The start-up and corporate mismatch
It’s not easy for David and Goliath to collaborate. Although many buyers want to say yes to new, innovative suppliers, they are often constrained by their own rules, procedures and fears. Buyers and sellers need to find ways round the common barriers.
Emily and I recently spoke with Jonathan Moffat (Group Head of Sourcing for a large financial services company) about the challenges of start-ups working with corporate businesses. Jonathan’s insights provide a concise and comprehensive summary of many obstacles that must be overcome before start-ups and large companies can work together:
- Financial stability – many corporates are wary of early stage suppliers in case they fail financially and won’t be around to provide service.
- Unproven technology – corporates want proven solutions, not the uncertainty and costs of being a test site. As Jonathan observed “you won’t get sacked for working with large vendors, but you might if you take on an unproven company whose solution fails”
- Resource issues – corporates often worry that small start-ups won’t have the resources to configure the system correctly and provide sufficient ongoing support.
- Sponsorship issues – corporate politics are very real in most large companies. There are many more stakeholders with different agendas than vendors realise. Those not involved in the early discussions tend to look for reasons to say no rather than yes. ‘Not invented here’ is a common obstacle.
- Poor presentation – Over several years Jonathan has found that most start-ups do not know how to present their product in terms of adding value to the customer. Most focus too much on the technology itself.
- Lack of imagination – Individuals may have vision, but put too many together and different perspectives tend to limit their collective imagination. Corporates find it difficult to visualise the potential of something completely new.
- Legal contracts – Many large companies insist on using their own terms and conditions, which are often skewed in their favour. Many start-ups can’t afford the legal costs involved in securing a more appropriate deal.
- Intellectual property – Large companies are often obsessed with IP and want it included as part of a purchase. There are good and bad reasons for this, but little thought as to where it would leave the start up.
- Exclusivity – Many corporate buyers ask for exclusive use of new technology to deny their competitors. Start-ups tend to say no, because this could cripple them. With more open dialogue, perhaps a start up could agree to limited exclusivity.
- Implementation costs – in Jonathan’s experience implementation costs come in at 10 to 15 times the price of the technology itself. The real numbers are often harder to justify than the value proposition put forward by an enthusiastic sales person.
- Pride – Many companies will not tell the start up the real reason they are saying no, especially if it’s because they lack the funds to cover the initial costs of the project.
We’re working on ways to help corporate and start-ups overcome these barriers. In the coming months we’ll share some tips in this blog on ways to lower some of them.
In the meantime, if you are a start-up, we recommend addressing each of these points to improve your chances of landing large orders. On the corporate side, addressing these barriers could improve your scope for innovation and make life a lot more fun.