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Why do global corporates struggle to work with growth-stage companies?

As new technologies become more prominent in our lives, the world is changing at a rate with which many of us are struggling to keep up. Many of these new, groundbreaking technologies are being created by growth-stage companies, with entrepreneurial spirit and innovative thinking.

For global corporates, the pace of technology and innovation can sometimes be challenging and many business leaders may wonder how to keep on top of new trends, let alone how to collaborate with these new companies.

Firstly, corporates often struggle to innovate and adopt the agile and lean thinking of growth-stage companies. Innovation is spurring growth, increasing opportunities for companies and helping to build the economy.

Secondly, growth-stage companies, those that are lean by nature and possess agile thinking, also struggle at times to successfully sell their services to corporates and grow their business. Recently, the UK government launched the UK Research and Innovation (UKRI) body, a £6bn funded group to champion research and innovation. The organisation, dedicated to helping companies large and small work together, shows that there is a real need for innovation to be successful to help build businesses and the economy.

How global corporates lack innovation

I remember the days when we used to go to Blockbuster to hire video, visit HMV to find our favourite music and buy a Kodak camera to capture “Kodak moments”. These once everyday household names have been replaced by disruptive companies that have digitalised these processes. These are just a few common examples of corporates who have struggled to innovate and important lessons have been learnt from these businesses. So why are corporates still falling by the wayside and struggling to innovate? And more importantly how can growth-stage companies and global corporates work together to innovate?

Firstly, corporates generally find it challenging to innovate effectively internally. There are a number of reasons for this. Corporates aren’t built to successfully develop and commercialise disruptive technologies. Historically global corporates are not tapped into the most relevant or most innovative networks.

Corporates typically have a traditional organisational structure, which focuses solely on building one product or technology. Corporates need to be able to introduce new technologies and promote agile thinking within the business if they are going to be able to keep up with new technologies and innovate effectively. Large corporates will also put the development of new technologies and innovation under the same KPIs of the already existing business technologies. This is counterproductive as new and innovative technologies need longer periods to be built and developed. Line managers within corporates along with having to meet KPIs also may be overly protective of their profits and losses and will rarely want to disrupt the business process. Line managers will be answerable to shareholders to keep showing they are defending and growing the business and ultimately bringing profit to the company.

It is in corporates interest to perpetuate the status quo and diversify their offering by partnering with growth-stage companies.

Often companies outsource innovation, or hire an outside body to help them to innovate or at least begin thinking innovatively. However, this is not organic and can lead to fragmentation and the innovation culture can quickly become diluted once the outsourced body leaves the company.

Corporates also do not have “entrepreneurial thinking” or the mindset of resourceful entrepreneurship, which companies need to spur innovation and drive growth. As well as not having the most innovative networks, global corporates often do not foster the most innovative environments. Many corporates have targets to meet, so there is little space to allow staff to be able to brainstorm new ideas or think outside the box. Corporates, even the more innovative ones, end up slowed by bureaucracy and threatened by the technological capabilities of smaller players.

Similarly, corporates hiring of staff focus on those who have relevant previous experience, and more often than not this is experience from other similar sized organisations, where staff have relevant skill sets to meet targets and help run the company as profit centres. On the other hand, entrepreneurs and staff from growth-stage companies may often be wary of working in global corporates. This is because growth-stage companies are structured as being flexible and those who generally work in growth-stage companies like their own schedule, using their imaginations and being able to create and develop new technologies.

Why growth-stage companies struggle to partner with corporates

As well as global corporates struggling to innovate and collaborate, growth-stage companies often need help to grow and may lack business development experience, meaning that they struggle to partner with the right companies. Founders may have entrepreneurial spirit, but lack the financial means, contacts or skills to scale their business and develop the company. Some may struggle to take their business to the next level and grow the business, with a lack of knowledge which corporates often possess.

With little support on this, founders can become frustrated and feel alone. This is the perfect opportunity for growth-stage companies to partner with corporates to learn how to scale and grow their business. There is also often the issue of once a company sources funding, founders may dilute themselves out of the business by the equity they give away. When a founder takes a step back or has insignificant ownership, this can at times leave the founder unmotivated and look to other opportunities outside of the business.

Growth-stage companies and corporates are intrinsically different from how they operate business, from the technology they use, to the culture of the business. For growth-stage companies to successfully work with corporates they need to be able to speak the corporate language and sell their ideas or product to a corporate. Understanding how business decisions are made help fast-growth companies to work with corporates to build innovation.

Entrepreneurs hold the key to spark the innovation that corporations lack and for both to be able to work together there needs to be a mutual understanding between both corporates and growth-stage companies. TransferWise last year announced working with Estonia’s largest domestic bank, LHV. The deal allows TransferWise's services integrated directly into the banks mobile app, allowing people to send money internationally online at a cheaper rate.

Being able to understand the issues they may come across and speaking each other’s language will help to bridge the innovation gap. To collaborate with growth-stage tech companies, global corporates can learn from the agile thinking of these companies and begin to reap the rewards of innovation.

For corporates and growth-stage companies to successfully collaborate and make a success of innovation, both sides will have to require new forms of thinking, open their minds to each other’s ways of working and understand that innovation is often collaborating and experimenting to try different ways of working and doing business.

Adarsh Radia, co-founder of WiderPool

Image Credit: Bacho / Shutterstock