A New Way to Scale

Growing startups’ inability to secure large, enterprise-level clients is a major threat to their ongoing success. As their overhead and operational costs grow, it becomes vital for them to acquire large customers. The inability to transition from smaller clients to larger, more lucrative contracts is the leading factor behind the failure of growing businesses. Large corporations offer exactly the infrastructure growing businesses need to read maximal scale. That infrastructure can then supercharge growth capital in a way that makes success far more likely.

Meanwhile, large corporations need exactly what emerging businesses have: valuable innovations. The monolithic nature of large corporations stymies innovation. That is why half of the companies on the Fortune 500 in 1999 were no longer on it a decade later.1 Either they were surpassed by emerging companies, underwent mergers, or faced declining revenues.

Successful partnerships between emerging businesses and large corporations are extremely powerful. We have seen them work many times. We built a partnership between a sustainable home improvement finance company and a large national contractor—increasing the contractor’s sales by 20%, while bringing in $100 million in new revenue for the finance company. We built a partnership between a rapidly growing IT provider and a Fortune 50 retailer—solving a costly problem for the retailer, while getting the provider their largest enterprise customer to date. We built a partnership between a fin-tech company and a Fortune 500 restaurant group—giving the restaurant group new financial wellness tools for their 100,000 employees, who will become new customers for the fin-tech company.

These are just a few examples of what is possible. The model has obvious potential well beyond them. Yet far too often, the worlds of startups and corporations remain apart. Most entrepreneurs and venture capitalists do not even think about large corporations as potential partners. Often they see them as operating in a different sphere entirely: servicing their legacy businesses. Or they view them with distrust, afraid that large corporations will copy their inventions.

The world needs that to change. We need to change it. How?

First we must understand the structural challenges, and then we must devise targeted solutions.

The Problem

Partnerships between large corporations and growing businesses, for all their potential, are hard to build. The two worlds face contrasting realities.

Large corporations need to focus on their legacy businesses. This is the classic “innovator’s dilemma” outlined by Clayton Christensen. The dilemma manifests on a very human level. Change is hard. Understanding and trying something new takes more effort than just doing the status quo.

Structural challenges compound the problem. Middle managers are rarely rewarded for taking risks on new technology. If they succeed, they get light praise; if they fail, they lose their job. They are incentivized to play it safe. Meanwhile, senior leaders rarely have the time, staff, or domain-specific expertise to research cutting-edge technologies. Traditional outside firms do not help. Consultants deliver a report and leave before having to implement anything. Investment bankers only care about maximizing the volume and velocity of transactions, whether or not those transactions will increase their client’s future cash flows.

Even when valuable innovations are identified, large corporations struggle to integrate them. They are highly bureaucratized and have many competing priorities. Without a persistent and focused champion who knows how to navigate the organization, innovations die. It is just too challenging to maintain buy-in from senior leaders while getting mid-level executives to integrate something new into a company’s existing infrastructure.

Meanwhile, growth-stage businesses do not know, understand, or trust large corporations. There is no Yellow Pages for Fortune 500 companies, whose leaders tend to be protected by layers of gatekeepers. Entrepreneurs would struggle to meet them even if they wanted to—which they don’t. Most entrepreneurs spend most of their careers in start-ups, which have an inherent allergy to bureaucracy, risk-aversion, and inertia. They pride themselves on bucking the status quo, tearing down existing structures, and upending incumbents. By corollary, they tend to fear that large corporations will copy their innovations or otherwise try to kill their startup before it has a chance to disrupt the market. The notion that a large corporation could be a potential partner, let alone a helpful one, is simply not an entrepreneur’s first thought.

The worlds are just extremely different: cultures, structures, incentives, ethos. And so they attract different kinds of people. Those who work in large corporations tend to value order, stability, and predictability; those who work in emerging businesses tend to value risk, disruption, and novelty.

They might as well be two different countries. How can they build treaties instead of walls?

Our Solution

Alliances are built by people who are culturally and politically literate in two worlds. That is how we think of ourselves at Emergent.

We have developed an approach that has worked time and again.

Our team maintains a deep understanding of the markets and categories relevant to sustainability, and of the most exciting emerging businesses within them. We get to know their leaders. We spend a great deal of time and care understanding their roadmap and their barriers to growth. We find ways to add value, build trust, and observe their performance. Once a business scales—achieving product-market fit, scalability in production, and stability in execution—Emergent formally underwrites a partnership. We work with their leaders to develop a scaling strategy and identify potential corporate partners.

At the same time, we get to know Fortune 500 leaders to understand their companies’ priorities and the barriers they face to innovation and sustainability. We act as a buoy in the ocean, keeping them up to date on the most cutting-edge work in the market through consistent meetings and research reports. We convene them with the most exciting emerging businesses. In time, a partnership emerges.

Then we do the careful and sustained work to build it. We get buy-in from the right decision-makers within the corporation—which we can do because of the deep trust we have built.

Then we work with mid-level executives to figure out how the emerging company’s innovation will be taken up within the corporation’s infrastructure. Throughout that process, we have to go back to senior decision-makers to make sure they remain bought in to the actual plan as it evolves. We drive everything toward a pilot launch. And then we drive from the pilot to fully scaled implementation and ongoing partnership.

At the core of everything we do is building trust—with our partners, and between them. Trust is hard to build, and easy to lose. We take the time and care to get to know them deeply. We are transparent with them. We do what we say we are going to do. If at one time or another we come up short, we own it immediately and work twice as hard to make it right.

New Ways Require New Thinking

When emerging businesses and large corporations partner, they win, and the world wins with them. That is the work we at Emergent have dedicated ourselves to. We hope others will join us.