Why Corporations and Startups Are Working Together



The words entrepreneur and startup have had a great run of late. A study of Census Bureau data analyzed by scholars at the Ewing Marion Kauffman Foundation demonstrated that virtually all net new job creation over the past three decades has come from true startups — new businesses less than 1 year old. According to the research, new businesses create an average of 3 million new jobs each year, while existing businesses of any age, type or size shed, in aggregate, a net annual average of around 1 million jobs as some businesses fail and as others incorporate technology to become more efficient. In 2013, studies showed that 300 out of 100,000 adults created new businesses in 2012. Business creation of 0.3 percent translates into approximately 514,000 new business owners each month during the year. “Young companies or new businesses are the job growth engine of the United States economy,” said John Dearie, executive vice president at the Financial Services Forum.

So it’s about time corporations take notice of the value entrepreneurs or startups can bring larger companies. Entrepreneurs hold the key to spark the innovation that corporations lack. In 2013, we saw more corporations interacting with the startup community and doing things they had never done before. Why are they doing this? They’re reaching out because of exploding innovation and a 21st century mindset of speed and product innovation that has left many of them in the dust.

On the other hand, entrepreneurs are wary of working in-house at large corporations. They like the autonomy of their own schedule, their own creations and their own imagination. They do not want to be bothered by red tape, a cubicle and a limit on how much money they can make or how high they can climb on a corporate ladder. They would rather have a ping pong table in the office. One of the best entrepreneurs in U.S. history, the late Ewing Marion Kauffman, once dealt with being boxed in at a corporation. He began his career as a pharmaceutical salesman only to have his sales area cut because his commissions were more than the president of the company’s salary. So he quit his job, and with an initial investment of $5,000 grew his own pharmaceutical company to one with more than a billion dollars a year in sales. He then sold his company for $7.1 billion in 1995.

Instead of looking to hire entrepreneurs, large corporations are now admitting where they need help and pitching to entrepreneurs and startup leaders instead. During Global Entrepreneurship Week in Kansas City, an event organized by KCnext called Reverse Pitch took place. The tables turned on five of KC’s biggest corporations. They pitched real pain points to local innovators and startups the same way entrepreneurs pitch to investors every day. Each company was looking for partners to commercialize ideas or solve problems. The companies included corporate giants such as Sprint, H&R Block and DST, as well as the University of Missouri-Kansas City. One of the biggest surprises was the inclusion of the Kansas City Chiefs from the NF, who reached out to the room to help solve their parking problem. On game days, Arrowhead Stadium effectively becomes the seventh largest city in the state of Missouri. Over 70,000 fans and 20,000 cars a week enter the stadium area, which requires a great deal of ongoing planning. The Chiefs’ goal is to use technology to improve the overall traffic and parking experience for their fans. They reached out to entrepreneurs to explore and help improve their payment processes, parking processes and commuter data collection, as well as for ways to improve overall efficiency at Arrowhead Stadium. If a group of entrepreneurs can solve these problems for one sports team, the possibility of replicating these results and improving fan experiences could benefit people throughout the world.

As KCnext President Ryan Weber noted; “Corporations working with entrepreneurs is extremely important to overall innovation. Many corporate leaders understand that innovation comes from inside and outside the walls of the corporation. That’s why an open dialogue between the big companies and entrepreneurs is absolutely vital.” So these days, corporations are not only pitching to entrepreneurs, but they’re also working with accelerators to create closer relationships with startups.

Look no further than Think Big Partners. In 2013, Think Big Partners and H&R Block partnered up on an event entitled “Hackovate Health.” This health-focused innovation competition was designed to identify innovative mobile, online, social and other applications that help consumers navigate the new healthcare landscape. Teams large and small competed in a three month long competition, where ten finalists presented promising ideas, some of which turned into new joint ventures. The Hackovate Health process involved coaching and mentoring from business, policy and investor leaders in the entrepreneurship and healthcare arenas. H&R Block fully embraced a role of working on open innovation and learning from entrepreneurs. Partly, this is because corporations with many shareholders don’t want to fail. “We believe we can offer corporations other ways to innovate and give them the ability to explore and work with bright individuals not within their four walls,” says Managing Partner of Think Big Partners Herb Sih.

Time Warner, Hershey, Pepsi and Microsoft are just some of the other large corporations that have invested time, money and programming into corporate innovation throughout the United States.

In 2013, corporations moved past the typical short meetups and after-work happy hours to truly engage with entrepreneurs and startups in their spaces and on their terms. It’s a win-win situation for both entrepreneurs and large corporations to form relationships and interact positively with each other. Let’s hope that this emerging trend continues throughout the rest of 2014 and beyond.

The Young Entrepreneur Council (YEC) is an invite-only organization comprised of the world’s most promising young entrepreneurs. In partnership with Citi, YEC recently launched StartupCollective, a free virtual mentorship program that helps millions of entrepreneurs start and grow businesses.

Photo Credit: CC by Trypode

About the author: Jason Grill

Jason Grill is the founder of JGrill Media where he consults on media relations, public affairs and strategies and government relations. Under same umbrella, he works in the media as a local and national writer/contributor, radio host and television analyst/commentator. He is the co-founder of Sock 101.

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