Digital invaders are also digital partners.
New McKinsey research shows that incumbent financial services firms are willing to partner with the very fintech firms that have been disrupting their industry. According to McKinsey, about 80 percent of the top 100 banks by assets (and other digitally advanced banks) have now partnered with at least one fintech company, up from 55 percent just two years ago. Deals range from basic buyer–supplier transactions to complex, exclusive partnerships.
McKinsey points out that these partnerships benefit the legacy financial services firms by giving them exposure to an innovative culture that might help banks reinvent themselves. Partnerships also give banks more rapid access to learnings about technologies such as blockchain, which, as we’ve discussed on our blog, are essential for any business to understand.
I applaud financial services firms for forming partnerships to jump-start innovation. And financial services firms are not the only ones thinking this way. As I blogged earlier this year, businesses across every industry I see are creating ecosystems of partners to be more relevant to their customers. Large companies realize that they either need to disrupt from within, find a partner to accelerate self-disruption, or be disrupted by someone else. Digital invaders can help them avoid becoming left behind. A start-up named Sampler, for example, partners with big players like L’Oreal Canada to help them get their product samples directly into the hands of consumers. Here’s what Martin Aubut, the chief digital officer of L’Oréal Canada, told Inc. magazine:
Startups, Aubut explains, can help established firms move faster towards a world the enterprise can imagine, but is not always equipped to bring to life on its own. Alone, an enterprise might be able to get somewhere, but it will take much longer due to the bureaucratic nature of most large organizations. An enterprise + startup partnership can go faster because of the energy, passion, and entrepreneurship that the startup brings to the equation. Aubut cites the L’Oréal buzzword of métier (loosely translated to professional competency), and says that startups have certain things within their métier that enterprises just do not. In many ways, these partnerships can help enterprises become faster, leaner, and more agile.
A Two-Way Street
But startups can also learn from the incumbents, and herein lies the key to a successful relationship: symbiosis. For example, large players usually possess:
- Marketing muscle.
- A broader pool of talent (it just needs to be harnessed properly).
- Repeatable processes that help bring about scale and speed to market.
- A customer base from which to learn.
These are formidable assets. Of course, the problem is that intangibles such as a stodgy culture too often prevent big players from innovating. As McKinsey noted, the startups can help the big players more effectively unlock those assets by adapting new ways of thinking and doing.
Harvard Business Review articulates this opportunity perfectly in their an article, “Big Companies Should Collaborate with Startups”:
Ironically, startups and established companies would both improve their success rates if they collaborated instead of competed. Startups and established companies bring two distinct and equally integral skills to the table. Startups excel at giving birth to successful proof of concepts; larger companies are much better at successfully scaling proof of concepts. Startups are better at detecting and unlocking emerging and latent demand. But they often stumble at scaling their proof of concept, not only because they’re often doing it for the first time, but also because the skills necessary for creating are not the same as scaling. Startups must be agile and adapt their value proposition several times until they get it right. According to Forbes, 58% of startups successfully figure out a clear market need for what they have.
In contrast, big companies often end up launching things they can make, not what people want. Successful established companies are focused on increasing scale and are often better at scaling proof of concepts than creating new products from scratch. They have huge advantages in procurement, distribution, and manufacturing, as well as sales and marketing advantages. But they have a challenge not only creating a proof of concept, but leaving it alone until it is ready to scale.”
I originally read the above insights from HBR when I was writing a 2016 blog post about how digital product studios (such as Moonshot) can help connect big and small companies. For more insight, check out my post, which discusses the big company/small company dynamic in context of the innovation outpost.
Large organizations do not always know how to get started evaluating partnerships that will deliver symbiotic value. I suggest companies apply product development techniques such as design sprints to do so. As I noted in my December 2017 blog post about developing ecosystems, at Moonshot, we apply a methodology known as FUEL to help companies test product development ideas while mitigating the risk and cost of doing so — and business can apply FUEL for developing a business ecosystem.
For example, FUEL uses design sprints to help businesses identify the right problem to solve by gaining empathy for the user, create and consider many options, refine selected directions, create prototypes, and validate the prototypes through user testing. You can use the design sprint to evaluate ecosystem partners against very real and specific needs to solve customer-centric, such as launching new products and services. Learn more about how this process can help by checking out my blog post.
Meanwhile, remember that although you can and should learn from start-ups, they can learn from you. A relationship that creates value for both partners will not only be more valuable to you but also to the customers in your ecosystem.