Structured Startup-Cooperate partnership: Avenue for constructive disruption

The last couple of years have seen a lot of start ups in Kenya and beyond upset the status quo in areas of transport, finance, tours and travel and retail among many other sectors.

The startups especially originating from Kenya have been able to raise funding from various series of funding from a variety of sources both locally and internationally.

In as much as there are great startups that have gained international recognition and are well funded ; there are still a lot more that desperately need funding creating a perfect storm for transactions with investors that involves a moral hazard.

On the other hand legacy companies or incumbent are basically businesses that have platued in their growth and often opt to buy out competitors including startups to attain more market shares, repackage products and re-brand as differentiation strategies with little or no novel innovation.

An ideal situation would involve a partnership between startups and corporate but with power balance skewed towards corporate fuelled by availability of more resources such as situation is untenable.

Cognizant of power asymmetry and need not to exploit startups, two approaches can be explored:

Batch and competitive bidding approaches. Batch or cohort approach is a situation where a number of startups join an accelerator program run by a corporate often for a period of time ranging from 3 to 6 months. Startups are encouraged to learn from their peers and are provided with mentors, business infrastructure. The peak for the process is pitching to either business unit managers only or a combination of unit managers and external investors.

The startups that win often are given a deal; challenge is due to power asymmetry such deals favor corporate more than startups.

Competitive bidding is different in the sense that startups are called to bid towards offering identified technological or other shortcomings within the corporate. Startups go through a competitive process as they are offered technical support and if their solution is validated they stand to receive route to market support.

Both partnership approaches are okay depending with parties preference but more efforts needs to taken to ensure transparency, equity and fairness to both parties.

A possible solution might be an independent body such as an association for startups that act as a power fulcrum ensuring that engagements between corporate is arms length.