The first day of Open Innovations forum at Skolkovo Technopark was fully devoted to corporations. Russian Venture Company held a session Corporate Innovations: What Accommodating a Technology Requires which gathered corporate innovation directors representing various industries (United Engine Corporation Saturn, an engine building company; Vimpelcom, telecommunications provider; Faberlic, cosmetics and perfumeries manufacturer) and innovators.
The discussion was quite open and tough. On the one hand, corporations claim they are ready to house innovators and make them part of their technology chain. On the other hand, startupers complain about insufficient corporate transparency. Corporations are furious about poor quality of the proposals, low technological readiness, lack of market analysis and inability to properly do business, demonstrated by startupers, while startupers lament all corporations want is to use them. It is clear, corporation aim to make profits. As a rule, startupers wish to get some money, too.
The true problems about startups are wrong targeting and market assessment.
“Of 30 startups in retail business, 14 are dealing with problems which do not exist at all, further 14 attempt to resolve problems which have been resolved long ago, while merely 2 generate something new and useful – still totally incompatible with any business model present at the Russian market”, Faberlic’s Ivan Dementiev describes the market situation. “Once you have generated a brilliant idea, you should first check who has done that before, since truly unique ideas are very rare”.
“A corporation would buy a startup not because it is so incredible”, he adds. “It buys it to make sure that an incredible startup is not bought by its corporate competitors. Therefore, if a corporation has no competitors, it needs no startups. In competitive markets, there are major companies which everybody knows and which are really few. If your startup is not intended for such markets, then you will not get any strategic investors in Russia”.
Startuper’s grave mistake
Ms Field Mouse than gave shelter to the Thumbelina, was very good in counting and figured out that half a grain as daily meal is a reasonable cost compared to the prospect of a marriage between the lodger and the wealthy neighbor. From the corporate viewpoint, startupers’ main mistake is, they do want some grains but are unable to clearly describe the expected benefits of the offered marriage – and task a would-be investor, i.e. a corporation, with all that.
Dmitry Ivanov, UEC Saturn’s Innovations Director, pointed at a common startuper mistake. Inventors mainly come to corporations for money to finance creating products based on their technology.
“In 95% of all cases I see technology projects, not business projects. I hence have to explain the startupers they should think about business, not about technology”, he said.
So startupers had a reasoned recommendation to change their attitudes.
“When I meet a startuper, he always says, ‘I have a technology and I want 100000 dollars for it’, but I have not met a single one who would say ‘I have an idea how you can make 1000 dollars”, Dmitry Ivanov says. “Do you see the difference? Once you change your posture from ‘I want your money’ to ‘I want to be your partner’, you will see a different attitude”.
Dmitry Ivanov also underlines, the inventors who come to his corporation, pay little attention to the market assessment.
“Why can’t a startup check who is already trading in the market? How is the market structured? How does it function? Who are customers and consumers there? A corporation would not be courting a startup”.
Other speakers also underlined insufficient elaboration of the projects, in both technical and business respects. Generally speaking, a startuper is usually too young, too inexperienced and too unfamiliar with the market and the project management overall.
Faberlic’ Ivan Dementiev was quite harsh, but he had warned about his feelings in advance.
“When coming to a corporation, a startup must offer the subject matter of the deal. You must offer your possible client your tomatoes, it is not the client who is wandering around the market knocking at the closed doors and enquiring if you have any tomatoes available. Therefore the story is not about motivation or attitude, it is about professionalism. When I am approached by too inexperienced guys, I can not allow my business to accept the risks of their poor experience. Why should I take any risks? Companies can become strategic investors of a startup only when it poses a serious threat to their business, so they have to buy it to eliminate the threat. In whatever other situation a startup may only be either a partner or a supplier”, he says.
Science and business: in harmony when apart
Researchers and engineers are often criticized for their inability to commercialize on their inventions. It turns out though, that it is not necessary for a successful interaction between an inventor and a corporation. As Maxim Irishkin of Krastsvetmet precious metals producer puts it, in all successful projects involving startups, technology management and business management are always separated.
“When entering new markets, a startup is light horsemen which helps a corporation to test its business models at new markets”, Maxim Irishkin explained. “It is very important here to have the business component and the research component separated as we do not act as a business developer and do not aid a startup in its development”.
Therefore, from the viewpoint of business development for the corporation, it is essential – in addition to a thorough elaboration of the technical component of the solution – to have a clear understanding of what is the business challenge of the corporation it is intended to solve. Vimpelcom’s Philipp Mukhin explains the need for a business manager in a startup by the fact that usually a startup, focused on pure technology, knows little of an adequate management.
“It is a huge problem, when a designer is also a marketing specialist and a sales manager in a startup. As a representative of a corporation, I do not want to deal with a designer. He should be in his office designing something. There should be other specialists in a startup, to take care of sales and communications. Once we have a cocktail of such functions, the person in charge of everything fails everywhere and that does not generate any sales”, Mukhin says.
Alexander Gavryushenko, Director of St Petersburg Polytechnic University’s business incubator, noted the corporate market is closed for newcomers. In turn, corporate speakers assured him they all are absolutely open, and gave advice on what webpages should be visited and what applications should be filled in.
But what should be done about the startupers who are unable to instantaneously elevate the level of their competence?
“Start with inviting to your team the people who are familiar with the industry where you operate”, Ivan Dementiev recommends. “Before your sales start, do not spend all your time in a laboratory designing. Check the market, collect insider information and opinions thus getting an idea of what is happening at the market. If you know nothing about financial matters, do not go into business, get yourself a job. The one who invests in your company, does not think about the ways you will follow to expand your business, but about a profitable sale of one’s stake in the future”.
By Kirill Ivanov