Corporate CEOs have failed to engage with startups

It’s time for corporate boards to add “startup engagement” to their CEOs’ job descriptions.

CEOs know it’s important to engage with startups, but startlingly few seem to do it themselves. Too often this critical responsibility is shrugged off to other company departments, including innovation, business development, marketing, and PR. This is just not enough.

Startup engagement needs to be taken seriously at the very highest levels of every corporate organization.

Why corporates need to collaborate with startups

Engaging with tech startups is no longer an optional nicety for corporates – if it ever has been. It is literally a case of work with tech startups or die.

Many CEOs will say they are already engaging – and the figures, at first blush, bear this out. The number of non-tech corporates buying up tech companies is rising fast. The total value of transactions of non-tech companies acquiring tech companies more than doubled from $54 billion in 2015 to $108 billion in 2016, according to EY.

In addition, according to a survey by MassChallenge, four in 10 corporates say they use resources for accelerator or incubator space for startup interactions. One in two say they use staff to interact with startups.

But, look a little closer and you’ll see that much of this is PR veneer. The statistics show that, shockingly, only one in 10 corporations say their senior executive team has any explicit responsibility for startup interactions.

More often than not the responsibility for talking and engaging with startups is farmed out to innovation, R&D, technology, strategy, business development, and marketing departments. It is, of course, critically important that these departments also play a role in startup engagement – but this cannot be to the exception of the company’s leadership.

Why it needs to come from the top

It is not enough for startup engagement to remain siloed in technology departments for a number of reasons.

• First, we know that tech, innovation, and R&D departments themselves do not have enough exposure to the top team. In fact, only 34 percent of CIOs report directly to the CEO, according to the latest survey from Harvey Nash/KPMG.
• Secondly, the real value of startup engagement is that it gives the leadership team of an organization some visibility into what the future holds for their industry. It gives them a snapshot of the challenges and competition they may face, as well as guidance on how their organizations will need to change in response. This type of information is best absorbed first-hand and by exploring these issues directly with the startups themselves – unpicking their insights, motivations, and missions.
• Finally, savvy corporations also know that to survive, at some point they will have to invest in the ecosystem. For example, with Ford’s recent investments and acquisitions of technology companies including NuTonomy and Argo AI. These strategic investments in tech companies help corporates get a hand on potentially important technology, or on a team, and allow them to steal a march on competitors. This is why we’re seeing an uptick in M&A activity.

But to be successful, corporates must remember that most startups will only want to be acquired by companies that can demonstrate a genuine interest in the value, and possibilities, presented by their business, team, and technology.

The current situation is hurting many companies

And that is why this situation – where CEOs pay lip service to innovation but don’t take any personal responsibility for it, or aren’t seen talking to startups at all, may actually be hurting corporates.

These corporates risk sending the wrong signal to the startups they’re courting. They risk giving the impression that they don’t take innovation seriously enough; that it’s a “nice to have”; that company transformation can wait; or, even worse, that all their talk about tech is nothing more than a PR smokescreen. And these corporates shouldn’t fool themselves that writing a big check will make a massive difference when it comes to acquisitions.

Many young tech startups left safe corporate jobs because they were passionate about their new business and their ideas. They wanted to change the world. It’s almost never about the money – and, in fact, the best startups have their pick of funding sources. The funding landscape is competitive, and corporates need to set themselves apart. Startups want to change the world – they want to partner with investors and companies who can really add value and who share the same vision as them.

Boards need to hold their CEOs accountable

If corporates want to have their pick – or at least a better pick – of the best startups for investment or acquisition, which can be transformative, they need to lead their engagement activity from the very top. CEOs needs to be seen engaging with startups themselves. And they need to be seen doing it sincerely.

Ford is one of the companies taking a lead in this area. In fact, its CEO, Mark Fields, recent told Business Insider, “To me it was really important to be part of the ecosystem there — for our people to be rubbing elbows with somebody in line at the Starbucks and striking up a conversation and saying, ‘Hey, I’m working on this,’ and ‘I’m working on that.'” He is clearly getting himself out talking to, and about, startups.

Leading this engagement from the top will not only give these corporates a better view of the opportunities out in the market, but it will also give them the credibility – and relationships – they need to approach and negotiate investments and acquisitions with startup targets.

Corporate boards and shareholders need make sure that their own CEOs are taking this seriously. The best way to do that is to add “Startup Engagement” to your CEO’s job description. And then make sure that they do it.

Paul Cuatrecasas is CEO of Aquaa Partners, a London-based investment bank.