The missing piece in the innovation jigsaw?

There’s never been a more important time to innovate. The rapid emergence of new business models and the pace of technological change has accelerated, driven by digital technology and unprecedented change in our working and home lives brought upon us by the Covid-19 pandemic.

To respond quickly to these external forces, large corporates need to become more agile, leverage new technologies and embrace disruptive change. And this is where startups specialize.

On the surface, these relationships sound like a match made in heaven. Large corporates receive an injection of innovative flair to solve business-specific problems and perhaps access new capabilities or new channels. Startups get potential access to finance, new markets and technical expertise.

But the reality is that these collaborations are difficult. According to Accenture research, the success rate is only 44 percent. However, this high failure rate does not stop both corporates and startups from continuing to seek fruitful partnerships.

“The reason there are startups, and the reason they get funded by so many venture capitalists, is that everyone recognizes innovation happens best when it’s unburdened from risk,” says Lonny Stormo, CEO of healthtech Pops Diabetes Care.

“In a corporate there are always forces pulling away from innovation. They have a revenue stream, customer base and reputation to protect. But in a startup, the risk profile is different. We don’t have a large customer base, a big legacy product or a reputation to protect, so we’re willing to move fast, take risks and jump into anything,” adds Stormo.

Expanding innovation ecosystems

Zurich Insurance Group (Zurich) is one large corporate that recognizes this value and it considers startup collaboration as a key part of its innovation strategy.

“If you want to push boundaries and innovate ahead of the curve then you need to broaden your innovation ecosystem,” says Stuart Domingos, Head of Group Innovation at Zurich.

“This means collaborating with the most imaginative tech companies, start-ups and insurtechs, and leveraging their creative spark and entrepreneurial spirit to add tangible value and strengthen competitiveness,” he adds.

To accelerate this process, Zurich launched its Innovation Championship in 2018 to identify and attract the startups and solutions with the potential to transform the insurance industry. This also helped to overcome one of the first hurdles encountered in any startup-corporate collaboration: making introductions.

‘A corporate can feel like a huge sphere,” describes Stormo. “You constantly circle it and knock on different doors hoping to find the right person to let you in. But with Zurich’s Innovation Championship we didn’t have to knock on doors, we entered a big corridor and were given red carpet treatment.”

The 2020 event attracted 1,358 entries across 68 countries. Winners ClaimFlo powered by Safekeep, Jupiter Intelligence and Pops Diabetes Care, will now have the opportunity to work with Zurich and bring their pilot plans to life in their chosen markets, with the goal to scale their solution globally.

“Right from the get-go, Zurich pushed us to think beyond our home market in North America and consider how we could leverage our technology platforms in other regions,” says Jeff To, CEO of insurtech ClaimFlo.

This opportunity to scale up the business and expand into new markets is one of the most attractive benefits for a startup to collaborate with a large corporate. Another is credibility.

“Most startups have little initial credibility with large companies,” says Rich Sorkin, CEO at data and analytics startup Jupiter Intelligence. “But when we were a couple of years old, our ability to say we’re working with a dozen Global 2,000 companies really changed perceptions about us.”

Providing corporations with focus

But what’s the benefit to large corporations? Focus, says ClaimFlo’s To. “Startups bring agility, energy, focus and commitment into solving problems in a superfast manner without being distracted.”

Startups are considered nimble – or superfast – due to their faster decision-making cycles, but there are also financial pressures that add to their urgency.

“It’s like a video game,” explains Sorkin. “You need to reach milestones and achieve objectives within a limited amount of time and before you run out of capital. If you do it, then your business moves to the next level. And if you don’t, you die.”

This need for urgency means startups need to be selective about the companies they collaborate with.

“For a collaboration to work we need to understand the priorities, get a clear definition of use cases and identify the decisions makers. If we get good answers early on then we’ll keep investing in the relationship,” says Sorkin. “If we can’t, we move on.”

Startup Pixie Dust

One of the problems is that some corporates can get attracted by the coolness factor of working with a startup that Sorkin calls ‘startup pixie dust’ that can lead to ‘innovation tourism’ – one of To’s favourite phrases.

“Corporates will participate in hackathons, go to conferences, tour innovation booths and maybe identify some stuff that looks promising. But often it goes into a ‘proof of concept hell’, a form of innovation purgatory,” explains To.

But Zurich’s Innovation Championship has overcome these concerns and has been applauded by the wining startup participants.

“I think Zurich’s innovation process is among the best we've seen in any industry,” says Sorkin. “And we’ve probably been treated as a startup with more respect and professionalism by Zurich than almost any big company I've ever worked with in my entire career.”

But what is the key ingredient to ensure a successful and innovative collaboration? “Find a strategic initiative that you can align yourself with,” answers Stormo.

“It’s really difficult to convince a corporate they’re going in the wrong direction. But if they have already figured out a direction they want to go, and you can help them on that journey, that’s a winner.”

Zurich’s Domingos believes it’s essential for large corporates to find a way to form successful collaborations with startups if they want to innovate and stay relevant.

“It’s not always easy, but ignoring the opportunities or not taking any action is riskier still,” he says. “History is littered with once-great companies who did not see the need to innovate until it was too late.”