Start-ups continue to be key for product innovation in German enterprises

UVC Partners and UnternehmerTUM, the leading center for innovation and business creation, conducted a survey on “Corporate start-up activities” by polling mid-size and large companies from their network. The results showed that the majority of the surveyed established companies (78%) already work with external start-ups. A smaller percentage (63%) have in-house start-up projects that could develop into spin-offs. All survey participants not currently working with external start-ups have plans to do so in the future.

Start-ups with potential to expand or improve existing product portfolio are most popular among companies
Speeding up innovation and gaining access to technology are the most compelling strategic reasons behind established companies engaging in start-up activities. These may include pilot or prototype projects, customer relationship management or investments. Immediate or mid-term top-line financial impact was usually not a primary goal of these activities. Consequently, start-ups that promise innovation within the product range of the company are more sought after than those that seek to optimize processes or operations. Of the study participants, 90% either desire to work with or already work with start-ups that have potential to add new products to their range and/or achieve improvements to existing products. The processes most likely to be addressed by the companies using start-up solutions include logistics, supply chain, maintenance or technical service followed by production or sales. The areas of business intelligence, intralogistics, cyber security, procurement, market intelligence, knowledge management, marketing, HR, staff management, communication, collaboration and customer service all came in at a range significantly under 25% likelihood to use or seek a start-up solution, in some cases even at 0% of poll results.

Groundbreaking technology and intuitive user interface are strong USPs
UVC Partners also asked the companies which particular USPs and strengths counted the most in their consideration of a start-up. Topping the list is access to new technology that would not otherwise be available to the company. In particular, a start-up providing technology considered to be cutting edge or with a high level of technical differentiation garners high regard from potential partner companies. After the technology aspect, the list of decisive criteria for start-up solutions is as follows: potential to increase turnover, intuitive interface and/or an exceptional user experience, high level of
customer orientation, timely project start and conclusion, and potential to increase efficiency within the company. Features such as possible cost savings, the quality of the working relationship (e.g. the personality of the founders or the willingness to customize products), a more advanced stage of development (measured by turnover, reference clients from the same industry or existing VC investment), a low price point, modernization of existing procedures (e.g., through automation of manual processes) or easier communication or collaboration were not as heavily weighted and more neutral factors in the decision-making process.

Lower product performance than expected often causes termination of collaboration with start-up
The survey also probed the reasons contributing to the end of collaboration with start-ups. One of the common reasons on the company’s side of the equation was a lack of internal capacity to contribute to the project. However, most often collaboration broke down due to the actual start-up product. Concrete reasons included missing the mark on product-market fit, the lack of depth and experience of an early stage start-up, or an insufficiency in the level of technological performance. High price point and high costs also play a significant role. More seldom the situation arises where the actual working relationship between the established company and the start-up is troubled, either due to subpar communication between the two, or due to a lack of professionalism on the side of the start-up. Similarly rare were problems with shaky financing of the start-up, project targets set by the company that were too complex or the inability of the start-up product to meet safety or certification standards.

A minimum of 8 to 21 weeks to customer contract
The most important start-up activities for the study participants were pilot projects, customer relationship management and investments. For pilot projects and investments, companies reported a best-case scenario timeline of 6 to 12 weeks for a decision. For customer contracts, the decision timeline tends to be between 8 an 21 weeks. These estimates all assume smooth sailing; however, it is common for processes to run into additional internal delay.

“This study shows the very high potential for innovation through collaboration with start-ups by forward-thinking tech corporations or medium-sized companies. Based on our results, start-ups can set themselves apart with strong technology, proven product-market fit and intuitive product design,” states Dr. Anne Kreile, investment associate at UVC Partners and the project lead on this study. For the “Corporate start-up activities” study, a total of nine medium-sized companies and corporations from the UnternehmerTUM network completed a standardized questionnaire on the subject.