Startup Scouting Process for Beginners

Companies across the globe are under increasing pressure from multiple stakeholders, with many failing to meet expectations or outperform their competitors. In today’s increasingly volatile, uncertain, disrupted, complex, and interconnected environment, it’s more important than ever for companies to learn how to adapt faster than the rest of the market in order to survive.

R&D departments are no longer considered the cradle of the “new” that they once were but the mantra “innovate or die” is truer than ever. The stability that corporate giants could once rely on is no longer a given. With markets changing and evolving rapidly, companies’ life cycles are shrinking alongside their markets as startups radically disrupt their markets.

Think about InterContinental Hotels Group, one of the largest players in the hospitality world, with over 925,000 rooms (as of June 2023). Now compare it with Airbnb, which has created more than one million new “hotel rooms” over the last seven years without owning a single square meter of property.

Another example is the financial world, where new entrants bring with them new business models. The disruption started with standard services like payments and savings – think PayPal, Apple Pay, TranferWise, and Knab. New, disruptive models are now coming thick and fast in insurance, pensions, services for wealthy clients, and even complex business services.

In the current market situation, large companies are standing face to face with their younger, more agile, flexible, and adaptive competitors. Of course, Doomsday for corporations isn’t around the corner, but there’s a rising threat for corporations that don’t jump on board and surf the “change wave.” Instead of making a safe bet by clinging to the present, companies must find a way to ensure a steady inflow of ideas and products that will deliver value to clients.

Large companies that fail to innovate are at risk of extinction. And when they can’t find the right solution inside, they must search for it outside the company’s boundaries. High-performing and forward-looking companies generate more value by responding to trends and by being prepared for, or even shaping the future. But to some extent, corporations are prisoners of their past success and their conservative culture, creating issues when it comes to surviving the law of disruption.

The law of disruption compares the acceleration path of political, social, and business systems, which change incrementally, with technology, which has been accelerating exponentially. For many incumbents, it’s hard to imagine the possibilities of new technologies. They often incorrectly perceive technology as changing incrementally, which creates many opportunities for new entrants in the market.

Accepting and fighting their risk-averse nature is a difficult step to take. Not that long ago, corporations had everything they needed to sustain a constant flow of products to market – the best talent, market influence, resources, financing, and technology. Today, however, the traditional, closed approach to innovating is no longer fit for purpose. Uncovering the next breakthrough idea is a challenge, especially if you restrict yourself to thinking only inside your own organization’s boundaries.

Many large companies are bad at innovation. Typically, they are relatively conservative, at least in comparison to their younger counterparts, and won’t engage in risky activities with an uncertain outcome.

The risk-averse culture within large organizations is, in fact, counterproductive when it comes to achieving positive results from innovation efforts. If an innovation manager fails to comply with their performance indicators, they risk losing their job. This stimulates incremental instead of radical innovation, which is the true source of innovative value. And while waiting for the right circumstances, bureaucratic organizations are losing their competitive positions to smaller players that are more prone to taking risks and experimenting.

By starting off with a “non-friendly innovation” perspective, corporate innovation behavior is destined to fail at launch. Hampered by their philosophy and culture, corporations are arriving way too late to the innovation scene. Often, the biggest barriers to innovation come from within the company.

Many C-level managers recognize that in order to grow, remain competitive, and deliver new value, it’s imperative to start collaborating with startups. However, often, middle management teams are wary of doing things differently and prefer to stick to proven techniques.

Meanwhile, talented young people are dropping out of university, and even out of high school, to start their own companies. There are numerous well-known examples from the past few years, including Arash Ferdowsi, who dropped out of MIT to found Dropbox, Mark Zuckerberg of Facebook, Bill Gates of Microsoft, and Matt Mullenweg of WordPress. PayPal’s co-founder Peter Thiel is among the rising number of proponents claiming that going to college is not worth it in the age of startups.

The chances are that the next big market disruption is already underway among a group of smart tech grads who joined forces and understood what the market wants – better and faster.

Every company wants to be innovative and disrupt the market. Innovative companies get bigger and live longer. But being a successful company doesn’t necessarily mean that the organization is a disruptive one. Faced with innovation challenges, more companies are starting to recognize the need for a different approach.

Why should corporations partner with startups?

For corporations, it’s important to stay on top of global trends and to seek inspiration in industries other than their own. Pushing limits is essential if they want to innovate, hence, many are now recognizing the need to become more flexible.

In recent years, a growing number of large corporations have implemented startup-like techniques, such as lean startup methodologies, in their efforts to be more sustainable and efficient. Innovation managers can’t wait on the sidelines for a new technology to hit the market and try to buy it or they risk lagging behind. By the time they’ve managed to get their hands on the technology, the opportunity to turn it into a viable product of interest to the market will have long gone. Instead of waiting for innovation to come knocking on the door, organizations must strive to keep pace with current disruptions and be explicitly involved with the startups responsible for the disruptions.

What are the benefits for startups of collaborating with corporations?

For startups, there are countless benefits to collaborating with corporations:

• Credibility: Thanks to abundant technological advances in recent years, it’s become easier and cheaper to start a company. Startups are emerging everywhere, delivering solutions and life-hacking tools. Yet many of them fail. Collaborating with an established company can help startups to be perceived as serious businesses and attract the clients they need to survive and grow.
• Market reach: Startups are limited when it comes to market reach and distribution. By leveraging corporate distribution outlets, they can get to market faster.
• Publicity: Experienced, long-established companies have been through all the public relations ups and downs. They can help young firms to work through difficult situations by sharing the lessons they have learned.
• Funding: Typically, large companies have it and small, developing ones are looking for it.

What does the startup scouting process look like?

Gathering insights

In some ways, cross-organizational interactions mimic interpersonal ones. Before initiating communication, people observe the situation they’re in and gather insights. If there’s a mutual interest, the actual meet-up and match-up take place. At a later stage, when experiences and learnings are exchanged, a more profound interaction takes place. In time, conversations about experiences graduate to sharing experiences.

When it comes to corporations and startups working together, that collaboration doesn’t (and shouldn’t) happen immediately. Collaboration is an ongoing, gradual process comprised of stages with different intensities of interaction.

Collaboration between startups and corporations starts when insights about the situation, possible collaborators, and techniques for approaching them are being gathered. The actual match happens after that point, followed by cross-organizational exchange of knowledge and learnings, experimentation, and collaboration. Every new stage of collaborative interaction involves stronger engagement, commitment, and trust between both sides.

Scouting and connecting

Corporations can undertake a range of activities to help make scouting and connecting with startups much easier:

• Keep track of startups via databases like HYPE Partnering to source contacts and other general information about small companies in the market.
• Attend and host startup festivals: Startup conferences, festivals, and fairs are a great place to meet and network with startups and an opportunity to see the startups’ solutions or products.
• Reverse pitching: In reverse pitching events, the tables are turned – corporations pitch their pain points to startups the same way in which entrepreneurs pitch to investors on a daily basis. This is a great opportunity for corporations to source solutions from startups that have unique capabilities and to reach talent for future projects and engagements.
• Crowdfunding platforms: Crowdfunding platforms are another good source for gaining insights on the hottest new startups and breakthrough innovation products. As the venture world is looking for the next batch of million-dollar unicorns, investors are eagerly turning to the crowd to source deals. Crowd-based investment platforms, like Indiegogo and Kickstarter, have made it possible to track the crowd’s interest in those products, pointing to trends in consumer behavior. Indiegogo has a strong track record for spotting winning startup ventures, including the social robot Jibo, and the home security system Canary.
• Tours to startup hotspots: In the past few years, an increasing number of companies have joined the trend of visiting startup “hotspots”. For example, companies like Citrix, Google, Walmart, Cisco, Wipro, Intel, and Bosch visit the incubation and cocreation Startup Warehouse in Bangalore. Silicone Valley, New York City, London, Boston, and Beijing are among the top hotspots in 2022. In Europe, Stockholm is a cradle for entrepreneurs, being the home city for big brand names such as Spotify, Skype, and Soundcloud. The Netherlands is currently at the forefront of the European digital startup scene. Dublin is also an important global startup location, with good access to seed investment from a growing number of accelerators. London and Berlin also play an important role, both in the financial sector as well as incubating the new USD 1 billion companies, the so-called unicorns.
• Startup networks: Microsoft, Orange, Google, Adobe, PayPal, McAfee, TCS, Sasken, Morgan Lewis, and Bank of Ireland all actively leverage startup networks such as MobileMonday, Startup Week, Open Coffee Club, Creative Sundays, and Startup Weekend to meet with startups. At these events, entrepreneurs meet to discuss current industry trends, talk about issues and solutions, and promote their ideas.

Knowledge sharing and learning

Startup strategies are not just for startups; there’s a lot that corporations can learn from startups’ culture of experimentation and adventurous spirit. Larger companies can undoubtedly benefit from assuming some characteristics of the startup mentality:

• In times of rapid change, rapid movement is essential. Speed has become an asset that big companies rarely possess, whereas startups move fast and gather momentum.
• Startups don’t play by the rules because they don’t care about existing business and market modalities. Instead, they focus on delivering customer solutions by redefining the market.
• Startups rarely do market research the conventional way. Instead, they often build a very simple and cheap product version and give it to real customers to assess.
• Startups recognize needs and focus on filling a void even before coming up with a business model. It’s all about creating the asset first – profit comes later. Most digital businesses today, for instance, Facebook, Twitter, and Google are great examples of this approach.

The lean startup

Corporations are relatively risk averse, especially as, for them, failures are more public. They tend to spend months and even years developing a new product without unveiling it until it’s perfected and ready to go to market. Ironically, as new products are being delivered to market at an increasingly rapid pace, their approach has the very risks they’re aiming to avoid – not meeting customer needs and wants, higher development costs, and, eventually, failure.

The adoption of lean startup methodology within corporate innovation programs is starting to become a mainstream technique for bigger organizations. The approach changes the process of innovation and starting a new venture, focusing on rapid experimentation, customer feedback, and iterative design development. Lean startup adopters ask a “should” rather than a “could” question, namely: “Should we build this product?”

Companies like General Electric, Amazon, Qualcomm, and Intuit have already started to implement the lean startup methodology to transform the way they innovate. At the core of the methodology is the build-measure-learn feedback loop. They start with a minimum viable product (MVP) that addresses a problem. Once an MVP is established, it goes through a learning process of validation, assessing what the customers want and how much they would pay for it, and tailoring the product according to these learnings.

This methodology advocates the failing fast and cheap approach. Failing is something that large companies should embrace – if there are learnings attached to the failure. It’s a common misunderstanding that failure is valuable in itself. It isn’t. The build-measure-learn loop lowers development costs by minimizing the risk of a final product failing. Instead, the process provides timely feedback that allows for improvements during the early development stages.

Growth hacking

Whether in a startup or a corporation, growth is an organization’s lifeblood and should be integrated into every aspect of the organization. Typically, within large companies, there’s a clear structure and delineation of the responsibilities of different teams and departments – the coders build, the marketers push, etc. Yet growth should be a priority not only for the sales and marketing departments but also for every team across the organization.

A product designer should think about growth in terms of user experience. Similarly, a customer support specialist should think about growth in terms of customer satisfaction. After all, displeased customers leave, and negative word-of-mouth doesn’t generate new leads. Traditional marketers are skilled at understanding traditional products, but because the internet has radically changed the way we define products, traditional tactics don’t cut it anymore.

Growth hackers are not substitutes for marketers. They’re just different, being obsessively focused on the single goal of growth, and doing things in a non-traditional way. Currently, growth hacking is the realm of startups. Because startups usually lack the resources and partner affiliations that would allow them to effectively apply traditional marketing tactics, they are, in effect, forced to growth hack.

Yet there’s nothing in a growth hacker’s toolbox that can’t be applied within larger companies. The practice of growth hacking can clearly work without large-scale investments. Imagine what the outcome could be with the investment of resources...

If you want someone to market your product, hire a marketer. But what if you’re looking for someone to be actively involved in helping you shape your product? Your organization needs a growth hacker. Growth hacking is still a developing field. A growing number of growth hackers are looking for opportunities to learn and gain experience, but the number of experts with a strong history of delivering results is still relatively small.

Partnering with a startup for long-term success

At that stage, potential hurdles are being discussed and questions and concerns about the shared future spring up:

• What if the founder flees? A lot of startups are built around a technology and one or two visionaries. But how sustainable and scalable will the technology be without the founder? Is it useless without the brainpower and the passion of its creator? Can we continue developing the technology by ourselves and is our knowledge sufficient?
• Keeping the startup mentality alive. Corporate culture differ significantly from the culture of startups, and it can be difficult for larger companies to comprehend and embrace the chaos that comes when working with smaller companies. So keeping the startup mentality alive can be a challenge. To bring back the balance, corporations could be tempted to impose their rules on their startup collaborators. However, if the startup culture suffers, so too will creativity.
• Bureaucracy and slow decision-making. When it comes to processes, large companies have everything worked out. They stick to models that are tried and tested. Any deviation from the established order brings a feeling of losing control. Unlike larger organizations, startups are not used to this degree of formality. Complying with organizational bureaucracy decreases the speed of decision-making and action taking, slowing down the entire innovation process. Crucially, collaborating with a startup accelerates innovation.

Preparing to work with a startup

1. Create a culture of innovation: This is a key element in every organization. Make sure you have an organizational culture that supports innovation and has a commitment from every layer of management. Involving cross-functional teams throughout an organization in creating an innovation culture stimulates people to free their minds, experiment, and dare to challenge the status quo. Leaders should empower their staff to be more innovative.
2. Start internal innovation in a structured way: Corporations become more innovation-savvy by putting in place a systematic way of gathering and processing the best ideas from their internal teams. Whatever the process, from early ideation to fully fledged innovation projects, make sure your employees can rely on it. This will result in sustainable engagement and repeatable success. Make sure you deliver some initial results early on to inspire trust among your employees. In turn, this will positively influence your overall company culture.
3. Open up open innovation and work with startups. Open innovation programs and collaboration with external parties will take your innovation program to the next level. Whether you work with partners or startups, open programs can help your organization enter new markets, achieve cross-market insights, and make business-changing innovations.