The Benefits and Challenges of Enterprise and AI Startup Collaboration
Given how quickly AI is changing business needs, creating new avenues of growth and challenging the past ways of doing things, enterprises have to partner with AI startups to keep pace with the changes and deploy innovation projects.
Startups can benefit from corporate funding, resources and customer access, while corporations need to innovate to stay ahead of competitors and disruptions and access new technology.
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Both corporates and startups understand the importance of this collaboration, as proved by the increase in corporate venture capital (CVC). In 2020, global CVC increased 24% YOY to $73.1 billion, and of that amount, $11.2 billion (15.3%) went to AI startups, which also included 30 mega deals.
The Main Motivations for AI Startups and Enterprises to Collaborate
For startups, a collaboration gives them access to:
- The corporate partner’s markets
- Enter a partnership with a customer
- The organisation's data on customers and the industry
- Development resources and capabilities — both technical and functional
- Increased financial resources
- Better investors who take the collaboration as a positive signal
For organisations, a collaboration can mean:
- The fastest path to innovation
- Work with startups that are ahead in the market and bringing them in-house
- Early insights into experimental technologies and new verticals
- Accelerate digital transformation, become more agile
- Get access to top talent
- Return on investment from CVC
Challenges That Derail the AI Startup and Enterprise Partnership
Despite the steady rise in these partnerships, most CVCs stop investing in two to three years and only 28% of startups report they are happy with their corporate partnerships.
According to McKinsey, these are some of the barriers that get in the way of the AI startup and enterprise partnerships:
Lack of internal sponsorship and strategic buy-in
This is particularly true of the CVC’s side when there’s a lack of commitment from some of the C-Suite, and the collaboration is treated as a side project, which often leads to resource constraints.
Without support from the organisation’s side, the startups have to lead the project in its entirety, which becomes challenging.
Lack of strategic clarity about goals
Many businesses are aware that they need to innovate and know the technology trends but have not translated that into what it actually means for their business practically. Hence, they cannot make use of the external ecosystem to help them accomplish their objectives.
Businesses need to understand that getting a grasp on emerging technologies requires different mechanisms and capabilities than replacing a declining core business.
Traditional corporations are not agile
Startups work differently from corporations and often the two working models don’t coincide. For example, if a corporate partner asked startups for what resources they’d need over the next quarter so that they can be incorporated into the budget, the startup will most likely be lost.
Getting stuck in pilots
Given all the other factors, like no stakeholder buy-in or lack of resources, these partnerships often are left with no path to scale, and they end up on pause.
How to make AI startup and enterprise partnerships work?
To make the most out of corporate partnerships and reap the benefits, AI startups and organisations need to:
- Commit to the project: the McKinsey study showed that start-ups’ satisfaction rose by 93% when they felt their corporate partner was highly committed.
- Address cultural gaps: acknowledge that there will be problems due to different cultures, methodologies, and philosophies and commit to working them out.
- Establish clear goals and key performance indicators: without well-established goals and knowledge of where the project is headed, the partnership can stagnate. Organisations tend to revert to their standard metrics to measure the success of the partnership, which doesn’t work. Hence, establishing goals and KPIs is crucial.
AI startup and enterprise collaborations are opportunities for startups to grow bigger, faster, and enterprises to innovate quickly and get ahead of the disruptions in their industries.
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