?

We’re closing in now and have a perfect alignment of planets: you know precisely what you want to get and you’ve found a solid program with a strong leader protecting it from the rest of the organization.

The next question is a bit touchy. It’s about putting a deal on paper.

Remember we are not talking about investment or acquisition of your startup. This is supposed to be a friendly collaboration between you and a large corp, and friendly is good.

But in the long term friendly doesn’t cut it in business.

In that regard, I could be shy of engaging preliminary discussions on your incubation with draft contracts, jurists or attorneys, but eventually, you’ll need to get there. The question is when? When are you going to ask for a written agreement or a contract, stating what both parties commit to?

The usual way I deal with this question is as follows: since you’re considering a program that demonstrated some level of success, and you know what you expect for your startup then…

Draft a letter of intent and share it with the executive leading the program. Chances are they already have their own template if they have a track record.
Add a two-part statement. Part 1: what do you expect (question 1.) and Part 2: what are you ready to deliver in exchange.
Finalize a contract... at some point.

I’m not going any further with my recommendation here for one simple reason: it will depend on the context. There is no unique scenario to offer, and you may never finalize this contract. It would be uncomfortable but won’t necessarily shout move away…

Just consider that some large companies are more or less regulatory-based than others. If you’re in retail, luxury, or web services, you’ll probably face fewer regulations than in airlines or medical businesses. And in any case, be wary if working in fintech or insurtech and not getting any contract done.

As such, you will have to adapt the extent of what you’ll put on paper, and how soon it will be OK to ask for it. There’s a delicate balance in being flexible about it, and obtaining formal commitment.

But there is another difficulty here which is even more important than the paper thing: many startups are initially quite confused on what they can offer to a big name company that has already been successful at working with other startups.

Past the obvious things such as IP, here are some ideas:

  • In case your future core market is also flagged as a nascent opportunity for them, you can offer to be their scout, produce formal reports or seminars for key executives.
  • In case you’re doing something trendy enough, and that using one of their new technologies would accelerate your time-to-market, you can pose as a decisive use case for their marketing.
  • In case you’re experts of a domain they just started into (think AI), you can train some of their teams, or help them re-engineer some key processes and facilitate their transition.
  • In case you’ve been active in a market segment they’ve lost traction in, you could offer to share sales information with them selectively.

There are many, many more possibilities.

Some of the ones I’ve listed might make you cringe, and you’d be right. They could be dangerous for you. But it’s a matter of giving something and gaining much more in the trade.

Based on your initial offer, when they have agreed on what will motivate them, make sure that the trade is indisputably favorable to you and be open about it. Although it all comes down to a trade, you’re smaller and much more fragile. If you invest time with them you accrue your frailty; this has to be compensated more than fairly.

If the trade is not clearly favorable to you… move away. If they want nothing, they won’t be serious about the program… move… away.

5. Who’s going to try to kill you?

The last question just goes back to having an internal champion to protect you from the corporation’s immune system. You will address it after a few months in the program, but there’s no reason not to tackle it right away if possible.

Say now that you brilliantly managed to align everything perfectly and that you actually start to boost your startup. Congratulations, you’re now in the spotlight for everyone inside the company. Doing so, you demonstrate that an external team (helped from within) has been better and quicker at doing someone’s job.

Who’s that someone? You should know; he is already out to get you.

I don’t judge, it’s human nature and you have to deal with it:

Your success will trigger internal opposition from the corporation; try to identify as soon as possible where the antibodies will be coming from, and be prepared.

The good thing is that the more your incubation program’s leader will be interested in your success, the earlier he will have anticipated where the problems will appear. He’ll be usually very open about this from the get-go; listen carefully and do not underestimate the early warnings.

In conclusion

If corporate incubation programs can deliver a tremendous boost to your startup, don’t be fooled by their intricacies and don’t expect all of them to be really serious about innovation. The only ones that are simple to deal with are the ones that have no real purpose.

If you still have some patience with me, let me add a last remark:

In about ten years of consulting for, or designing corporate incubation programs, the best ones I worked with are the ones you don’t know about and  will not know about. When such programs are strategic assets for highly competitive multinationals they fly under the radar. No bling, no glamour, no cameras, no tweets, selfies or politicians invited to parties.

Maybe that should be the quickest thing to consider next time you receive a call to apply for a corporate incubation program…

Author: Philippe

Philippe has been training 200-300 startups a year since 2007, consulted for dozens of multinationals on rupture innovation or corporate incubation, and was directly involved in more than 150 startups building their market fit and scaling up their business. He also teaches business model innovation in key MBA programs whether they are in Paris or Shanghai. And since 2017, Philippe is now living in Amsterdam, one of the best European business hub around.

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