10 Tips for Corporate Open Innovation with Startup Companies

By: Itai Green

Over the years, Israel has accumulated a lot of experience with corporate open innovation. Over 350 global corporations selected Israel as their source for innovation, understanding that the rapid rate that technology changes and the fierce competition that exists, does not allow these companies to rely just on their R&D departments.

In the past, innovation done internally was just small talk. Today, everyone knows that internal innovation will happen only after successfully implementing an open innovation process with startups.

This process must have great value, so that implementing open innovation will be effective and have minimal errors. The connection between the startup and the corporation is not a coincidence. Each embodies a completely different culture. One is fast, tech savvy, works 24/7 and creative, while the other is large, traditional, safe, has vast knowledge and experience, bureaucratic and slower.

Below I share 10 practical tips to successfully implement a open innovation in your corporation:

Commitment

Successful implementation of innovation is a direct result of the degree of commitment by a corporation’s Owners and CEOs. A corporation that wants to adapt to innovation will excel if at least one member of the board of directors deeply understands the world of innovation, entrepreneurship, and startups, so that every decision made will include the innovation perspective.

Innovation is a strategic subject for the organization’s future. Just as every board of directors has a director with financial expertise, each board of directors should include an innovation expert. Appointing a VP of Innovation who will report to the CEO is an indication of the importance the organization sees in innovation. The greater the distance between the Innovation Manager and the CEO, the smaller the organization’s commitment and less chance of success.

Innovation is not just “an additional role” but a valuable asset that requires full-time attention and ability to quickly make decisions and execute them. Unfortunately, the incentive for CEOs is usually driven by short-term, quarterly financial results. That misses the long-term goal of innovation.

Innovation Leader

The innovation manager in the organization has a decisive impact on the organization’s ability to succeed. Innovation implemented in an organization involves a significant change in the perception of the employees and the organization itself, the work pace, the degree of openness and the devotion to the innovation. The Innovation Manager must have strong “political” skill, the ability to embed innovation as part of the “agenda”, execute high-level projects and manage them, and of course, excellent interpersonal abilities for the challenges he may encounter.

It is recommended that the innovation manager will have an in-depth familiarity with the entrepreneurial ecosystem, but not a must, since this knowledge can be obtained through an external consultant. Every organization must have a single Point of Contact for startups, who will be present in the communication between the organization and the startups. An organization in which each unit operates independently with startups will operate inefficiently and unprofessionally with the entrepreneurial ecosystem.

Challenges

A corporation must accurately define its technological and business challenges in order to know which startups they need to research and immediately build a “value proposition” for startups so that the best ones will want to work with the corporation and not with its competitors.

Managers and Employees of FOMO and not NIH

The Human Resources Division has an important role in the success of the corporation’s innovation process. The more recruitment of open-minded innovation managers and employees, those who are curious, open, motivated by the fear of missing out – is more likely to be the organization that will succeed. There is a need of more FOMO (Fear of missing out) employees.

Unfortunately, there are still quite a few organizations in which management and middle-level employees are skeptical, risk-averse, close-minded and convinced that they know everything. And worse, they block any decision not under their responsibility and leadership (NIH=Not Invented Here). These are the most dangerous people to run the future of the organization because they believe that what works today – will continue to work in the future. That was the case for Nokia, Kodak and Blockbuster. It’s critical to shift these decision-makers from a point of real influence.

Experience shows that employees and managers involved in the process of innovation are those whose status in the organization is strengthened!

The more employees in the organization who have experience with startup companies, are willing to take risks, try, and even make mistakes, the more innovation will happen within the organization. A few weeks ago, I lectured to dozens of employees in a corporation. I tried to explain to them the difference between a startup employee and a corporate employee and I realized that not one ever worked in a startup company. I asked them: “Is anybody here worried that he will not receive a salary on the 9th of the month?” Their answer was “not on the 9th but on the 1st of the month.” It’s a huge difference in people’s mindset and character. A corporation needs both types of employees.

A Corporation Speaks the Startup Lingo

Startups will NOT speak a corporation’s language – a corporation who wants to work with startups can’t work slow or bureaucratic. Startups live and breathe on a scheduled timeline based on the cashflow that’s in their pot. In the past, startups competed for the right to work with a corporation, but today the situation has changed 180 degrees. The power is in the hands of the startups and they decide which corporations they will work with. They will work with corporations that work quickly, who come with an open mind, who make rapid decisions and perform quickly. A corporation who wants to succeed, must position itself as the “first door to be knocked on by an entrepreneur”. Some corporations are confused and think startups are standing in line, just waiting to work with them. The good startups do not wait in line. It will happen only if the corporation knows how to act transparently with the startup, listen to entrepreneurs and respect the enterprise, be available 24/7, make quick decisions and ensure that the processes are fast, and not complicated. In Israel, between 2 people there is maximum 2nd degree of separation, unlike the rest of the world where there are 6 degrees of separation. That means that when a corporation is doing well with start-ups – it spreads to others that would be eager to work with this corporate, while on the other hand, if management is poor – a good startup will avoid working them.

Partnership

The startup is a partner, not a supplier. Startups are no longer a supplier for the corporation and paid under the payment conditions of 60 or 90 days. Startups are being paid (yes- No free giveaways!) immediately. Startups are not the corporation’s bank but its partner. And yes, corporations pay the startup for a pilot. Again – no free gifts! The startup’s resources are very limited, and a corporation that pays for pilots and other services from a startup – will be attractive to other startups. This will lead to other high-ranked startups who will work with the corporation. If the CFO of the corporation says that it is “impossible” to pay immediately – you will tell him that this is already happening in many corporations. It depends only on good will.

Budget

Innovation costs money. Usually, not big money. In the first year in which the corporation operates with innovation, it’s recommended that the budget comes from management and owners. After a year, the budget should come from the P&L of business units that benefit from innovation. Usually these are relatively small sums, but the very fact that the budget comes from the business units creates a harness, not only for management, but also for mid-level managers who have a critical role to encourage success of the process.

Not Measured by ROI

Could Agfa build a business model for switching from film photography to digital photography? Not sure. What is certain is that the adoption of the latest technologies caused their downfall. Innovation is not measured by the speed in which the investment is returned. The organization often has no choice but to adopt the innovation, or they will disappear. Customers expect a high level of service. Customers expect high quality. Shareholders expect efficient processes. Those who don’t provide it, risk failure. The corporation is not managed in a vacuum. Competitors adopt innovation too, and this leaves the organization with no choice. |t is always best to lead, not be led.

Equity Costs Money

In the past, corporations force startups to acquire a percentage of ownership, in exchange for cooperation POC or Design Partnership). NOT ANYMORE. No more free gifts. A corporation that insists on receiving free percentages from the Startup will find the startup working with the corporation’s competitor. The corporation will have no choice but to invest major resources in R&D, which will cause the technology, product or service to reach the market with considerable delay. A corporation who wishes to purchase a percentage in the startup’s company will be honored and will invest with money.

Zero Bureaucracy

The contractual agreements (even secret ones) between a corporation and a startup must be short and simple. Startups don’t have resources to pay for legal advice that will accompany complex and lengthy processes. KEEP IT SIMPLE. The intellectual property belongs to the startup (unless joint development is made). Anyone who runs fast with Startups beats the competitors!

Implementing open innovation is not complicated, but there are guidelines. Eventually, we must act in a professional and serious manner, while maximizing the extensive experience accumulated in recent years.