A tiny start-up looking to partner with a colossal multi national must develop some original ideas if it is to be successful. Asymmetry and other traditional obstacles can be overcome. This author advances several strategies that will enable a start-up to enjoy a productive partnership with a multi-national.
Announcing his company’s strategic alliance with Microsoft in 2011,Nokia’s CEO Stephen Elop observed: “The battle of devices has now become a war of ecosystems”. Indeed, large multinational corporations (MNCs) like Microsoft, Nokia and several others have come to build large ecosystems comprising thousands of participants that engage in various activities and points on the value chain. But unlike the relationship between Microsoft and Nokia, which brings together two formidable, large MNCs, many of these ecosystem participants are small (and often young) firms that are drastically different from the large MNC at the center of the ecosystem. For such participants, an MNC ecosystem provides a great opportunity, though it also presents great challenge. Leveraging the opportunity while overcoming the challenge calls for adeptness at what London Business School Professor Julian Birkinshaw and I have referred to as “Dancing with gorillas”1. Given the sheer asymmetries between start-ups and MNCs, we have argued that business as usual is unlikely to bear fruit. Instead, start-ups must form, consolidate and extend MNC relationships through less orthodox partnering strategies. This article describes those strategies and suggests how smaller firms can overcome some of the obstacles inherent in partnering with multi nationals.
There are 3 partnering strategies that start-ups can employ to work with large multi nationals.
- Forming MNC relationships: Most MNCs wishing to engage with a partner of similar size will take a direct frontal approach to that relationship, perhaps through a dedicated alliance department or through key individuals who have direct counterparts in the prospective partner company. For a smaller firm seeking to partner with an MNC, however, the lack of access and attention coupled with the asymmetry in resources means that a direct frontal approach is likely to fail. Instead, a start-up would be better off using an indirect means of access. That is, it may be necessary to form a bridge between the two disparate organizations. Using local allies to forge MNC relationships can help gain commitment from the larger partner. So, for example, some public policy initiatives provide even greater ‘hand-holding’ for smaller firms. For example, a British start-up, HMD Clinical, leveraged a regional initiative called Scottish Technology and Collaboration to build links with relevant decision-makers at a locally based U.S. multi national subsidiary.
- Consolidating MNC relationships: Having formed a relationship with an MNC, a start-up must establish its credentials by being clear about, and focusing on, the greatest value that it can add to the relationship. It can then leverage the MNC’s complementary capabilities. For instance, if the start-up’s main contribution pertains to specialized technology, then it can draw upon the MNC’s marketing capabilities to achieve greater international visibility. However, given the inherent instability in such relationships, the start-up should also consider tactics such as “modularizing” knowledge transfer from the MNC partner. With discrete knowledge transfers, it is possible to achieve at least partial success even if the project gets shelved or derailed at some point down the road. For example, in the case of the above-named HMD Clinical, a fruitful association with the U.S. multi national developed but then ended earlier than planned owing to the latter’s changing priorities. Even so, valuable outcomes had already been achieved – including the successful building of a product prototype – which meant the start-up’s efforts had not been wasted.
- Extending MNC relationships: Given the asymmetry of resources and differences in long-term objectives, a start-up’s MNC relationships are bound to unfold in an unpredictable pattern. Start-ups most successful at collaborating effectively with MNCs over a long period of time are often those that build links with individuals who span organizational boundaries and who can, therefore, tap into resources and knowledge elsewhere in the MNC network. (Example (s) of such an individual) Apart from extending the relationship in geographic terms, start-ups should also seek to broaden the value chain activities they undertake jointly with MNCs to derive, where feasible, both upstream and downstream benefits, thus achieving economies of scope – getting more bang for their buck – from the relationship. To illustrate, HMD Clinical’s association with the U.S. multi-national became more effective when an individual with a global technology role got involved. He was able to draw on the technical expertise of his colleagues elsewhere in Europe and even North America when needed.
In subsequent research on activities in India, Britain and the U.S., I have discovered that more often than not, there is something of a “hidden story” behind the successes of young firms that have been able to dance with gorillas. In particular, I observed three facets of the “hidden story” that are discussed below, and which can provide useful insight into the nature of the challenges associated with dancing with gorillas, and possible ways to overcome them.
DANCING WITH GORILLAS: THE “HIDDEN STORY”
(Initiating the relationship)
|Consolidating (Deepening the relationship)||Extending (Multiplying the relationship)|
|The “hidden story”||There often is a “once upon a time” i.e. pre-founding experiences with MNCs can have profound effects on the connections forged.||There may be a “twist in the tale” i.e. midcourse corrections including dropping an MNC relationship may occur.
|There isn’t always a “happy ever after” i.e. aligning closely with an MNC may over time lead to overlapping offerings and goals.|
|What it entails||Fathoming the “beast”, thereby avoiding wasteful relationship-forming efforts with an MNC by targeting the right individuals in the right units at the right time.||Ensuring a strategic fit and thus increasing the odds that the relationship with the MNC brings the best out of the start-up and vice versa.||Recognizing the potential for conflict, thus balancing cooperation and competition to the extent possible (although it should be recognized that this is not always tenable).
|What it takes||Awareness; alertness – need to avoid reaching out blindly without a deep understanding of the beast.
|Focus; goal-orientation – and desisting from staying in a relationship that distracts from achieving key aims.||Shrewdness – and making no naïve assumption that things will remain fine forever.|
There often is a “once upon a time”.
When a start up is able to forge a meaningful relationship with an MNC it quite often turns out that one or more of the top management team has already had a close association with that MNC or one like it. This prior association provides valuable insight into the structure and scale of the MNC, what makes its different constituents tick, which the key decision-makers are likely to be, and what the organization’s rhythms are. When there is a deep understanding of these factors the start-up is more likely to be able to target the appropriate individuals in the relevant business units of the MNC, pitch the proposition of collaboration persuasively and time the approach to maximize the odds of receiving a positive response. All this is, of course, easier said than done, and because of the sheer complexity and dynamism of the business environment, the inside of an MNC can be something of a moving picture.
Nevertheless, the main point here is that start-up leaders who know the lay of the land in the MNC are better placed than those who are not so aware when it comes to establishing a relationship. For example, the software start-up Mitoken made confident strides in establishing a link with Motorola because of the founding team’s prior experience in another large MNC. This experience helped them understand just how they, as a start-up, could add value to a seemingly self-sufficient MNC by introducing their own novel technology with a fleet-footedness that the MNC could simply never match.
Consider also the case of SpadeWorx Software Services, a start-up in Pune, India, which was able to rapidly develop a strong relationship with Microsoft. Compared to most of its peers, this company seemed unusually adept in knowing whom to approach and how to generate traction for its proposals. Upon further investigation, it emerged that one of the co-founders, Mandar Bhagwat, had previously worked for Hewlett Packard, on a team that worked exclusively with Microsoft in Redmond, WA. In the process, Bhagwat had become intimately aware of the way in which Microsoft worked internally and with alliance partners. This knowledge, and the contacts that Bhagwat had from him earlier job, proved invaluable when the start-up sought to engage with Microsoft. Where the founding team itself lacks such first-hand experience it may do well to hire managers who have it.
There may be “a twist in the tale”.
A fascinating example of a start-up that partnered with an MNC is that of Bangalore-based Mango Technologies. It partnered with the American firm, Qualcomm. However, Qualcomm wasn’t the very first MNC it reached out to. In fact, it was more of a case of “third time lucky”. The first MNC that the start-up approached evinced interest in working with it. However, it became clear to Mango’s founders that the joint activity that the MNC favored pursuing, although feasible and attractive in the short-term for revenue generation, did not really tap into the start-up’s core expertise.
Thereafter, Mango dropped that association and pursued a second MNC relationship. The joint activity embarked upon this time was suitably oriented towards Mango’s technical expertise but, after about three months, the start-up realized that going down that route would detract it from reaching its ultimate goals. Once again, it dropped its MNC relationship – and this time, raised a few eyebrows because the opportunity had been a good one. However, determined to stick to their plans, the start-up’s founders continued exploring other possibilities, which resulted in a partnership with Qualcomm that proved to be mutually beneficial (see Box).
The main point here, therefore, is that what initially appears to be an attractive MNC relationship may turn out to be less than ideal. In some cases, a start-up may stick with what it has and sacrifice some of its original intentions in the process. Strategy scholars refer to such an approach as emergent strategy, and of itself this can be a legitimate way of progressing. In other cases (such as Mango), the start-up may stick to its guns and drop certain relationships until it has arrived at a suitable one. This is a more deliberate strategy. Whether strategy is deliberate or emergent, however, it is a distinct possibility that there are changes to the storyline. This calls for flexibility and agility on the part of the start-up.
There isn’t always a “happy ever after”.
In some cases, despite having developed a close relationship with an MNC, a start-up may discover that the momentum has suffered, tensions have crept in and the prospect of discontinuing the association is a real one. While this could occur for a variety of reasons, paradoxically this may result from close alignment between a start-up and an MNC over time. Although a high degree of alignment, in terms of technology and business strategy, is a prerequisite for a close relationship with an MNC, it is conceivable that as time progresses and the offerings of each party evolve, there may be overlapping features and functionality that lead to friction. That is, what were initially complementary offerings could turn into competitive ones.
The point here is that smooth sailing in a relationship with an MNC is not guaranteed to be a permanent state of affairs and that start-ups must be cognizant of the possibility that the more it aligns with an MNC over time, the more it could come into conflict with it.
That said, start-ups and other small firms could take heart from the fact MNCs appear to be taking them more and more seriously, not least because – as evident from the observation noted at the outset – they recognize that they are engaged in a war of ecosystems. As a consequence, some MNCs have come up with innovations in their management of partnering with start-ups that, in turn, have been skillfully leveraged. In achieving this, it is especially vital that the start up be proactive in cultivating the relationship on the basis of reciprocity. This is seen, for example, in the case of Linxter’s thriving relationship with Microsoft (see Box). While such proactive behavior does not rule out the possibility of conflict down the road, it certainly provides scope for thoughtful entrepreneurs to navigate the rapids of MNC engagement for a considerable length of time.
Given the considerable challenges involved, it is conceivable that some start-ups will wonder whether collaborative MNC relationships are really worth the trouble. Indeed for some smaller firms, specifically those that are content to focus on relatively less knowledge-intensive offerings and pick the low-lying fruit, engaging with MNCs may not be truly beneficial. However, for those that do have cutting-edge technologies to offer, spurning the prospect of engaging with MNCs is likely to result in missed opportunities. And there may really be little option for innovative start-ups with global ambitions but to learn to dance with the gorillas.
- Our ideas were initially published in an article in California Management Review. As we acknowledge in it, the phrase “dancing with gorillas” was inspired by a comment made by the late CK Prahalad at a conference. In this article I provide further ideas emanating from my subsequent research on the topic.
- See, for example, http://articles.economictimes.indiatimes.com/2010-02-06/news/28397299_1_software-products-qualcomm-mango-technologies