A Magna Carta for Corporate-Startup Collaborations

By Kaitlin Milliken |  August 19, 2019

Failure can sometimes be regarded as an f-word that strikes fear into the hearts of large organizations. But according to the forthcoming book Disruption Games by Trond Undheim, companies can benefit from normalizing failure and building it into their operating practices.

“Failure is completely normal and expected. And you should aim to have more of it,” Undheim said during an interview with InnoLead. “[R]eflecting around [failure] should just be something you do every day. There is just no way around it in today’s disruptive world, where technologies, government regulations, new business models, or the response from clients…[are] changing fast.”

Undheim has spent over 20 years as an entrepreneur and supporter of startups. During this time, he has worked with four “unicorn” ventures (startups with a valuation that has surpassed $1 billion) and helped launch over 50 other startups. He is also the former director of the Massachusetts Institute of Technology’s Startup Exchange

Throughout his book, Undheim explains why companies need to examine their failures and extract meaning from unsuccessful experiments. He also shares takeaways from his time working in the startup ecosystem. While fledgling startups have a built-in tolerance for failure — they expect that some things they try won’t work out — Undheim says larger companies work hard to engineer risks out of their business and avoid any kinds of negative outcome. 

“[H]istorically, [big] organizations have tried to bury failure,” he says. “Startups have…an easier time with failure  because it’s completely expected… So you develop a thick skin towards failure, towards experimentation, towards bad news, towards negative feedback.”

The excerpt below comes from a chapter that discusses best practices for working with startups, the factors that lead to failure, and how to avoid common pitfalls in the sandbox. Disruption Games is now available for pre-order

I observed many corporate executives, perhaps stereotypically those who traveled from afar, say from Asia or South America, get visibly excited after a startup meeting — or even during one. You can see it in their body language, leaning in, asking a myriad of questions, running out of time. There’s nothing wrong with that. I love making people happy. Even if it is only in the moment.

Other executives, of course, are rather jaded, and simply engage in meeting startups because they want to inspire their own product teams to innovate, not because they truly want a partnership. Many startup exhibits start out that way, with executives simply wandering around hoping to get a nice photo with some entrepreneurs. However, even then, all hope is not lost, something could click, and they are interested in a deal. I’ve often brought an executive from one corner of the room to another (this always works, the farther away, the more impressed they are when they get there), and then found them in the same spot an hour later.

What I find less appealing is the notion that sometimes floats around that startups are only there for inspiration, not for action or deal-making. Even some corporate staffers and leaders at MIT had that attitude, I think because that’s what they know: The corporates pay the bill. In my view, you should take startup founders seriously enough to give them honest feedback, fair treatment, even some free assistance, just because you know they are taking out time in the hope that a big corporation will bite.

Even worse, perhaps are those executives or innovation scouts that tease, and play a game of catch and release, bait and switch. They make promises of follow-up and give all outward signs of being interested, perhaps leading the startup to make investments of time and resources in building a product or tweaking their product to the newly discovered use case, only to discover that the corporate is not interested, never replies, or says they never had any money for trials, or that they want the whole trial for free, because they are “such a brand name” and the startup should “consider itself lucky” to partner with them.

Occupying some middle ground are those corporations that still have such strict disclosure policies that even though a startup partnership exists, no mention can be made of it in public. I’ve seen so many nameless case studies that go into oblivion because the punchline is absent.

In fact, there should be some new ground rules in this game, a Magna Carta, as it were, a set of mutually-agreed guidelines. I started drafting some simple rules around startup readiness and corporate readiness when I still was working at MIT and did some early exploration of the idea. Let me spell out some of these rules, which cover topics like preparation, honesty, timeliness and tailored process:

Preparation. The startup should never walk into a corporate meeting without a very clear idea of who they are meeting, what company they represent, the current news and published strategic considerations, major business units and main office locations of the corporations they are meeting with. They should ideally have read the most recent annual report and spent a few minutes with the LinkedIn profile of each person they will meet.

The same goes for the corporate delegation, executive, R& D engineer or scout: Read up on the startup, don’t just go in expecting to be entertained. Be prepared to ask smart questions, to contribute something. The meeting might be your only contribution, so make it worth it. In early stages, solid corporate feedback can be as important to a startup as a partnership.

Honesty. Before a meeting, there should be a mutual declaration of intent. Why are you keen on meeting? What do you hope to accomplish? Both parties should commit to keeping the conversations honest, never promising things they cannot deliver. If there is an intermediary, that intermediary should be able to have full insight into the reasons why a trial or partnership might not go ahead as desired. The startup should be mindful that if a trial or partnership becomes a reality, they might be expected to devote considerable resources to making a product, staying in business (the worst fear of a corporate would be to start relying on a startup that subsequently implodes).

In fact, a startup should also not over-promise and certainly never imply they have a product when they do not. One startup I paraded around, which subsequently went out of business, had fooled both VCs, corporates, and myself, into thinking they had a launch ready product, when in fact years of R&D and product development was ahead of them in order to bring the product to a state where it could be useful.

Timely response. Both parties should commit to responding to the other party in a timely fashion. The corporate should be able to not only provide a straight answer within a reasonable time (ideally within the day, within the week for sure, or worst case within a month) about how interested they are in pursuing a deal. The timelines should, in any case, be clear beforehand. If the deal is declined, the reasons should be clearly spelled out, and should be the real reasons, within reasonable limits and without disclosing proprietary strategy information.

Tailored process. The corporate should have a special responsibility as the “power holder” in the relationship to be extra forthcoming, mindful of the time commitment made by the startup in the first meeting and in any subsequent follow-ups. They should have a simplified startup procurement process and tailored legal documents written by startup-trained lawyers in place before any startup meeting takes place (this is not always easy to do—one life science company I worked with has thousands of lawyers, to whom startups still are an anathema). …

What is untenable is that the corporate startup obsession might mislead a generation of startups into thinking they actually are interested when they are not. This obsession will end at some point soon, only to be replaced by some other favorite corporate discovery tool, perhaps an AI based desk research tool, or back to intermediaries, or indeed a refocusing on later stages where the corporate can make meaningful financial investment. In the meantime, let’s make the interactions as painless as possible, eliminating friction where we can.

When done well, corporate/startup partnerships do deliver on their promise. They can add much needed inspiration, ready-to-go product extensions, and efficiency tools to corporations whose innovation muscle has been weakened through time.