5 Reasons Why Startups Are Your Most Important Innovation Partner: Open Innovation

Open innovation is a distributed, more participatory, and decentralized approach to innovation.  The underlying case for open innovation is the fact that no company, no matter how capable or how big, could innovate effectively all on its own.  This is because of the wide distribution of knowledge and research.  Startups can take advantage of this distribution and create an “idea-tester” environment rather quickly.  There aren’t many barriers for entrepreneurs to get a company up and going.  The cycle for building and testing ideas is faster. The cost of this testing activity from startups is rather low.  This is why we say Startups are your most important innovation partner.  How can you tap in to that?

Hundreds of companies now have open innovation programs.  For true breakthrough innovation you need to consider ideas that get your company into new markets with new products and business models much faster than doing it inside.   Startups are your best partner to innovate faster and for less budget.

Why?  Startups are better at finding emerging demand.  Corporations are better a scaling business.

How do you find startups to work with?

Established companies are often woefully unaware of startups.  They aren’t even sure where to look to find good startup partners. Many companies are creating their own innovation lab or accelerator. They might only look to their local geography, but that method greatly limits the opportunity to work with the best matched startup business. There is another option to consider: The Innovation Scout. We match startups with businesses by defining an innovation profile for your company. Then we use machine learning to make intelligent matches. From there you can decide to follow or engage with the startup. Using technology to match businesses assures that you haven’t missed some possible great connection.

5 reasons why Startups make great innovation partners

1. Startups are better at creating and executing disruptive business models.

The very processes that help a big business operate and scale will hold back the entire launch-learn-iterate process necessary in the world of a startup. Entrepreneurial companies have the freedom to work fast and to continuously experiment.  They will take the risk of approaching a new market with a product that might not be 100% ready. They don’t yet have the brand recognition to protect.  Their risks of failure are higher but that very failure is what fuels a fast cycle that leads them to eventually ‘get it right’.  Being disruptive is hard for big companies because it often means ‘killing’ their own status quo. Startups are better at going after truly new, market changing ideas in less time and for less budget.

2. Working with Startups can lead to faster project execution and better technical performance.

Mature businesses generally have important, enterprise-defined processes that keep things working within the structured business organization.  It will likely include running approvals through several departments. Often there are lots of meetings to discuss the schedules and assignments.  Startups just go.  They don’t ask for permission, they move on a topic and begin opening the dialog with the market.  In the beginning the startup exists to quickly prove its hypothesis that their business is a valid one.  Big companies who can work with startups and ‘follow’ their quick pace will win in the long run by getting answers far sooner than if they were doing it internally.

3. Less cost associated with prototyping internally

Just the fact that the project should move more quickly by working with a startup can clear the way to saving expenses that would otherwise come from several departments.  When you consider the costs associated with a mature business building, testing and launching a new product there is enormous ‘drag’ on the system to not move forward.  Startups don’t have to get separate budget approval from marketing and IT, they just go. They have built in efficiency that a big company cannot have. Working with startups to pilot new offerings in new markets is a very cost efficient way to get answers.

4. Quicker entry into new markets, lowering risks of your own business

Consider what it would take for your company to test and implement a new offering in an untapped market.  There are many aspects of moving a ‘big ship’ to enter new waters!  Startups don’t have those procedures.  They just go.  In today’s world of changing markets and the rapid pace of introducing new technologies you simply cannot enter a new market as fast as a startup can. Generally your own processes will hold you up. When you are certain the product-market fit is there for a new offering, it will be your company’s processes and structure that will enable the fast scaling.  The initial entry is often best done with a ‘reconnaissance’ partner like a Startup.

5. Your employees will love you for it

Maybe you recognize that it has been difficult to keep younger employees or maintain interest in the business within the ranks.  When you align and work with startups it affects your culture.  Your actions will be perceived as forward thinking.  Employees will see this as a new possible direction and it often gets them very energized. We’ve found that employees enjoy the opportunity to work in a ‘startup’ environment while continuing to build the value of your company.  They welcome incentive structures that allow them to not only learn from the startup but teach entrepreneurs the ways that make your company a success. Working with Startups is a win-win for your company.

Inside vs. Open Innovation?

Whatever your innovation program alignment, these two models are not at odds with each other. Many large companies have implemented an employee-based innovation program that takes advantage of creative people working across the company.  Employees are on the front lines. They understand the day to day problems and are often in the best position to make innovative suggestions that solve a customer facing problem.  These ideas might directly relate to process improvement or product evolution. However when it comes to breakthrough innovation, the kind that keeps pace with today’s new business models and emerging technologies, working with outside entities will move the needle faster for your business. Open innovation is essential in today’s world. Working with Startups has become an important activity for innovative companies who look to open methods. You can do this by finding the best startups to help you meet your goals and creating a meaningful engagement.

If you want to learn more about how The Innovation Scout can help contact us.  Or stay in touch by signing up for our Innovation Scout Newsletter. 

188 thoughts on “5 Reasons Why Startups Are Your Most Important Innovation Partner: Open Innovation

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