Start-up, corporate tie-ups: 5-point checklist while establishing successful collaboration

July 17, 2021 10:12 AM

Indian conglomerates like Reliance Industries, Aditya Birla and the Tata Group are tying-up with smaller companies to build their business portfolios.

startupIf you’re working on a start-up, there’s probably a 21-year-old in a college dorm room who’s working on the same idea with the raw energy of youth.

By Nitin Potdar

Startups and big corporates tie-up to create a win-win proposition. Such deals help start-ups gain support of a heavyweight to protect their nascent ventures, while large corporates get nimble players to innovate, deploy and commercialise products and services in shorter cycles. This helps both the players stay relevant in uncertain times like the on-going pandemic. Yet, apprehensions on both sides either turn show-stoppers or pave the way for soured relationships.

Covid aside, start-ups and large corporates invariably make great allies on paper. According to GCV Analytics, 2018 saw as many as 2,795 corporate investments in start-ups worth $180 billion. Having a large corporate as a customer, financier, resource provider, market-maker, or mentor can greatly help a startup. Similarly, a mega corporation can capitalize on the start-up’s agility in a niche space to a) earn return on investments and b) employ best-in-class talent for market innovation.

Indian conglomerates like Reliance Industries, Aditya Birla and the Tata Group are tying-up with smaller companies to build their business portfolios. Such deal-making happens in far greater volumes but seldom gets reported in the media because either the deal size is not big enough or it is in the B2B segment that few understand.

But when a small fish teams up with a big fish there is always tension. A start-up entrepreneur worries about losing control over its company, innovation, technology, and people or getting dumped midway and watch the idea itself being replicated by the in-house team of the large player. Large corporates are equally concerned about exposing their exclusive expertise to the small fish unduly passing on economies of scale painstakingly built over several years.

Alliances on shaky ground cannot build a resilient enterprise. Misgivings on both sides devalues the chemistry that it is otherwise capable of creating value. Both sides can create an environment of unconditional trust, synergy, and seamless camaraderie by creating a robust framework protected by legal guardrails. A legal wireframe can help both entities make the most of the collaboration for establishing a mutually rewarding and sustainable business relationship. Though there are no silver bullets, yet a broad structure of remedial bullet points could help address many thorny issues that often mar the collaboration.

1. Alignment
It is important to ascertain whether the proposed alliance is on a firm footing. Here, the intent of both parties must be thoroughly examined to gauge the inherent robustness of the match. What is the large player expecting from the collaboration – is it market expansion, product diversification, technology upgradation, or something else? The intent will help decide whether the given start-up is a right choice. In other words, it will help the large player determine whether it should tie up with an early-stage start-up or rather choose a growth-stage start-up. Since the price tags vary, it is of utmost importance to ascertain the alignment of purpose. The start-up too has to ascertain its own compelling need – is it a broad-based market, production boost, geographical advantage, global recognition, and such like – which helps decide whether the given corporate would make an ideal partner or not.

2. Commitment
It is incumbent on both parties to identify the objectives of their alliance in crystal clear terms with regard to the intended purpose, approach, strategies, and methods. The synergy should not be implied; rather, it should be explicitly defined, which alone helps identify and empower the key resources on both sides. While the large corporate should not treat the endeavour as a supplementary project, the start-up should not expect undue patronage from the big brother.

3. Leadership
On the face of it, fixing roles and responsibilities for the collaboration appears to be an easy proposition, but the real-world dynamics make this job a formidable challenge, particularly when dealing with new-age technologists of the start-up world. It is therefore necessary to appoint independent professionals with a proven track record. Strong domain knowledge and a rich and varied experience of prudent conflict resolution are equally critical. The leader must be capable of being constantly willing to learn, and flexible to adapt, motivate, and lead all teams towards the fulfilment of the stated collaboration objectives. Most important, he/she must be free of bias in approaching and confiding in the parent boards. All key executives must be taken into confidence, strictly avoiding discriminatory conversations based on prior rapports or undue influence. The leader must hold detailed discussions, and gauge team aspirations, priorities, and objectives to develop the final business plan.

4. Milestones & Metrics
The ‘scale up’ should not be left to fate. A pilot is invariably the best fool-proof start, laying the ground for future possibilities in line with market realities and other constraints. In most instances, establishing the right metrics for measurement and monitoring in sync with the nature of the alliance makes all the difference. Depending on the specifics of each case, these could be either earnings-related, production-centric, R&D focused, market-driven, or a blend of all or any of them. It is advisable to study the KPIs (key performance indicators) adopted by the well-known firms of the given space to emulate best practices to the extent possible.

5. Conflict resolution
It is crucial to proactively identify areas of potential conflict or discord before signing on the dotted line. A common disagreement is the remuneration of project teams on both sides, which could lead to acrimony and discontent if left unchecked. The challenge is to ensure a justifiable fitment that is linked to the performance of key executives.
Another sensitive area is the resistance from the mainstream executives of the corporate who may be opposed to the flat structures of the start-up environment. This could be resolved by a strong project champion who is held responsible for scrupulously managing key resources such that the self-motivated members of both sides safeguard the cocoon of synergy from start to finish.

Successful collaborations between corporates and start-ups are fast being acknowledged as a strategic imperative of today’s business world. Strong and enduring partnerships are therefore being revaluated from a fresh perspective.

(Nitin Potdar is Partner at J. Sagar Associates. Views expressed are the author’s own.)

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