Customer Mirage: Risks of Signing A Large Company As Your First Customer

Imagine you’re in a hot, dry desert and desperate for water. You’ve been walking all day and the thought of drinking nice, cool water makes you ecstatic. Suddenly, you see it! A pool of water in the distance. You hurry towards it, running as fast as your legs will carry you. But when you arrive, all you find is sand. Damn sand!

You’ve just experienced a mirage. And this is exactly what it feels like when you’re looking for that first customer and close a whale. You’re desperate for validation and revenue. If only you could get that big name-brand customer, investors would be tripping over themselves to give you money! TechCrunch would write about you! The cash would be rolling in and all your worries would be over!

After weeks or more likely, months of emails, calls, negotiation, and nervous waiting, you finally land a deal with a WHALE, a well known publicly traded company. Not just any deal – this deal starts with $100k+ in revenue and has the potential to bring in much, much more. This is the inflection point right? It’s all #winning and *crushing it* from here!

Unfortunately it usually doesn’t work like that. If your first customer is a large company, the deal is more likely to be a mirage than the start of a winning streak.

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The Art of Rejecting Startups

Corporate innovation people get pitched by startups All. The. Time. In theory, a startup may reach out or be introduced and they’re a perfect fit at the perfect time, leading to a quick deal. I’ve personally never seen a deal happen that smoothly and certainly wouldn’t bet on it. The far more likely scenario is you’ll be rejecting startups that reach out to your corporate innovation group.

Startups are rightly rejected by large companies for a variety of reasons. The startup may have misinterpreted the corporation’s existing capabilities or the corporation is already building a similar solution, internally or with an external partner. But many times, a startup with an objectively needed capability comes around – and yet, the timing isn’t quite right so a deal doesn’t get done. Sometimes the issue is budget. Other times, it could be an attention problem – decision-makers are focused on another, more important problem.

No matter the reason, the world is always changing and corporate needs are no different. Smart corporations (similar to VCs) are great at saying no while leaving the door wide open for future collaboration when a need arises. There’s a fine line between misleading a potential partner and clearly saying no but leaving the door open for future opportunities.

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The Five Questions Large Companies Ask When Evaluating Startups

I get contacted regularly by startups looking to partner with large, global companies who can give them scale. My work over the years has shown me a number of these deals from both sides of the table. While almost all of these relationships make some logical sense on paper, in reality they are way more difficult to implement than founders initially think.

On the surface, the logic for these relationships is straightforward – one party has a unique technology or product that can improve things for end users while the other party has global distribution and scale. What’s not to love? But there are several other factors that go into the decision making process for large companies which founders often fail to consider.

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Corporate Startup Lab Demo Day 2019

Last week, I had the pleasure of attending and keynoting Carnegie Mellon University’s Corporate Startup Lab Demo Day. My friend and mentor Sean Ammirati first shared the Corporate Startup Lab model with me in 2017 and I’ve been a fan since Day One. The idea is to bring together Fortune 500 companies with interdisciplinary teams of students to build internal startups solving problems and developing new business models.

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Inside Outside Podcast Interview

I recently had the opportunity go on my friend Brian Ardinger’s podcast, where we spoke about The Startup Gold Mine. We were able to get into a few different things, including:

Startups and corporates speak a different language

  • Different timeframes
  • Size of deals
  • Response times
  • Number of stakeholders

Corporate incentive structures for successful partnerships

  • How comfortable is the corporate team in innovating? If comfortable, they’ll have a higher tolerance for misses. Look at the entire portfolio.
  • Companies that allow intrapreneurship give employees new outlets to thrive.
  • Allow more employees to scout for deals – innovation can come from all parts of the organization.

What are the benefits of startups-corporation collaboration?

  • Inside large organizations (10,000+ employees) it’s an echo chamber. They only see direct competitors.
  • Need someone looking outside of direct competition. Expose the corporate team to new ways of thinking.
  • Startups also get exposure to see how their tech can apply to different domains.

You can listen to the podcast on iTunes, Spotify, or your favorite podcast player. Learn more about this and other great innovation episodes on the Inside Outside Innovation website.

Make sure to grab a copy of The Startup Gold Mine at your favorite bookstore!

Agile Giants Podcast Interview

My good friend Sean Ammirati has started a brand new podcast called Agile Giants. The show is inspired by his work over the past few years leading Carnegie Mellon University’s Corporate Startup Lab (CSL). In Sean’s words from his Medium post announcing the podcast:

If you already are a corporate entrepreneur, want to become one or are just looking for some advice around commercializing transformative innovation, this podcast is for you.

Sean was nice enough to interview me on the podcast. Our wide-ranging conversation was mostly focused on The Startup Gold Mine but also included stories from other projects I’ve worked on, like Estee Lauder’s External Innovation team.

You can listen to the episode below or on your favorite podcast player.

The Lindy Effect and The Future of Beer

In today’s world, we’re constantly being inundated with “newness”. It seems like every day, there’s a new startup or company coming up with a technology to improve how we do things. Despite how much media hype there is around these new technologies, it’s hard to know which ones have lasting power and which will fall by the wayside.

When looking at something new, a mental heuristic I find really helpful is examining it through the lens of the Lindy Effect. Those who have read Nassim Taleb’s The Black Swan and Antifragile are already familiar with the Lindy Effect. If you haven’t, here’s a brief summary (though you should still go read the books):

The Lindy Effect refers to the life expectancy of non-perishable things, like ideas or technology. Basically, the rule states that the longer something has been around, the longer it will be around.

An easy way to grasp this concept is to compare two successful books, one old – say, The Bible and one new – like Fifty Shades of Grey. The Bible has been around for about two thousand years while Fifty Shades has only been around for a handful of years. Which book is more likely to still be around in a hundred or a thousand years? Obviously The Bible. This concept applies to more than just books though – it applies to anything. Technology, media, transportation – everything. Something which survives a long time has, by definition, gone through the crucible of time…and survived. That bodes very well for its future survivability.

While not true 100% of the time, the Lindy Effect can be a useful tool for predicting which new technologies or ideas will survive and which are just blips on the radar. A great example of this is the butter vs margarine debate. For literally thousands of years, humans have consumed butter. Then, for a brief stint during the twentieth century, humans were told butter was bad for them and many people switched to margarine. But as is becoming readily apparent, butter isn’t nearly as bad as once thought and margarine may literally kill you. And accordingly, butter has made a comeback. Which is more likely to be around in a hundred years?

Thanks to what I do for a living, I’ve been thinking about the current state of the beer industry and looking at it through the “Lindy Lens”. I’ve made a series of predictions with explanations below that arise from following the Lindy Effect to its logical conclusions in the beer realm:

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This Is What Elon Musk Does To Prevent Corporate Silos

Elon Musk hates corporate silos
Tesla CEO Elon Musk really hates corporate silos

In a verified publicly available email, Tesla CEO Elon Musk revealed his thoughts on corporate silos and hierarchical information flow. Here’s the email:

Subject: Communication Within Tesla

There are two schools of thought about how information should flow within companies. By far the most common way is chain of command, which means that you always flow communication through your manager. The problem with this approach is that, while it serves to enhance the power of the manager, it fails to serve the company.

Instead of a problem getting solved quickly, where a person in one dept talks to a person in another dept and makes the right thing happen, people are forced to talk to their manager who talks to their manager who talks to the manager in the other dept who talks to someone on his team. Then the info has to flow back the other way again. This is incredibly dumb. Any manager who allows this to happen, let alone encourages it, will soon find themselves working at another company. No kidding.

Anyone at Tesla can and should email/talk to anyone else according to what they think is the fastest way to solve a problem for the benefit of the whole company. You can talk to your manager’s manager without his permission, you can talk directly to a VP in another dept, you can talk to me, you can talk to anyone without anyone else’s permission. Moreover, you should consider yourself obligated to do so until the right thing happens. The point here is not random chitchat, but rather ensuring that we execute ultra-fast and well. We obviously cannot compete with the big car companies in size, so we must do so with intelligence and agility.

One final point is that managers should work hard to ensure that they are not creating silos within the company that create an us vs. them mentality or impede communication in any way. This is unfortunately a natural tendency and needs to be actively fought. How can it possibly help Tesla for depts to erect barriers between themselves or see their success as relative within the company instead of collective? We are all in the same boat. Always view yourself as working for the good of the company and never your dept.

Thanks,
Elon

There are sooo many great points in this email. Let’s break them down:

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Thoughts on the 500 Startups Corporate Startup Engagement Report

500 Startups, one of the world’s leading startup accelerators, recently released a report on how large companies can best work with startups. Given their unique position in the market, 500 Startups surveyed executives at companies like General Motors, Simon Ventures, Embraer, and more to learn what they’re doing to drive collaboration with startups.

500 Startups Corporate

The 500 Startups Corporate report has tons of useful takeaways for both startups and corporate innovation teams. Here are their best practices for corporate innovation teams and my take below:

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The Optionality Trap

The optionality trap starts when we’re young:

“Get good grades in school. You’ll have more options when choosing a college.” -Parents

“Pick a major that applies to many different industries. That way you’ll have more job options.” -College Counselor

“Consulting is a great field. From there, you can do whatever you want.” -Career Advisor

While this advice isn’t necessarily wrong, very rarely do we take a step back and examine what exactly we’re collecting all these options for. Perhaps at the beginning of our careers, we have some vague idea of a goal or accomplishment we want to reach but we’re not quite sure: a) how to reach the goal and b) if we even want to reach the goal in the first place. So naturally we choose the path that keeps the maximum number of future possibilities available to us. Unfortunately, this fuzzy goal mindset is often carried through to adulthood and leaves us grasping for optionality with all of our major life decisions. And over the course of a lifetime, this optionality maximization mentality turns us into habitual option collectors and prevents us from reaching our goals.

But I’m getting ahead of myself. Let’s start with the basics.

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