Internal R&D, venture building or start-up collaboration?

Internal R&D, venture building or start-up collaboration … the three most popular approaches for companies to innovate and collaborate. But what’s the way to go? In this article, we’ll explore the pros and cons.

Internal R&D: develop innovation yourself

Research and Development, also known as R&D. This approach is a traditional one and has been relied on by many companies for decades. The most obvious advantage of internal R&D is control. The company has complete control over the entire innovation process, from ideation to commercialization. By keeping the innovation process in-house, the company can maintain a level of secrecy and control over the product development cycle.

“The most obvious advantage of R&D is control”

However, there are also several disadvantages to relying solely on internal R&D. The first is that it can be costly and time-consuming, requiring significant investment in research, talent and infrastructure. Additionally, internal R&D may result in incremental innovation rather than disruptive innovation. Incremental innovation is the gradual improvement of existing products or services, while disruptive innovation is the creation of new products or services that disrupt existing markets. Because internal R&D is limited by the company’s existing knowledge and resources, it may not always result in the ambitious leaps the company was hoping for. That might become problematic in a rapidly changing business landscape, where it’s vital to keep up with the latest trends and technologies.

While innovation plays an important role in a company’s growth process, greater R&D investments are no guarantee of success. CEPR (Centre for Economic Policy Research) released an interesting article on the matter. The authors found that innovation plays an important role in the growth process of companies, but further R&D expenditure was found to be neither necessary nor sufficient to sustain this growth.

Companies who comprehend that in-house innovation is not the key to disruptive innovation and growth, will look beyond the boundaries of their own business.

Venture building & capital: build or buy a corporate start-up

Venture building: build a start-up from scratch

In corporate venture building, corporates build a start-up within the company from scratch. A new brand, team, revenue stream or P&L (profit-and-loss) is created to target new markets, clients and opportunities.

The main benefit of this approach is that it allows companies to create a separate entity with a different culture and mindset from the core business. This separate entity can then be focused on developing disruptive products or services without the constraints of the mothership. Moreover, a corporate start-up allows companies to attract and retain talent that may not be interested in working for a traditional corporate entity.

However, there are several disadvantages to launching a corp-up (corporate start-up). First of all there’s the risk. Launching a start-up is an expensive challenge that requires significant investments in infrastructure, talent and resources. Moreover, the success of the corporate start-up is not guaranteed, and failure can result in a significant financial loss for the company. The overall failure rate of start-ups is 90% and is close to the same across industries (source: Embroker).

“Be aware of the risk of launching a corporate start-up: 90% of start-ups fail”

Additionally, if the start-up appears to be successful, it may need to be integrated back into the core business to scale and achieve long-term success. This integration can be challenging, particularly if there are cultural differences between the two entities.

Corporate venture capital: buy an existing start-up

Venture capital (VC), also known as venture investing, means buying or investing in a small, promising start-up. This has become immensely popular in the 21st century, due to rapidly changing technology, consumer behavior and markets.

It’s not as risky as venture building, because you can buy-in a start-up with a proven track record and business model. On the other hand, a perfect match is not easy to be found. If you do find it, companies better be sure to buy the majority of shares to obtain decision-making rights. The danger here is that the corporate will suffocate the start-up by imposing their culture and decision making process. In many cases, the cultural clash will scare talent that typically works for a start-up away.

In this video, Maxim Sergeant (Founder Bakeronline) talks about his venture capital experience (here, he calls it venture building) with the multinational Puratos, who acquired the scale-up. He explains a clear set of do’s and don’ts, pros and cons.

In conclusion, venture building can be an effective approach to innovate, to create a competitive advantage and to attract talent that may not be interested in working for a traditional corporate entity. However, you need to make sure you have the majority of stakes to make decisions. Change management is of immense importance to handle the merge and be weary of cultural clashes between the company and the start-up.

Collaborating with start-ups to innovate in co-creation

The third approach is to collaborate with start-ups in a co-creation process. This approach involves partnering with start-ups to develop new products or services, leveraging the start-up’s knowledge and expertise in a specific area.

Working with start-ups has the same advantages as described with venture building or venture capital. Moreover, in this article, we discuss 10 good reasons why established companies should collaborate with start-ups.

The most important advantage of co-creation is the ability to share risk and reward. If the product or service is successful, both companies can share in the rewards, creating a win-win situation. In case of failure, it means that also the risk is evenly spread.

By collaborating, both entities tap into each others strengths. Start-ups often have innovative ideas and a willingness to take risks, while established companies have the resources, expertise, and customer base to bring those ideas to market successfully.

More than often, established companies falsely think that all start-ups are eager to be acquired. That’s not true. By treating a start-up or scale-up as an equal partner, you can create solid partnerships that combine the best of two worlds.

“Some corporates falsely think that all start-ups are eager to be acquired. That’s not true.”

There are also challenges associated with co-creation. One of the biggest challenges is finding the right partner. Not all start-ups will be a good fit for a particular company, and finding the right match can be very time-consuming. Additionally, co-creation requires a high degree of trust and collaboration between the two companies, which can be challenging to achieve (but all the more fruitful when attained).

In conclusion, collaborating with start-ups in co-creation is an effective approach to innovate. By leveraging the expertise and knowledge of start-ups, sharing risk and reward, and staying ahead of emerging trends and technologies, companies can develop more effective products and services and remain competitive in an ever-changing business landscape. Co-creating as equals is combining the best of two worlds. However, finding the right partner to collaborate is time consuming and requires a high level of trust. That’s where TRIBO steps in!

Curious about how we can help you connect with start-ups?

At TRIBO, we’re powered by Netwerk Ondernemen and dedicated to bridge the gap between established companies and innovative start-ups.

We offer a program called the “Co-Creation Challenge” that’s designed to help companies define their innovation challenges, matchmake with start-ups, and form concrete partnerships. Through this program, we provide a structured framework that guides companies through the entire process of collaborating with start-ups, from ideation to implementation.

Learn more about the co-creation program on our website, or book a meeting with Francesco, our Head of Innovation, to exchange thoughts.