MNCs are now increasingly engaging with start-ups to get back some of their earlier nimble-footedness; this can create huge value.
The current fascination with entrepreneurship in mainstream society can be clearly seen in the wide coverage they get in the media. Such start-ups are viewed as proactive, nimble and agile, which allows them to be highly innovative and willing to take risks. This is the antithesis of how large multinational corporations (MNCs) are perceived by many: as slower, bureaucratic organisations that are no longer fleet-footed and, therefore, not as innovative or risk-taking as they once were.
Perhaps recognising this themselves, many MNCs are now actively wooing start-ups to engage and co-innovate with them. I recently talked to a number of MNC managers in Bangalore with job titles that, until not so long ago, didn't exist: 'Country Head, Startup Ecosystem', 'Startup Ecosystem Evangelist', 'Director of Startup Business Development' - which suggests that some MNCs are making a concerted effort to engage start-ups. It wasn't always like this.
When I first began a research programme in 2006 to study what I call "dancing with gorillas" - that is, how start-ups partner effectively with large MNCs - genuine engagement tended to be ad hoc and rare. The start-ups I studied in India back then had to work very hard to attract the attention of key decision-makers in (mostly US) MNCs. The story in the UK, where also I conducted research at that time, was not very different. Much has changed over the past decade.
Nowadays, clearly identifiable network entry points exist for start-ups if they fulfil requisite criteria - typically, one should be developing offerings on top of the MNC's platform technology. These network-entry points are often designated start-up engagement programmes: Microsoft's BizSpark, IBM's Global Entrepreneurship Program, SAP's Global Startup Focus, to name but a few.
This reflects the recent emergence of an entrepreneurial ecosystem with a critical mass of start-ups in India. Although this ecosystem still has a long way to go, there appears to be greater sophistication in the interface that MNCs are creating with start-ups. MNCs are seeking to nurture and leverage this ecosystem by offering distinctive start-up engagement programmes - and these seem to be more plentiful and improved compared to even two or three years ago.
For example, Microsoft has had an accelerator in Bangalore and Beijing for around four years, both of which I visited in 2013 when their second cohorts were being mentored. On my latest visit, I found that the MNC now has an extended portfolio of activities in India through its Co-innovate Program through which it works with other organisations as well. To illustrate, there is now a Reliance GenNext Innovation Hub in Mumbai that is "powered by Microsoft Ventures".
In some cases, MNCs specify different programmes for start-ups at different stages of their life cycles. Google, for instance, invites select early-stage start-ups to participate in a five-day Google LaunchPad event with each day dedicated to inputs on user experience, product strategy, technology, growth and pitching. Later-stage start-ups that already have some funding and market traction can participate in a six-month Google LaunchPad Accelerator (non-residential) programme, which begins with a two-week immersive experience in Silicon Valley; the first cohort in India got under way in February 2016. One Bangalore-based start-up, English Dost, graduated from the former and is now enrolled in the latter.
In other cases, MNCs have programmes with distinct sequential stages that represent a funnel, such as SAP's Global Startup Focus programme, which seeks to enable start-ups to build offerings on top of its platform technologies, notably HANA. There is a four-fold process comprising onboarding, development support, value engineering (including validation) and go-to-market. Technology validation from a respected technology player like SAP can be an important source of credibility for start-ups that by definition lack a track record in the industry.
How can start-ups benefit as a result of this growing set of offerings from MNCs? I observed the potential for three interesting possibilities.
First, it seems feasible for some start-ups to dance with more than one gorilla. Consider iReff, a Bangalore-based B2C start-up that helps consumers make sense of the bewildering array of pre-paid recharge options on offer. iReff's founder, Nizam Mohideen, an IIM-Bangalore alumnus, made a successful bid to enter Nasscom's co-working space as part of its 10,000 start-ups initiative. He later applied in parallel for entry into separate start-up initiatives offered by Google and Microsoft. iReff was admitted to both. Mohideen checked with the MNCs, and found that neither objected to iReff's participation in the other's programme. Google LaunchPad came first, followed by a four-month stint in the Microsoft accelerator. Mohideen observes that both engagements were useful, in different ways.
Second, new opportunities have arisen for actors who can connect start-ups with gorillas. An organisation that is actively pursuing this is Kyron. Its parent company is in the business of helping foreign MNCs establish global innovation centres in Bangalore. Several of its clients are well-known (predominantly non-tech) MNCs such as Target. Eventually, Target expressed an interest to engage with local start-ups, resulting in Kyron setting up a corporate accelerator for Target in Bangalore. Kyron's more recent clients, unlike Target's gradual journey to engagement with start-ups over a five-year period, want their global innovation centres to engage with local start-ups in Bangalore virtually from the outset. Kyron thus sees itself as a bridge between those MNCs and local start-ups.
Third, some start-ups may attract global attention by dancing adeptly with a gorilla. The Bangalore-based Stelae Technologies, a B2B start-up that transforms unstructured data into reusable and searchable data, was the only Indian firm mentioned among a handful of promising start-ups from around the world in a recent blog by a global IBM executive. How did a young firm gain global attention from one of the largest MNCs in the world? It all began with Stelae's participation in IBM's SmartCamp, an annual boot camp-cum-competition for start-ups. Stelae was the winner of the 2014 Indian edition of this event, which led to its participation in the Asia Pacific competition where it was adjudged the joint winner, and finally the 2015 global event in Las Vegas where, creditably, it finished runner-up. Each step of this competitive process presented Stelae with opportunities to increase its visibility from national to regional and ultimately global level within IBM (and beyond).
These are still early days in terms of multinational-start-up engagement, and it remains to be seen just how successfully this process evolves over the coming months and years, particularly in emerging markets such as India - where greater effort is required to select and mentor start-ups and take them to market. Yet there can be little doubt that noticeable progress has been made. Some MNCs - traditionally good at partnering with other large corporations - have traversed a considerable learning journey, often through a trial-and-error process with respect to start-up engagement.
To conclude, I haven't seen as many partnering opportunities across as many MNCs or the existence of as many innovative Indian start-ups, as I have during my recent field trip to Bangalore. Even if a fraction of the potential at the MNC-start-up interface is realised, the joint value created will be vast in comparison to what has been accomplished in the past.
The author is associate professor of International Business & Strategy at China Europe International Business School. His research and teaching interests relate to international entrepreneurship and strategy