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.

The Wrong Way To Reject Startups

Rejecting startups the wrong way

Rejecting someone is no fun (if it is, you might be a psychopath). And yet, resources are limited, you have goals to accomplish, and you have finite time. Rejection is inevitable. And your startup counterpart probably knows it.

But because giving someone a direct “no” is painful, people contort themselves into pretzels to avoid it. I’ve seen decision-makers do everything in their power to avoid being direct, including pretending the decision is not in their hands. Or worse, leading on the partner with “let’s do another call to go over [fill in excuse, like pricing or feature X here]”. Not a good look.

And here’s the thing: there’s nothing worse for a startup than to be in an amorphous zone that’s not a yes but also isn’t a no. This “no man’s (or woman’s!) land” makes planning impossible and erodes trust. It’s much better to flat out reject a potential partner than to let them hang with no intention of completing a deal.

Rejecting Startups The Right Way

The best way to maintain trust and leave room for a potential future deal is to give an unambiguous “no” once it’s clear that a deal isn’t happening in the near future. In addition to giving a clear “no”, being transparent about the reason why is very important. If the startup’s product isn’t what you were hoping for, tell them that and be specific about what was missing. That feedback will lead to improvements and maybe a better fit in the future.

If you’re rejecting startups for internal reasons – for example, the startup doesn’t solve an urgent priority – you also need to communicate that clearly. This is one of the most difficult things for a startup to know from the outside. Without clearly stating the rejection reason is internal, your startup partner is going to think they did something wrong and run around in circles trying to solve it. Not cool.

The Selfish Reason To Do The Right Thing

This isn’t only about being a good person and doing the right thing. There’s a selfish reason in rejecting startups the right way. Corporate innovation is a flywheel. At the beginning, companies have to do a lot of work to prove that they are a worthwhile startup partner. But over time, if you show results and operate with integrity, treating partners (startup and otherwise) with respect, you’ll build a trustworthy reputation. Potential partners will flock to you in droves, inbound, with no scouting work on your part. Once that happens, you’ve built a self-sustaining innovation operation that will fuel your company for decades to come.

To learn more about the startup perspective on the corporate-startup ecosystem, read my book The Startup Gold Mine: How to Tap the Hidden Innovation Agendas of Large Companies to Fund and Grow Your Business.