5 reasons why startups should consider working together with traditional businesses

As a startup, it’s a real struggle to conquer your unique position in a saturated market. Your biggest challenges are well known: finding a good problem/solution fit, finding the right product/market fit, managing the short term and long term cashflow and managing the retention of early customers so you can survive and actually grow/scale. You are in a continuous battle to win all these challenges. Unfortunately, according to a report of Startup Genome on premature scaling, 93% of the startups fail to scale.

A crucial moment to raise your chances to end up with the 7% succeeding businesses, is right after you defined your solution/market fit and thus are ready to scale. How? By working together with a traditional business. I am well aware that you might feel some aversion towards this idea: as a startup you probably feel an urge to disrupt these traditional businesses and industries. With your innovative business models and new technologies, this is no lame claim. But what you might forget in your ambition to disrupt, is that traditional businesses often have lots of experience in the market, a broad customer base ànd a rich history. Elements that can be of great help.

The crux lies within the way you collaborate with these traditional businesses. Linking the innovation power of your startup to the legacy and market knowledge of the traditional business, can lead to a strategic win-win for both parties. This immediately explains why the number of collaborations between startups and traditional businesses increases every year.

Here are 5 reasons why you, as a startup, should collaborate with traditional businesses.

As a startup, you thrive on innovation. It seems to be your second nature to disrupt the market, which is kind of cool. Traditional businesses also look for innovation and disruption. But where you often operate in the risky and uncertain horizon 3 of the innovation landscape (small ventures such as research projects, pilot programs, or minority stakes in new businesses), traditional businesses operate in the less risky, horizon 1: they focus on improving performance and operations to maximize the remaining value.

From this point of view, startups and traditional businesses are not really competing on the same turf. They can be allies in innovation. By working together, you gain a solid base to experiment and to develop towards a problem/solution fit faster.

Gaining profit from innovation is not easy. It’s not sufficient that your customers can use your innovative technology; they also need to create value with it and you have to capture part of that value as a company. As a startup, you are constantly looking for (new) customers to challenge and to enrich your solution. Customers where you can develop new solutions with. Traditional businesses however have an extensive knowledge of their market. They have access to (existing) customers. By engaging with their customers, you can speed up in achieving a relevant product/market fit.

When a relevant product/market fit is found, you need to sort out your cashflow as soon as possible. The innovative business models that most startups use, tend to be capital intensive. This makes cashflow problems one of the main causes of failure. Your success can literally kill your business.

Family businesses usually excel at exploiting a solid, futureproof business model. Hitchhiking on their back can be a comfortable situation. Whether it is selling your product to traditional businesses with a pre-financing model or leaning on its capital to manage your cashflow on short term: having a company with some heritage, capital and expertise by your side is a definite bonus.

Once the startup finds traction in the market and starts scaling it has the potential to change the traditional business, where it’s working with, at its core. Often traditional businesses are risk averse. Once they see success from the scaling startup the riskiest steps are taken.

Creating value is relatively simple, but capturing this value and turning it into a tangible profit for your company: that’s where the real challenge lies. As a startup, you might also find difficulties with your pricing model and sales organization. Or with raising your conversion rate and customer equity. It’s clear that also in this phase the knowledge and experience of a traditional business can come in handy.

So, these are the five main reasons why startups should collaborate with traditional businesses. It’s crucial that a successful collaboration starts with the right goals in mind, under the right agreements. What this collaboration can/should look like, is something we will further investigate in our research project ‘the art of corporate venturing’.