How corporations and SMBs can turn competition into collaboration

We can finally live out our Jetsons fantasies – almost. Pandemic permitting, in a few years we should be able to hire an aircraft to get from A to B. Volocopter’s drone-like, electric-powered helicopters will be cleared to take off with passengers in two to three years. 

During its first public flight in Europe last year, CEO Florian Reuter stated that backing from Daimler gave his company the credibility and traction that his competitors cannot claim to have. CEO of Mercedes-Benz Cars and Chairman of its parent company Daimler, Ola Källenius said that by partnering with Volocopter, Daimler can be part of “the mobility of the future.” Thanks to this collaboration, catching a lift will have a whole new meaning.

So how important are this type of collaboration or partnership to a digital ecosystem? 

What is an ecosystem in the first place? 

A digital ecosystem is always more than the sum of its parts but there are common ingredients among the most successful ones. Founders with problems to solve. Co-founders who believe in their vision. Networking events so they can find each other. Funding from friends and family, angels, VCs, and private equity funds. Support organizations like workplace communities, growth platforms, and networking and membership groups. Venues and co-working spaces. Support programs like accelerators, incubators, and open innovation initiatives.  A qualified talent pool, technical infrastructure like fast broadband, links to education to create a talent pipeline and access to academic research. Backing from local and national governments and big companies that take an active interest in what the smaller ones are doing.

This isn’t an exhaustive list so what do the experts say? Carlos Espinal, Managing Partner at Seedcamp start-up platform, would add tax relief for risky ventures, access to legal counsel, tolerance for failure, and a strong media presence.

Steven Renwick, CPO at Regis 24, broke it down to The Next Web in simpler terms. Essentially, in his view, a healthy ecosystem has the presence of both people who are building businesses and of good investors who share ideas and best practices with each other.

The importance of idea validation

 Having all the ingredients present is one thing but sharing ideas and best practices is an action that shouldn’t be reserved for the good investors. Collaboration, especially between smaller businesses and their larger counterparts, is the catalyst that precipitates innovation. That innovation then ripples out, positively affecting other parts of the cluster. 

There are several direct benefits to the small business. These include investment, project funding, access to corporate information and data.

For Renwick, just as important are the intangible benefits: expertise, guidance, idea validation, connections, and forming strong relationships with existing and potential customers. 

He said: “Small companies need to speak to big companies to find out if their problems are relevant or not. And there’s no accounting for serendipity. You never know who is going to introduce you to an investor or an employee.”

Finding product-market fit

Speaking to the benefits of idea validation is Sebastian Weyer, Co-Founder of Statice, a privacy and compliance start-up. He took part in Data Pitch, an EU-funded innovation program in which corporates share their data with start-ups. By working with the data of a digital health company Weyer was able to confirm Statice’s utility. 

He told The Next Web: “The collaboration went very smoothly as we laid out the project to apply our technology to their data. The final result was to show that the company was able to protect its user data with our software while still enabling them to use the data in a meaningful way.”

Gaining a deeper understanding of a sector is necessary for founders with experience in a different industry as Karl Lorey, a Stuttgart-based Technologist and Investor explained to The Next Web. He said: “Many start-ups are founded by people not from a specific industry so they need to understand how things work there in order to find product-market fit. The way to do it is to talk directly to your customer and understand their needs to build products that corporates want, thus generating sustainable revenue early.” 

Speaking of revenue, Weyer also attested to the fact that collaborations can assist with sales and customer acquisition. He said: “Usually, collaborations are part of our sales process. Quite often these include setting up a proof of concept project with corporates to test our product together. This is usually handled by our salespeople.”

Mutually beneficial partnerships

Christian Deilmann, Co-Founder and MD of smart heating company tado, recognizes first-hand the benefits to the SMB of collaborating but he also understands the pros to the other party. His smart heating and wireless thermostat company has collaborated with energy suppliers including Essen, Germany-based E.ON while participating in Data Pitch. 

He told The Next Web: “Start-ups are very fast in developing and creating new innovations and being very close to the consumers and seeing what their specific needs are. And the large corporations, their products are ready for new innovations. If you put the two together, the corporation has customer reach and innovations.”

Lorey said that from his perspective, collaboration often leads to an acquisition which is a way to bring the agility and innovation of a start-up into the larger company. This form of partnership, buy-outs, and corporate venture capital is long term and not for the commitment-shy. 

The importance of community

Other locations where collaboration can take place are accelerators, co-working spaces, events, and competitions. Other forms of collaboration include procurement, co-development, and free tools. Even investors can play their part as Lorey has been asked to make introductions between fund investors from medium-sized companies and start-ups in order to initiate a project.

The events hosted by or at start-up communities like Google for Startups, Silicon Allee, and Digital Hub Initiative can be fruitful for finding a collaborative partner.

Karolin Hewelt, Head of Hub Agency underlines Digital Hub Initiative’s role as points of interaction between start-ups and corporates in Germany. She says: “Established companies in many industries seldom had access to the great start-up hotspots like Berlin, Hamburg or Munich, although there were sometimes great teams and talents and also start-ups at the excellent universities in their vicinity. But they hardly ever learned about each other.” 

Making connections is a key part of the Digital Hub Initiative mission and the 12 Hubs that form part of its network specialize in various technology areas so organizations that share a sector interest can connect more easily. The Digital Logistics Hub is in Dortmund, Smart Infrastructure Hub in Leipzig, and Media Tech Hub in Potsdam. A young company that is part of the InsurTech Hub in Munich is Smartlane Transport Intelligence. The start-up uses cloud-based software and artificial intelligence to help fleet operators plan and optimize their vehicles’ journeys more efficiently and now counts Deutsche Bahn as one of its customers.

With so much action and interaction in a digital ecosystem, the positive effects of collaboration are felt not just by those who are directly participating. 

According to Deilmann, collaborations are beneficial in general because they highlight opportunities for improvement plus they eliminate inefficiencies in uncertain value chains. From his perspective, there is a multiplier effect when corporations see their competitors working with start-ups on innovation projects and bringing them to market quickly. By observing what others are achieving and seeing customers react well to those innovations, they are stimulated to also seek out partnerships with start-ups and innovate. 

German industries would be left behind in an analog past without collaborations, said Ueberheide, as he believes they would not be able to successfully digitize themselves without those partnerships.

It is clear that many see innovative collaborations as the way for old-school industries and corporations to understand and make use of the technological advances of the future. 

Lorey said: “Start-ups and big corporates have different areas of expertise and can greatly benefit from each other. Especially in Germany, there are many corporates that have understood that they need to innovate in order to survive and many innovative startups with exciting technologies and services. I think corporates need meaningful connections to startups to leverage this potential and to bridge the gap.”

Weyer added that collaborations support sales, product development, and research, and that pooling resources facilitates many technological advances. These aspects of business impact many other areas of the ecosystem. 

So it seems collaborations are necessary for the innovation required for company survival, and with those corporations serving as one of the pillars of a digital ecosystem, the importance of partnering cannot be understated.