Startups and Big Businesses: a love-hate relationship

Startups and big businesses, now there’s a topic that has been on the agenda for so long and even more so for the  5 to 6 years, that is to say since digital transformation has been buzzword de rigueur. So, who, if anyone, is really getting it right?

Startups and Big Businesses: a love-hate relationship

startups and big businesses
Startups and big businesses: a love-hate relationship

At a startup gathering that took place recently in the historical centre of Paris, Rodolphe Roux — a long time acquaintance and former CDO of Wiko and SEB, now a partner at The Family, a European Startup accelerator and VC — was having a go against digital transformation, buzzwords, hype and the naked truth.

The “Digital transformation” moniker in itself deserves a proper definition, we’ll get back to that later.

Down with the hype, long live the naked truth

And here is the perfect transition to present our new site that we hold dear, on which we have been working hard since the beginning of the year, on behalf of our customer iRevolution [disclosure]: The digital transformation horror museum.

Obviously, history isn’t really what’s at the heart of this new Website. Our aim is to educate as well as entertain while tapping into the knowledge of seasoned digital transformation field experts. We call them the “digital eagles” of iRevolution (more about this soon).

Large groups and startups a love-hate relationship

Rodolphe’s words were well supported and the brands he mentioned got their fair share. Not to offend anyone we will refrain from quoting all of Rodolphe’s words here. But many real innovators (so-called “cousins” to use the incubator’s vocab) have found truth in Rodolphe’s funny and cruel anecdotes.

Grands groupes et startups Musée des horreurs transformation digitale
The digital transformation horror museum having close its doors due to Covid-19, we have republished a blog piece where we are dealing with the naked truth about digital transformation, in big businesses and their relationships with Startups

Debunking the transformation myth and setting the digital records straight

Startups and big businesses
Cyril Bladier wrote one of the first posts on the digital transformation horror museum. He has extensive working experience with startups and big businesses alike.

Just like Rodolphe, we thought it was high time to set the (digital) records straight, and that’s exactly what we did with iRevolution, a small innovative business which took the lead in digital transformation for large FMCG businesses.

Here is the first article in a long series that will deal with various topics of transformation, in a straightforward manner.

For that, we appealed to our friend Cyril Bladier (right) who doesn’t beat about the bush when it comes to digital.

The post includes a long interview with Kevin Palop, an expert at iRevolution who shared his client and field expertise. Nothing but field experience, no blah-blah, straight from the horse’s mouth.

Big businesses and Startups: Don’t bend it like Beckham!

grands groupes et start ups
The picture is really awful but Rodolphe’s words are worthy of note: “In digital miracle-men do NOT exist!” I almost fell off my chair when I heard his talk. On the picture, Rodolphe seems to be escaping, but in real life, he delivered one of the best pitches on innovation I have ever heard.

As I was determined not to miss anything from Rodolphe’s speech, I grabbed my smartphone and started typing like mad, trying to catch up with his rapid-fire French. I nearly fell off my chair when I heard him say that Big Businesses try to recruit digital stars and then all fails lamentably.

“In digital, miracle men simply do NOT exist!”, he added. “They think they can bend it like Beckham he said, but when they get down to business, nothing happens, it all fails lamentably.”

Why so?

According to The Family‘s partner, “there is a real issue regarding agility (and Startups) due to the weight of big businesses’ organisational structures.” Like it or lump it, circumventing this organisational issue is mostly mission impossible.

The result is that — when a digital whiz-kid is hired — however good he or she may be, it all fails lamentably and there aren’t any results

Yet, “No one will dare say that out loud!” Rodolphe added, Mum’s the word in the world of business, admitting failure is not so common, apart maybe on certain motivational posts on LinkedIn.

And Rodolphe added that “it’s high time to put an end to that.”

Big businesses and startups: what’s it got to do with your business?

It so happened that I was invited, not so long ago, to visit the newfangled office building of some large and honourable European financial institution, one of the World’s largest banks in fact.

In there I could find huge creative workrooms, sofas, seats and movable tables, giant screens and startups on all floors…

In short, the typical decor of an accelerator with big business flavour.

During the discussions and presentations, we came to discuss the concrete results of that incubator.

Startup X was in the spotlight because it had done a lot of work on location, and had managed to raise funds and scale to a certain extent.

Here is the account — from memory —  of the exchange between the representative of the large bank and myself.

_ “[…] So you do have some concrete results to show, don’t you?”
_ “Yes, Startup X has successfully raised funds”
_ “Great! And I suppose you have backed them up financially. How did it go? What are your plans for the future?”
_ “Well, no, it’s bank Y [a competitor] who financed them and then they joined the other bank’s startup accelerator.”

That sums it all.

And now it’s over to Cyril for his account of the love-hate relationship between startups and big businesses

Start-ups and digital transformation, Big businesses are TRYING TO KILL US!

  • How much do you want for your start-up?
  • My start-up isn’t for sale!
  • You know nothing!

Start-ups and big businesses: a marriage of convenience?

Selling your start-up to a big business is not a goal of every entrepreneur.

Some do dream of it, others want to create a history-making unicorn.

Nevertheless, whether by choice or by force, it is a situation that does arise.

Beyond the purely financial inducement that can end up seducing even the most reticent, the long-term durability of the company and the management of egos that go with the territory are often at the forefront of an entrepreneur’s thoughts. 

The true story appears at the end

Indeed, these takeovers are accompanied by press announcements with mind-boggling figures despite there being no guarantee of success:

  • Yahoo! Valuation of 43 billion $ at the beginning of the 2000s… but just 5 billion by 2016.
  • Lycos: Star start-up of the late 1990s … which disappeared completely in 2009 after takeovers by two major businesses.
  • iBazar: target of a major Goldman Sachs investment – then disappeared into eBay.
  • Netscape: dissolved by AOL.
  • More recently: the ownership merry-go-round between Withings and Nokia Health with what is reported to be a substantial loss for Nokia.

These are just a few examples, but the list is long. Success stories like Instagram or WhatsApp are quite rare. Strangely, the successes are much less reported on and neither are the positive impacts of successful integrations.

End of the communications impact (total misinterpretation here)

Many large companies have created innovation teams, labs, incubators … to get closer to the mindset of the start-up ecosystem.

Often, lurking behind these initiatives are the communications experts.

This is not just idle criticism. Paul-François Fournier, Innovation Director at BPI France, said in an interview:

Behind the curtain of open innovation, there is not only communications but also real projects

Innovation, startups and big businesses, an oxymoron

One of the big difficulties in business is that innovation is not really part of the DNA of large companies.

We are not talking here about the American behemoths of the web who were born out of innovation and have it in their genes.

We are talking about traditional industrial companies, and in these instances, American businesses have fewer lessons to give us.

Back to basics

In fact, startup takeovers are like any other transformation project – the new economy is not immune to the fundamental rules of business. Digital marketing? It’s primarily marketing. Social selling? It’s still sales.

Crisis management? Social networks may accelerate the spreading of information, but it remains just a crisis to manage. The assumption that when we add the word “digital” to a term, it somehow changes its meaning is clearly wrong.

It seems all too often that, as soon as you put digital in a sentence, some professionals lose all sense of reason. Digital is a word that has an unnerving power to destabilize.

The same applies to start-up takeovers. It is a form of transformation which has to be managed.

Regardless of which IT program you put in place or the tools you invest in, success lies in coaching the relevant teams.

No matter the start-up bought, the job, its level of notoriety nor its perceived power, success or failure lies in carefully managing the process.

Any buyout is not always a success and start-ups are no different.

Avoiding failure

We have to start with the basics: the Why? Why is a big company planning to acquire a start-up.

Often it is at this basic level that we find the source of trouble – and we know that you cannot build a solid building on unstable foundations. In this sense, buying a start-up is often a bad answer to a real problem.

A few years ago, the classic knee-jerk responses in these situations were process optimization or cost reduction programs, now it’s purchasing a start-up.

What is surprising is that this acquisition approach is often the only option considered with more appropriate responses, such as the creation of a spin off structure, not even finding its way on to the brainstorming whiteboard.

Startups and big businesses: culture shock

Frequent pitfall: culture shock. Once again, the word “digital” can appear and everyone loses their grip on reality.

Any leader or executive head hunter will tell you that their role is to assess the compatibility between a future collaborator and the culture of the host organization.

When I think that some wrote that LinkedIn was going to kill the recruitment business!

On the other hand, when it comes to buying start-ups, this point does not seem to be important anymore.

We forget that cultures are intrinsically different and that with any buyout, the start-up is going to lose some of its DNA (flexibility, rapid decision-making, business focus, organizational politics…).

Do it for all the right reasons

The start-up is the forest that hides the treasure – its value lies in his team. Many business angels or venture capitalists focus on the team that makes up the start-ups they are thinking of investing in.

A purchase is not the only option. There are other ways that start-ups and big businesses can collaborate.

Most notably, there is the POC (Proof Of Concept). The idea is sound: in a deal between a large company and a start-up, a POC allows the big company to allocate a budget to test initiatives.

The budget is defined by the POC, with the start-up doing the work on the project.

But there are many abuses that can also kill start-ups: unpaid POCs, POCs without deployment plans, POC that go unimplemented.

Moreover, as BPIFrance says, “Say no to free POCs!”. The POC can be really destructive for the start-up.

Which road to take?

 To make things more complicated, according to BPIFrance, the keys to success are not at all the same depending on whether or not you are look at it from the viewpoint of the large companies:

  • clarity
  • common vision and culture
  • conviction, responsiveness and respect

…or from the viewpoint of the start-ups:

  • To clearly identify the company’s role and strategy, perseverance, competence
  •  Above all a human adventure, respect for work

So, how long before we can get our hands on a start-up / big company phrasebook so that we can all learn to speak the same language?

And now over to Yahya El Mir for a visionary statement about what the relationship between big businesses and startups should really look like.

The Expert’s View: “Big businesss can nor should try and work like startups!”

To illustrate my point, I went to talk with Kevin Palop, Business Innovation Expert at iRevolution. According to Kevin, it is important not to try to make changes to the start-up or the big company. On the contrary, the merger of the two must take into account the strengths of each of the two entities rather than enforcing them to merge at any cost.

“A start-up merger project is a complex project. In twenty years, large businesses have improved a lot on this regard: they now know how to manage the many different aspects, and have mastered some of the key facets including financial ones. They have also learned to avoid the obvious pitfalls (such as the purchase of “empty shells” that can be left after the departure of teams and founders, valuation bubbles, the presence of majority shareholders and so on). Their financial methods are now well established and proven.

But beyond the financials and the shareholders, it is often the way that the integration of the businesses is approached that still needs to be worked on. The emergence of a start-up within the large company sometimes creates fantasies of changes in the way the business operates that are not necessarily beneficial.

For example, it may be tempting to look at the buyout of a start-up under the prism of hybridization. In trying to merge the two worlds of the big company and the start-up, there is a hope that it will create a new one which is both stronger and more adapted to the new digital environment! But when you start off with two entities which are so different culturally, with their own operations, their respective DNAs, distinct needs and objectives, the idea that you will end up with some super-company is likely to be far from the reality.

It is also impossible for a large business to behave like a start-up by attempting to adopt a start-up’s policies, culture and ways of working. A big company, by its very nature, cannot behave like a start-up – and it must not try to either! Its strength lies precisely in its own specificities, which define it. For example, an operation with framed processes, which require a well-defined schedule. It is precisely this form of slowness and inertia, totally the opposite of the operation of a start-up, which paradoxically gives it a real solidity and power.

Trying to be an ox that runs as fast as a cheetah simply does not work – neither is it desirable.

So what is the best way to approach a start-up project? Rather than think of it as hybridization, large groups need to look at it from an ecosystem perspective.Within an ecosystem, each species can grow independently – with its own nature and its own ways of being – while making it possible to have real synergies with other members. This universe is virtuous when it comes to creating a cohabitation between a big business and a start-up: they can enrich each other and grow, each in their own way. It is vital to organize things in such a way that the start-up retains full autonomy over its own affairs.

Thinking of and organizing an ecosystem like this is really a business apart, if it is to be stable and capable of accommodating other stakeholders later, in a continuously developing dynamic. It requires a subtle balance of the financial, participatory, sometimes industrial, and finally strategic. To carry out this type of project without it being strategically managed is still, today, a real challenge! ”

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