Start-ups as drivers of innovation for SMEs

Thursday, 27. June 2019

A guest article by Julian van der Linden
 

Many owners, managing directors and executives struggle with the innovative capability of their own company – whether in a corporation, in medium-sized companies or in family-run, smaller enterprises (SMEs = Small and medium-sized enterprises or “Mittelstand”). The vast majority of companies are certain that "innovation is important" and that they are actually quite innovative. Nevertheless there is a growing concern that one's own market and business model could be disrupted.

Why is that so? Mainly because a large majority of companies – most of them rather unconsciously – focus on so-called incremental innovations: small, simple, evolutionary improvements to existing products or services. That results in new product variants, service improvements, sometimes also in productivity increases and from time to time in innovations which I call "marketing innovations" (sounds good, but are not really new).

The so-called "Not invented here syndrome" does also cause difficulties – instead of absorbing and adapting good ideas from the outside, companies rely too much on innovations developed by their own employees and innovations developed in cooperation with their customers. This focus on "one's own invention" is understandable and obviously a good way – but radical rethinking and completely new ideas and approaches require different impulses.

SMEs & Start-up


SMEs and Start-upAs a strategy consultant for medium-sized family-owned companies, I notice that very few companies cooperate with start-ups, form partnerships with them or even invest in particular start-ups. However I think that such a cooperation "SME & start-up" can provide the necessary impulses in order to give a new boost to one's own innovative capability. In the sense of sustainably increasing the future survival and success of one's own company, it seems strategically smart and risk-aware in the long term to secure and supplement the own business model which is successful nowadays. In many of the more "classic" sectors, anyhow, this requires the right digital business models, access to new users and customer groups with an affinity to tech and social media, and/or data-driven services.

So why not invest in start-ups or cooperate with them on a long-term basis before they can become a threat to your own company? Start-ups can be the new form of research and development for established companies – with a focus on connecting the right teams with each other, co-creating and further developing its range of services (products, services, customer experience, etc.) for today's and tomorrow's customer groups.

If you like the idea of cooperating with one or more start-ups, then let me invite you to ask yourself the following questions – you will come up with a first vision that provides an approach about how you can use start-ups as an innovation driver for your company.

  • What do I want to achieve by cooperating with a start-up? What should be the result? And what are my strategic goals in terms of growth, yield enhancement and risk optimization?
  • What time horizon do I expect to get a result (that meets the expectations mentioned above)? Short (1 to 3 years), medium (3 to 5 years) or long-term (5 to 7 years)?
  • Should a cooperation rather be based on loose contacts, project-related, run within the scope of a customer-supplier relationship or is a participation even conceivable?

Opportunities for Cooperation


Opportunities for CooperationThe answers to these questions should give you a clearer idea about what you are looking for in light of a cooperation „SME & start-up“: innovative and agile ways of working, the development and application of technologies and digital business models, the development of new business areas and growth opportunities, or investments in potentially profitable industries of tomorrow. In addition, you should also define a thematic scope: Are there more technologies in your focus, or industries, or applications and certain customer groups?

This first vision can be doublechecked using the parameters "intensity" of a cooperation as well as the perceived, subjective "risk" of a cooperation. Based on these parameters, it can be distinguished between different impact directions and forms of cooperation – whereby all forms are passed through in the course of a longer-term cooperation between the start-up and the company. So it can be quite attractive to use the so-called "support models" (usually informal and with low capital investment, for network building or the exchange of information and knowledge), prior to the real "cooperation models" (for having access to new technologies and gaining competitive advantages, for sharing costs and risks) or even the "investment models", in order to shape your individual cooperation „SME & start-up“.

Figure: forms of cooperation
Illustration: Forms of Cooperation.

Seek and You Shall Find


You know that you want to cooperate with a start-up, you know what such a cooperation should look like – but where do you find the right start-up? By answering the previous questions, the choice of search options becomes easier – but this process requires stamina and continuous relationship management.

As a first step, it is recommendable to regularly read industry information, usually conveniently packaged as a newsletter, such as Gründerszene, deutsche-startups.de, the„Gründer“-website of WirtschaftsWoche or CB Insights with an US-American focus.

The second and most important step: meet people – whether founders, people with crazy ideas, investors, business angels, etc. – to get ideas, impulses and contacts. In most areas, there is a huge cluster of different meetings, conferences and formats which are worth visiting – depending on the fit of your intention.

The third step does also work well through these events: get in contact with the so-called "accelerators", a.k.a. providers and programs for identifying, selecting and supporting start-ups in their further development and scaling. The ZOLLHOF – Tech Incubator from Nuremberg with its very wide range of events is just one of those „accelerators“.

There are many starting points that you can use to get in touch with start-ups – thus you might gain a competitive advantage, because according to a "Bitkom"-Study, managing directors do not care about start-up cooperations (73 % say that they have not even contact with start-ups).

Start-up as an Innovation Driver


Start-up als InnivationsmotorAll these suggestions do not guarantee success, but from our consulting practice we know practical examples in which start-up cooperations have been true drivers of innovation.

One of our customers – a medium-sized family-owned company from Germany, focused on solutions in the field of security technology – cooperates with the start-up „Dedrone“ (founded in 2015 with meanwhile more than 75 employees in Germany and in the US), which develops solutions for monitoring airspace and for drone defense – for example for airports.

A big step for our customer, who describes himself as more traditional, was the question “What effect does this cooperation have?” The innovative boost can be identified in two respects: On the one hand, our customer was able to improve its market perception and "polish up" the slightly "dusty" image of the security technician towards customers and competitors. In addition, the family company was able to significantly expand its own range of services with regard to applications that are currently still unexploited, but presenting a market which promises billions in revenues.

Credits (from top):
© istock.com
© istock.com I Wavebreakmedia
© istock.com | g-stockstudio
© WeissmanGruppe I own illustration, based on Deloitte (2017): "Shake it up Cooperation between SMEs and Start-Ups" and IfM Bonn (2017): “Kooperationen zwischen etabliertem Mittelstand und Start-ups.”
© istock.com I Natali_Mis
© WeissmanGroup



About the Author

Julian van der LindenJulian van der Linden is a Project Manager at WeissmanGroup. With a focus on strategy development for companies and corporations, organizational development, innovation management as well as project management and implementation, he supports family businesses in making better strategic decisions and reaching distinct results.