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Venadar’s CEO Shares How Corporate Innovators Can Manage Startup Relationships

Venadar Founder & CEO Mark Kaiser

The following interview was recently featured on Enterprise Innovation
Startups and corporate innovators often have a tenuous relationship. While enterprise leaders fear the disruptive threat of innovative startups, the nimble nature of a startup offers massive opportunity for forward-thinking innovators. Sometimes the most impactful way to solve a problem facing an enterprise business is to find an external agency or startup partner already solving that problem on a smaller scale.

It is sometimes overlooked that a primary responsibility of corporate innovators is to discover and partner with emerging startups, and also to make recommendations on investment and acquisition. finding startups that meet corporate criteria – whether that be in size, scope, scale, or staff – that can help meet corporate innovation objectives is                                                             not always easy. That’s where the help of corporate venturing firms like Venadar come in.

We recently spoke with Mark Kaiser, Venadar’s founder & CEO, about how corporations have changed their M&A priorities; where startups sit within the corporate innovation spectrum, and to solicit advice for intrapreneurs struggling to secure buy-in on a startup engagement strategy.

What prompted you to start a corporate venturing firm in 2005?

Prior to Venadar, I served in four other executive positions, including several times in the CEO role, so I became painfully aware of the constant pressure to drive growth. In the early 2000s, I became curious as to why, outside of a few IT partnerships, my organization didn’t seek or maintain working relationships with any startups or entrepreneurs. The more I thought about it, the more of a good idea I thought it was to engage with startups. That’s when I decided to start Venadar – to help connect corporations with startups that could move business priorities forward faster than they were equipped to do.

In the 12 years since, what have been the biggest changes in how corporations determine where, when and why to invest in startups? 

Until about five years ago, organizations put a lot of effort toward learning and understanding technology. There was genuine interest in disruptive tech, but unfortunately, IT, C-Suite and even business units had a bias towards startup innovation. In plain terms – they didn’t want to acknowledge that the startup might be creating something that the organization didn’t have the resources, skills or time to do.

Since about 2011 or 2012, Fortune 500s, in particular, began to view the  acquisition of startups as a means to drive growth. As such, some of the biggest brands in the world extended their reach through M&A in ways once never imagined. For example, Tyson’s Foods acquired its way into having an entire division dedicated to proteins other than chicken. Hershey’s acquired jerky maker Krave with an explicit mandate to transform the $30 million brand into a $500 million brand.

The prioritization of growth via M&A is not all that’s changed. As we all know, the modern consumer and customer now demand products and services expeditiously. And if it’s not working, we demand a pivot. But typical corporate R&D is very slow, sometimes taking years from design thinking to implementation. Consumers don’t have patience for such slow innovation anymore. With this reality, corporations took notice of people flocking to startups for speed and convenience, so they knew it was time to act or risk losing market share and revenue, potentially for good.

So then, are you saying that corporations view startups more as threats than as opportunities?

Not in every situation. Wise corporations see startups as an opportunity, not as a threat. Startups are closer to the consumer than big companies can be. That puts them way ahead of the curve in knowing what will show up down the line when the enterprise conducts consumer market research. Historically, most big companies would never admit to being threatened by an entrepreneur. There is a certain level of arrogance that says, “We won’t be beat out by the small guy.”

But corporations did start to get beat, and they continue to. About 10 years ago, I was in a meeting between a Greek yogurt startup and a corporation that laughed them out of the room, dismissing any idea that Greek yogurt could emerge into the mainstream. Today, whenever I meet with that company, we talk about avoiding the next “Greek yogurt moment.”

Where do you see corporate venturing as part of the bigger corporate innovation puzzle? That is, how are companies prioritizing in-house dev vs. investment/M&A? Are there any patterns based on industry, company size etc.?

Corporate venturing is hot, and I see it continuing to explode. Prioritizing in-house dev versus startup engagement isn’t as difficult as it might seem so long as corporate innovators can clearly define internal and external priorities.

One emerging best practice for intrapreneurs is to make an evaluation of build vs. buy. For every idea, before starting with a blank sheet of paper, intrapreneurs should conduct due diligence to determine if any entrepreneurs are already solving this problem. If they are, perhaps a partnership or acquisition is in order. This line of thinking will become ingrained moving forward because the eight-year enterprise average from inflection point-of-scale is too slow and no longer viable. Why should a corporate innovator start down an eight-year path when they can engage with a startup that is already five years down the line? It’s such an easy way to avoid those costly and painful first years.

Investment in startups also allows for cross-pollination of products and services that otherwise wouldn’t have merged together. For example, I participated in the acquisition of a home security technology to be used in baby monitors. The home security entrepreneur didn’t have the time or resources to scale into the baby industry, but the corporation did, and it turned out to be a big success for all involved.

Aside from budget, what do you see as the biggest challenges to corporate innovators? What lessons have you learned in your career that you can share with aspiring intrapreneurs?

Two main thoughts come to mind here:

  1. Be strategic – Don’t let serendipity drive corporate venturing or innovation. Many companies go to trade-shows seeking leads and are excited by the possibilities at hand. But often times they don’t come back with as many leads as they would have liked, yet there is little questioning the ROI because attending these shows has become the norm. There are no norms for intrapreneurs, so they must present opportunities, recommendations and ROI in much more strategic ways. Failure to do so could impact the perception and outcomes of the project before one even gets off the ground.
  1. Keep away corporate antibodies – To me, the hardest part about being an intrapreneur is to not let “corporate antibodies” attack your investment or project. The big difference b/w high growth companies and mature businesses is that stakeholders of mature businesses can have a propensity to try and prove everything new as bad. For example, with any new innovation, margins will most likely not be as good as they are for the core business, but that doesn’t mean that the margins are bad. Unfortunately, the perception might be as such. Mitigating the effect of “corporate antibodies” takes proactivity. Intrapreneurs must make stakeholders understand that what they are doing is different from the core business and that is OK. Doing so requires what I call being a sophisticated rebel; knowing when to push back against standard business processes. Knowing how and when to say, “We appreciate X, but that won’t work for Y, and here’s why,” is imperative to the success of an innovation team long-term.

Author – Robert Berris, VP, Strategy & Founder, Enterprise Innovation

Let’s Be Friends – Relationship Advice from Venadar’s Mark Kaiser

uhohspoonIn my years of initiating relationships and negotiations with big companies and emerging companies, I’ve seen some incredible results from these partnerships. I am struck and sometimes amused, though, by stories entrepreneurs have told me about being approached by big companies, and by how big companies are often surprised by what entrepreneurs ask and do.  I‘d like to share some of my favorite anecdotes as a way to help both big companies and entrepreneurs have successful encounters.

Three’s… er, Seventeen’s a Crowd

As a favor, I was asked to tag along on a dinner a Fortune 500 company scheduled with a successful entrepreneur to discuss the potential for a partnership.  The dinner was hosted at the Ritz Carlton, and when I arrived I found that I wasn’t the only person invited – 17 people from the big company were also asked to “tag along”.  You can imagine how intimate a conversation of 17 on 1 felt.  Here are a couple of suggestions for the next meeting: 1) keep it small and don’t overwhelm the small company; and 2) choose a venue that is appropriate for someone who is trying to make payroll.  Entrepreneurs already think big companies have unlimited funds, so picking up the tab for 18 people at a Ritz Carlton for dinner only proves they are right!

#I’mGoingToDisneyland!

After they scheduled a first meeting and met with an entrepreneur, another client called me to complain that the entrepreneur posted on Facebook and Twitter he just met with “ABC Corporation” and they agreed to do a deal together.  A lot of entrepreneurs are into shameless promotion because “buzz” is important.  That doesn’t excuse the behavior, but care should be taken to not say or do anything that you wouldn’t want broadcast far and wide before a confidentiality agreement is in place.  Until the NDA, nothing is “off the record”.  Talking out of school or sharing confidential information (whether an NDA has been signed or not) is not a good way to advance your cause if you have any genuine interest in working with a particular big company.

Practical Advice for Entrepreneurs and Big Companies

I could go on and on… but here is some practical advice for both big company folks and entrepreneurs:

Big company: Entrepreneurs have a love/hate relationship with you. On one hand, they admire what you have accomplished and would like to be a billion dollar company just like you – on the other, they fear you will “steal” their ideas.  Start with a “low risk” conversation about how you may be able to support the entrepreneur, and, if available, point to your track record of working well with partnering and investing in start-ups.

Big Company: Hard to believe, but It’s usually not about the Benjamins. While some entrepreneurs desire access to capital under reasonable terms, more often they are interested in access to your distribution/customers to grow their revenue. With some exceptions, they don’t necessarily want “help” with their supply chain, HR, your purchasing power, or advice on how to run their business.  Listen and offer to help with things the entrepreneur really might value.  You are starting a business friendship.  Be a friend.  You are not in a purchasing transaction.

Entrepreneurs: If I’ve said it once, I’ll say is a thousand times, avoid exaggeration like the plague.  Whether you have 23 customers or 12, you are still a small business.  Ditto for 43 employees or 27.   If the demo is just a prototype, say so.  The truth is always better than something you make up.  You might be surprised as the big company might just be able to help you with your real problems, not the ones a vaporware story might imply.

Big company: Entrepreneurs work in real-time.  Set realistic expectations and if things are going to move slowly, tell the entrepreneur why.  One deal we were working on recently needed the approval of the CMO.  He was on a three-week vacation and doesn’t work when he is on vacation.  It would have been better to say that upfront than “go dark” for four or five weeks, which is a lifetime for an entrepreneur.  To an entrepreneur, a vacation is special and to not work when away is unheard of.  Going dark for more than 24-48 hours without giving advance notice may cost you a relationship.

Entrepreneurs:  Don’t be afraid if a representative of a big company gets in touch.  Be guarded, but it’s probably a good thing.  And at first, don’t tell anyone anything you are uncomfortable sharing.  My rule of thumb is don’t share anything you wouldn’t share with a good, well-qualified customer or prospect in a sales call.  A confidentiality agreement is just like a fishing license, but a fishing license doesn’t guarantee you will catch a fish.  It protects confidential information that is shared, but it doesn’t require you to share any information at all.  It is okay to say “I am not comfortable sharing that information at this time” or “before I answer, I am curious why you are interested”.

Proverbial Win-Win

Keep in mind there are many dialects in almost every modern language – in business partnerships, there is the dialect of the big company and the dialect of the entrepreneur.  Listen and learn how to understand what each other is saying (I still have a hard time understanding someone from the Bronx, or Alabama), it’s the key to starting a new friendship with someone who might help you create the next billion dollar business.