Entrepreneurship is widely considered the key to building a thriving economy. According to a Kauffman Foundation study, all net new job growth over the past 30 years in the U.S. has stemmed from young, high growth companies. Still, it’s becoming clearer that the connection between startups and established businesses just might be another major economic catalyst.
It might seem counterintuitive to think that large companies may drive entrepreneurship — after all, conventional wisdom says that many startup founders are launching their own businesses in an effort to pursue a more nimble, independent, high-risk path than what is generally associated with mature businesses.
Corporations, however, are actually a valuable resource for a region’s entrepreneurial ventures, and are capable of helping them achieve notable milestones:
- Corporations can provide tremendous value as a strategic partner or investor.
Large companies typically have deep financial resources, making them well-suited for making investments. Unlike venture capital investors, who are obligated to maximize return for their limited partners, corporations may be attracted to the strategic value a startup may bring in the form of complementary or incremental intellectual property.
This is a win-win relationship. For the entrepreneur, being able to offer strategic value as well as economic value can lead to more attractive investment terms, open the door to resources and potentially lead to an acquisition. For the strategic investor, a startup can bring an infusion of energy, creativity and technology that can deliver value for years to come.
- Corporations can be a game-changing first customer for a startup.
More often, corporations are looking to pilot new products created by startups. “Connections are oxygen for startups,” says Brad Keywell, managing partner of venture fund Lightbank, in a recent Crain’s Chicago Business article. “Big corporations realize startups are solving problems they can’t solve.”
In other words, each group has an incentive to form a relationship — startups gain a paying customer, and a corporation is able to fill a need.
- Corporations can share a wealth of critical (and transferrable) industry knowledge.
Chances are good that successful corporations have plenty of valuable knowledge to share about how to develop and grow a flourishing business. This is exactly the kind of information startups want — and need. As a result, these young firms often seek experienced business executives as advisers or mentors.
Looking ahead, as a region we need to increasingly facilitate open lines of communication and establish partnerships between promising and established businesses. The more we can be on the forefront of constructively connecting startups with established businesses, the better off our region’s economy will be.