If we want things to stay as they are, things will have to change....

A Cambrian moment for Startups - The Economist

How Should Startups Approach Corporations?

Canon has just announced the $150 million acquisition of Milestone Systems, a Danish software company specialising in video surveillance. In the same week, HP used its annual Discover event to trumpet Helion, a portfolio of Cloud products and services aimed at taking on Amazon’s market leading cloud offerings. Another story which caught the eye was an analysis of IBM’s network of support for Startups in Africa which now encompasses Smartcamps in four cities. All of these stories have a common denominator. The tech industry faces immense disruption and established players are trying desperately to find ways to adapt.

Startups have a vital role to play in this process. Of course, they are the prime source of disruption but they are also at the centre of change within the tech industry. Acquisitions, acqui-hires, partnerships and incubators are all strategies adopted in response to the threat of the mobile and digital revolution. This means the big, slow moving giants of the industry are not just easy targets for Startup founders. They are also a source of funding, market access and a potentially lucrative exit route for investors and founders.

How can Startups take advantage of these opportunities? Begin at the end. Acquisition by an established player - a trade sale in the jargon - is by far the most likely way to a lucrative exit for Startup investors. Once you have a clear idea of your value proposition, it will often be quite straightforward to identify a small number of companies which are likely buyers even though the exit may be five years or more away. These need not be restricted to the tech industry. Mobile and digital technologies are disrupting business models across the board. Although in many industries, the market leaders are less aware of the threat and much slower to adapt. Nonetheless, retail, advertising, health, financial services and many others may be a good source of possible buyers.

Look into the areas of investment and development that companies are pursuing. Often this will be publicly announced. Even if not, a quick glance at the type of investments made in recent years should give plenty of clues. I spoke to a couple of senior executives from large corporates recently and security, networks, cloud, analytics and big data all came up as areas of focus. 

If there is a clear exit strategy, the next question is how to start building a relationship with the target acquirer. Incubators or similar schemes to help Startups are a great place to look. I know of at least three Startups that have been through an initial bootcamp funded by Microsoft in Scotland or Germany and all continue to receive help and attention from the company. Even if the incubator option is not available, keep an eye on the partner programmes that large corporations run. These can be a great route to market and therefore a great growth accelerator. They are also one of the prime sources of acquisition. Many corporates rely on recommendations from product teams to identify partners that would make suitable acquisition targets.

Even if none of these routes is available, just enquiring and meeting with executives from potential future buyers will help build valuable relationships. The Startup ecosystem is diverse and being noticed is a key part of success. How can Startups best take advantage of the disruption they are causing? I would love to hear your thoughts in the comment section below.