1. Which startups should I work with?
Identify startups that are working on big and particularly difficult problems for your organization that you can’t or won’t solve.
The sheer number of startups by which you are now inundated is overwhelming. And they come at you from every conceivable angle- senior leadership, the press, incubators, conferences, LinkedIn, friends, unsolicited emails. Not to mention the universe of potentially game-changing startups of which you are not yet even aware!
So with all of this noise how do you choose which startups to ignore, which to investigate, and which to invest?
First, focus on startups that can help you solve your #1 or #2 most strategic problem. Ignore everything else. By doing so, you ensure that you have time to investigate the right startups and then the resources to maintain momentum in the project. Most important, you will increase your chances of having organizational support when the time is right to go big.
Second, investigate startups that focus on strategic problems you can’t or won’t solve internally. It sounds counterintuitive because startups have a fraction of the resources at their disposal than you have at yours. However, this is the very purpose for which startups exist. They find innovative solutions to difficult problems for they are unencumbered by your inherent paradigms, processes, and hierarchies.
Endorse solved a problem for which brands had a need, finding a way to connect directly to their consumers, but no desire to solve themselves- building a compelling in-store mobile experience.
2. How do I mitigate the risk of my startup partner failing?
Work with startups that have two critical components that give them credibility: a strong team with experienced investors, and a built-in business model that you understand and can see scaling.
Startups are inherently risky. And, more often than not, the initial product that got you so excited in the first place will evolve over time. However, you can drastically reduce the risk of your startup partner failing in two main ways.
First, it helps to work with founders, teams, and investors that give you confidence that they can execute on the company vision. Try not to be wowed simply by a compelling idea, the passion of the founder, and a polished presentation. Yes, these are important traits but you also need to dig a level deeper. What are the key capabilities for the business to succeed? Is this team uniquely constituted to build the business? Have the investors been apart of success before and will they stand behind their investment when things don’t go perfectly? Do I trust this group?
Second, the startup must have a business model that makes sense at both small and large scale and one that you know you can impact. A few key questions that help in this early analysis are things like: Is there an obvious revenue source? Does this solve something for which I am already spending money? Can I see this as a solution for other brands, not just mine?
3. Why shouldn’t I insist on an exclusive?
A platform approach rather than a brand-specific approach is better for both short and long-term startup success.
I know this is counterintuitive, particularly when you “discover” an attractive startup with which to partner. The best chance of future success is for you to embrace a larger solution rather than building something just for your brand(s) or for your CPG company. There are many reasons for this, but in general, the more parties that use the product or service, the more valuable it becomes for everyone. The earlier a startup achieves success in its life cycle, the higher the likelihood that the startup will get the additional investment to help further scale.
Second, though you may not realize it you already have a de facto exclusive by getting in early. The reality is that a startup can only work successfully with a handful of large partners. It’s a symbiotic relationship- the better the startup executes for you, the more invested you become, the more successful the business becomes.
If it makes you more comfortable, it is acceptable to ask the startup for a short time-based exclusive so that they won’t work with a direct competitor.
4. Now that we’re working together, how do I know if we’re on the right track?
Set up a pilot to surface the right issues, then analyze, learn, and communicate key findings frequently.
With Endorse, my team and I collaborated with our brand partners and addressed “Killer Issues” early on in the company lifecycle. We set up “test and learns” with small budgets and we were diligent in analyzing and reporting on the findings.
We ran a six-month pilot and invested our own capital and resources along with our brand partners. We wanted to show that shoppers would provide proof of product purchases in retail stores and that we could give brands compelling data insights that are hard to come by. By proving this out in a controlled manner, we established trust by doing what we said we would do.
Once we were able to draw tangible insights, we jointly met with internal stakeholders across the various companies and reported the findings. We did “lunch and learns”, participated in innovation offsites, and held briefings with senior leadership. In this way, we were able to bring parts of the organization along with us to get their feedback, surface potential stumbling blocks, and got buy-in early in the process.
5. How do I create the best interpersonal dynamic with an entrepreneur to be successful?
It’s not an agency-client relationship- expect more give-and-take, more collaboration, more personal investment.
Simply put: There is a different mentality required partnering with startups than there is with the traditional agency-client relationship. As one of my CPG colleagues is fond of saying, you need to be able to agree to disagree on certain critical issues- and to be comfortable with that. In some cases, you might be even asked to embrace a solution that appears to be sub-optimal for your immediate needs, but is better for serving the long-term success of the company.
Both the startup and you have the same goal: to create a sustainable business that solves a key business problem for you. If the company fails because it optimized for your specific requirements to the detriment of a broader approach, you both lose.
Think about it: both parties are putting a lot on the line. For you, you are risking your political capital, investing your time, and spending your budget on a risky startup with no guarantee of success. For the startup, you are a critical early customer who has the potential to make or break their business.
Just like any relationship, trust is the foundation for long-term partnership success. This is achieved when both parties make the necessary time investment to establish a strong cultural fit.
There must be open lines of communication in order to meet certain time milestones, to set expectations on budget, to know when something is working or not working. The manner in which work gets done at a startup might be different than the way you normally work. In general, frequent, informal, and transparent communication works best.
ABOUT THE AUTHOR: Steven Carpenter is the founder and CEO of Endorse, the next generation offers platform for consumer brands. He is a former Entrepreneur-in-residence at Accel Partners. Follow him on Twitter twitter.com/stevencarpenter.