The Innovation Challenge: A Win-Win for Start-Ups and Corporations

If you’re like me, you hear the term “win-win” and immediately raise an eyebrow. In much of today’s version of capitalism, it seems that, all too often, for one entity to win, another must lose. This dynamic becomes even more pronounced when the two parties involved include an industry incumbent and its potential disruptor. So, the question is: can an interaction between two entities, working in the same space, truly leave both parties better off than before? We think so.

Cleantech Group has been in the business of bridging the gap between disruptive sustainable innovators and industry incumbents since 2002. Over the years, we’ve seen corporations’ attitudes mature and now we are witnessing them engage with external innovation. Slow at first to recognize the business merits of sustainability, some industry incumbents started off by extracting the marketing benefit of appearing green while not actually bothering with the “engage with the innovators” bit.  Even worse, some actively stifled their growth. Fast forward several decades, and a completely different picture emerges. Now everyone- ranging from Directors of Sustainability and Heads of Innovation to corporate venture capital units, LP investments and incubator/accelerator sponsorships- has learned the immense value in harnessing the potential of external innovation for sustainability. Which leads us to the Innovation Challenge.

The Innovation Challenge arises when an organization has identified critical issues that are preventing them from reaching their sustainability goals. They are stuck and need help from an external innovator to solve these problems. It is an issue-driven approach that offers an incentive to innovators to potentially produce step-changing gains. It should be noted that it differs from a Request for Proposal (RFP) which seeks to apply existing technology to a narrow technical problem. Seems like a fair trade – you solve my problem, I’ll pay you in kind.

Why, then, would an innovator be apprehensive? From what we’ve seen and heard, there are a few common reasons:

 Timing

The standard complaint of most innovators working with corporations is that the two organizations operate on time scales that seem worlds apart. Corporations tend to think in fiscal quarters, innovators in milliseconds. This disconnect leads to priority misalignment and communication failures.

Resources

Innovations can be found at many stages of the tech company development timeline. All businesses have to perform the balancing act of efficient resource allocation for one initiative or another but this problem could mean life or death in the case of smaller start-ups.

Opportunity cost

Signing on to some partnerships could prevent future work with other competitive companies in the industry if there are exclusivity clauses.

 Intellectual Property

Letting anyone interact with one’s innovation (hardware or software) opens the door to malicious actors, some far too big to tussle with and win.

Past experiences

Residual war scars have often left some innovators unwilling to open themselves up to the above risks. They become somewhat partnership averse.

 

These are all valid concerns and any one of them on its own could be reason enough not to engage. However, we must consider the expected return of the full equation.

So, does the upside gain justify the risks?

In most cases, it does. Depending on the structure of the challenge and the corporation in question, the innovator is presented with a tremendous opportunity to expand the reach of its offering. This could come in the form of a financial investment, channel to scale in new markets (geographic and industrial), a testbed for an emerging technology, a large customer acquisition, strategic guidance from industry experts, much needed user feedback and other more nuanced benefits depending on the innovator and the challenge. In addition to the advertised benefits on the challenge description, the innovator will always have the opportunity to learn more about the market and how its technology can be positioned to capture more of it.

Like all forms of partnership-building, the opportunity must be evaluated in its entirety, taking into consideration both the size of the prize and the probability and exposure to risk. If the opportunity is aligned with the organization’s roadmap, it should be pursued once the downside can be managed. Scenarios of misalignment should be met with potential for outsized gain. In all scenarios, innovators should at least be aware of the risks and can then choose to take reasonable precautions. The potential for risk in and of itself should not deter innovators from pursuing the opportunity.

Cleantech Group has guided corporations and startups through several of these Innovation Challenge processes to date. We are incentivized through financial and reputational risk to achieve the best possible outcome for both parties. For that reason, we work with incredible organizations to structure attractive and fair challenge processes.

If you would like to learn more about our current opportunities for innovators, visit our Innovation Hub. We are currently working closely with Swire Pacific , the Hong Kong based international conglomerate with a diversified portfolio of market leading businesses, to find six solutions for three of their operating companies.