The UK startup scene shows no signs of slowing down, with incubators, accelerators and government schemes being piloted to take advantage of their growing numbers.
There were 600,000 startups registered in the UK in 2015, according to the Startup Britain campaign, while a report from Global Entrepreneurship Monitor suggests 100 million businesses are launched annually worldwide.
But what are the tangible benefits for established brands in working with these innovators and what do big businesses need to do to get maximum value from mentoring, funding and partnering with startups?
1. Access to innovation
Many brands will have an internal innovation function, whether it is one member of staff, an internal incubator model or more traditional research and development departments, but these still require inspiration.
This is where startups can play a role, as these businesses are often based on ideas that are new to market or look to disrupt a sector and find new ways of working. For Tom Chant, head of customer innovation at O2, the act of being innovative and thinking innovatively is “really important”, but he adds that it “requires inspiration and input”.
As a member of The Friday Club, which organises events to help startups and brands collaborate, Chant comes across new businesses that are of direct interest to O2 and its partners, as well as those that stimulate new ways of thinking.
He says the technology or the ideas discussed could “send you off on a different path” if you “haven’t thought about [something] in that way [before]”.
“It’s accepted that some of these startups may never go full scale but by testing on a small scale and learning quickly you can decide to invest or move on“
Tom Chant, 02
He highlights one such startup, which enables venues to capture imagery of the building through high definition webcams, so that prospective customers can virtually view a venue at any time without having to be shown around in person.
Chant initially thought the idea was interesting but not particularly relevant for O2. However, he later saw an opportunity to showcase its sponsored venues, such as The O2 and Twickenham Stadium.
Chant says it is about feeding back information internally, and although on occasion his teams might have already thought of a similar idea, those conversations always spark innovative thinking.
In order to get the most from any collaboration, brands need to take an active approach so they fully understand what a business truly does. Richard Fearn, director at The Friday Club, says: “It’s not just talking at a conference, you [need to get] under the bonnet of a business, which is more effective. There is nothing more inspiring than seeing it through the eyes of an entrepreneur.”
“You can call [working with startups] giving back if you like but you’re getting an awful lot in exchange for it,” adds Chant.
This includes getting a first look at new technology and building strong, two-way relationships with the startup that are beneficial in the long term. However, according to Rose Lewis, co founder of Collider, an accelerator that funds and helps marketing and advertising tech startups, this access to early innovation “isn’t about being first to market…it is about learning and executing. If you work with a startup early, you have the opportunity to work with that innovation before competitors”.
Fearn explains that brands “need to open [themselves] up to early- stage companies” and the risks that come with the experimental nature of these startups because of that access to early innovation. This is because if a brand is already “reading about why a startup is having a major impact, the startup has passed the moment where a brand would have had an advantage by doing a pilot with them”, he says.
Lewis agrees that it is beneficial being one of a startup’s first customers, since it means they are likely to have a closer, more collaborative relationship, rather than being just one of their many clients.
Once brands have embarked on these projects, it can also lead to attracting talent in the industry.
2. Introducing entrepreneurial spirit
For big businesses, being able to see how startups operate internally can be another source of inspiration, which helps to improve the culture of an established brand, some of which are failing to attract young talent.
A report released at the start of this year by member-based intelligence firm L2 Inc revealed that executives are leaving FMCG and other traditional sectors for fast-moving digital businesses such as Amazon, Facebook and Google. It shows that more than 600 people at Procter & Gamble, over 300 from L’Oréal, and around 275 from Unilever cumulatively have left to join technology companies.
“Agencies and brands are haemorrhaging a lot of talent to tech companies,” says Fearn. “One of the important things for encouraging an entrepreneurial culture in the business is getting senior staff to access that culture and try to bring that back into the day-to-day business.”
For Karyn Mukerjee, commercial director, digital media partnerships at data company Dunnhumby, the passion is “amazing”, as those that work for startups are often “fresh out of university”.
She says: “In bigger business, we are passionate but seeing that fire and the pace that these people work to make things happen is refreshing and a challenge back to ourselves to be able to move at that speed in terms of decision-making in larger businesses.”
Dunnhumby measures and optimises the effect of media and promotions in the retail space and uses that to personalise communications around shopper preferences. The most notable example is for Tesco Clubcard, where the supermarket bases the coupons and deals that get sent to its loyalty members on their shopping habits.
The company has worked with Collider for four years to identify upcoming innovation that could be valuable to its retail partners, but in doing so has seen the benefit of having an entrepreneurial culture.
Mukerjee says: “The exposure [that] organisations have to this ‘energy’ is for the good [of the company]. It gives you a reminder of what it takes to turn a good idea into a really great business.”
Working with startups is not just about gathering and listening to advice, it requires structure for the partnership to be mutually beneficial. Lewis at Collider believes that creating a five-part framework, which is based on learning from discussion with brands, “allows for a much wider engagement from the entire organisation” because “if a company knows how to work with a startup, it is more likely to do so”.
This framework includes getting senior buy-in, finding ways of working with a startup such as on a trial basis, a light procurement process to help brand managers get funding secured and having a measure or key performance indicator that will ensure brands work with startups and do not just talk about it. The final piece is making sure that people are comfortable with failure and that working with these businesses might not always work out.
3. Learning from failure
Brands need to adapt their mindset to benefit from failure. “You are going to have to have failures in order to have success,” says Chant at O2. “You need to fail fast so you are not wasting good money after bad but equally we want to innovate and try new things.”
Lewis at Collider suggests brands learn from trials or pilots with startups rather than investing in large tech platforms that could take months to build and have no guarantee of working.
Startups have the ability to teach organisations to iterate and learn; while corporates need “the ability to understand how to apply that lean methodology that benefits so many people”, adds Lewis.
She cites the retail sector as being “unbelievably slow” at both adopting tech and realising they need to do so, and says the key is “getting people to understand the idea of iterating quickly” and trying something small, learning from it, and then deciding whether to grow it.
Marketers’ fear of failure “will take a longer time to resolve”, however, says Lewis. “People think ‘what if [the ideas] don’t survive?’, but they don’t need to worry about that as much. If you don’t bet the whole building on it, it doesn’t matter if they don’t survive; you may still learn from that process. We say to brands the best way to learn is to do it.”
The mindset of big businesses can be ‘anti-failure’ but if an idea is strong enough, it could be worth the risk. Mukerjee at Dunnhumby says: “If there is a good opportunity or idea, you have to look at making it happen.
“There can be a temptation and requirement to engage multiple stakeholders and spend months getting buy-in but doing things relatively small scale and getting off the ground quickly gives you something concrete to talk about – results and what you have learned as a brand.”
She adds: “It’s accepted that some of these [startups] may never go full scale but by testing on a small scale and learning quickly you can decide to invest or move on.”
So if that fear of failure is something that will inevitably prevent you from working with a startup, it is best to be upfront. Chant says: “There is a cautiousness when you work with startups [but] you don’t want to lead them down the garden path.
“[Startups] have to be so careful with the time and resources that they have, so you don’t want to make them feel there is an opportunity when there isn’t one.”
The benefits to brands will change as the industry changes, in terms of what is required from modern businesses to be able to serve customers the right products and services in the right way.
But the source of that change depends on whether established brands look at newer businesses coming to market, and at how partnering with and mentoring startups could continue to provide innovative ideas, inspire cultural change and give brands a chance to fail and learn.