Should your startup apply to a corporate incubation program?
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.
The 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 model because it’s, as for now, the most talked — if not spread — about.
If you’re a startup, this is about the fuzzy stage before real money and capital are exchanged — if that happens. Corporate incubators are 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 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 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 attract startupers in the gravity field of their market. What should you do about it?
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 diligence you should make before signing up for anything:
1. What’s in it for you?
2. What’s the incubator 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. There are obvious envies that are entirely misplaced for many startups without experience considering partnering with a big-name corporation.
There are basically two types of fantasies a startup will entertain:
- 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.
- 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 feeble and highly volatile.
As soon as you get into a big-name corporate incubation program, you might get the same brand impact as getting invited to a local news TV show if you know how to spin the news. We’re speaking of a two to three days attention peak. After that? You’re back to normal.
This lackluster result stems from what we evoked about the explosion of such programs. Who Google or Microsoft does not incubate at the end of the day? 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 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 be there to communicate to the stock market 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 boring 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 real incentive to share.
Let’s go back to the fact that most programs don’t have a solid strategic purpose of working 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 besides these.
In the end, forget all your fantasies. If you want to move into a big-name corporate incubation, start by challenging your assumptions and being perfectly specific about what your startup intends to get out of 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 they demonstrate they understand your precisely explained expectations and are agreeable to them (with unavoidable adjustments), then you can move forward.
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.
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 program manager 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 intentions. If they haven’t delivered yet, they distract 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 for now.
If all of them are dead, or in no significantly better shape than before entering the program, 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...
I don’t want to demean 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.
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 a high-profile and influential executive leads 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 is vanity programs. And you don’t want to be in these.
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 the investment or acquisition of your startup. This is supposed to be a friendly collaboration between you and a large corp, which is good.
But in the long term, friendly doesn’t cut it in business.
In that regard, I could be shy of engaging in preliminary discussions on your incubation with draft contracts, jurists, or attorneys, but eventually, you’ll need to get there. The question is, when? When will you 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.
Write a two-part statement.
Part 1: what do you expect and Part 2: what are you ready to deliver in exchange.
Finalize a contract… at some point.
You will have no real legal firepower anyway, and some very good corporate incubator try to stay under the radar of the Legal Dpt. as much as possible. Don't push too hard. The letter of intent is enough to create clarity and assess the commitment of the corporation.
There is no unique scenario to offer. Also, 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 of 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 between being flexible about it and obtaining a formal commitment.
But there is another difficulty here which is even more important than the paper thing: many startups are initially quite confused about 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:
- If your future core market is also flagged as a nascent opportunity for them, you can offer to be their scout to produce formal reports or seminars for key executives.
- If you’re doing something trendy enough and using one of their new technologies would accelerate your time-to-market, you can pose a decisive use case for their marketing.
- If 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.
- If 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 trade, you’re smaller and 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 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 started 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 usually be very open about this from the get-go; listen carefully and not underestimate the early warnings.
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…