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Why Now is the Time to Engage with Startups

I  recently hosted a discussion through Connectory Chicago with Dennis Boecker of Bosch, Sente Foundry's long-time partner, about the unique effects of the COVID-19 pandemic on corporate innovation and startups. In this second article of my series about Intelligent Growth, I will share some of our discussion insights.

How does a pandemic impact corporations and startups?

It is no secret that Covid-19 is a terrible crisis that the world was unprepared to handle. But the pandemic is also spurring innovation, as firms come up with new ways to keep making existing products despite disrupted supply chains and a demand collapse amid self-isolation. Some are changing the very way they innovate as pandemic has upended nearly every aspect of life. From the personal, how people live and work, to the professional, how companies interact with their customers, companies are morphing to meet customers where they are. This may mean changing how customers choose and purchase products and services or how supply chains deliver them.

With that said, doing anything novel at large firms typically involves a significant amount of capital due to traditional corporate structures. While companies preserve cash to stay liquid as revenues dry up, fresh investments are the last thing on most corporate leaders' minds. They are mainly focusing on maintaining business continuity, especially in their core. Executives must weigh cutting costs, driving productivity, and implementing safety measures against supporting innovation-led growth. Unsurprisingly, this also means investments in innovation are suffering.

Prioritizing innovation today is the key to unlocking post-crisis growth. At times of volatility, it is an uncomfortable act to create a balance between long-term growth and short term adjustments required to maintain the vitality of the core businesses. However, when faced with economic, geopolitical, and technological uncertainty, corporations will need to adopt creative strategies to sustain. Non-traditional investment strategies need to find a spot on the corporate agenda as they can evolve into viable and vital sources of return. 

The Covid-19 crisis provides a fertile ground for outside innovation that will soon challenge the corporations' status quo. 

Besides being expensive, corporate innovation has also historically been insular. This closed approach carries an opportunity cost. For example, generally, large companies do not use or affordably license most of their patents, which could drive innovation rapidly and at scale. 

Some corporations are rethinking this tradition. On April 21st, Microsoft, once a staunch advocate of the "walled garden" approach to software, declared its support for the open-data movement.

Big companies have primarily favored the advice of insiders and elite consultancies over the wisdom of the crowds. This, too, is changing. Ericsson is now investing more in open-source software and engaging customers in open-innovation efforts to speed up the adoption of its 5G kit.

During periods of uncertainty and doubt, businesses and consumers are more willing to change their behavior and try innovative products and services that are more productive, cheaper, and faster. Innovation takes root and typically gains significant market share during tumultuous times. Uber, Airbnb, and Instacart all started in times of turbulence.

Is the only answer to this global challenge startup engagement?

No. But, how corporations engage with startups will need to be part of it. However, this requires an open mind as startups provide hints to how the customer needs and behavior is changing. 

Startups are efficient and flexible at identifying and quickly addressing new opportunity areas created by the changing landscape. Working with them will also help corporations increase the pace for re-evaluating the innovation initiative portfolio and ensuring resources are allocated appropriately as a balanced allocation of resources to maintain the core's strength and create optionality for new areas of growth.


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