Building bridges between the Corporation and the Start-up

Success factors for the future

The automotive industry is currently facing an unprecedented shake-up. The automobile of the future is becoming more of a “mobile PC”. This means that innovations are more in demand than ever before. In many cases, tomorrow’s solutions are no longer created in the development departments of OEMs (original equipment manufacturers). Instead, they will be designed by start-ups. But do the corporations and the tech newcomers speak the same language?

This change is already in full progress. The big players are targeting ambitious goals. Just to name two examples: General Motors wants to shift its entire production to e-mobility by 2025. Volkswagen plans to offer approx. 70 pure e-models by 2030. The accompanying heavy impact on supply chains requires a different way of thinking by purchasing departments and suppliers. Both want to establish close ties with start-ups.

The fact is that development trends are moving away from steel to lightweight construction and from mechanics to elaborate electronics. In addition, durable and sustainable battery solutions are being pursued. The know-how of the corporations and their existing suppliers will not be enough to meet this challenge. Thus, pioneers who can work quickly and unconventionally are in hot demand. Some vehicle manufacturers view start-ups more like an outsourced development department and support them with significant investments. Others, such as Elon Musk, just buy them up.

Know-how meets innovation

Opposites attract, and that also is also true for start-ups and corporations. Nevertheless, there is a fine line between what you appreciate in your counterpart and what disturbs you in the other person. But when corporations with their standards and control structures meet start-ups with their creative ways of working, the initial euphoria is often replaced by a phase of standstill. They part ways again. And that’s in spite of the fact that the start-up might just be working on the solution that could mean a competitive advantage for the corporation in the future.

The reasons for misunderstandings are obvious. Buyers are accustomed to processes being regulated down to the smallest detail. Extensive contracts furthermore secure their cooperation with suppliers. In other words, high quality standards were achieved in the past, which buyers would like to hold on to — and rightly so! On the other hand, start-ups often simply fail to make a bid for the project in the first place. Standardized bidding procedures simplify cooperation with long-standing suppliers. Nevertheless, they often discourage young companies.

It’s a real horror for newcomers to fill out complicated forms or spend months dealing with contracts. If they are blocked, then opportunities will be lost.

Additional obstacles in the collaboration between the corporation and the start-up add to the problem. In a flash survey I conducted on this subject in April 2021 among buyers in the automotive industry, one of my respondents summed it up perfectly, “The biggest challenge I see is balancing the expectations of the two parties in terms of finances, deadlines, and quality.” Particularly with respect to finances, the two worlds are far apart. The payback is not easy to guarantee on the financial resources invested within 24 months for the development of new products that are not yet available on the market in this form. Without reserving a budget for unforeseen “extra rounds,” conflicts are likely to arise. Instead, dividing the costs between the client and the supplier in a partnership would motivate both parties and help to build trust.

New routes: collaboration and communication

The framework conditions are another important aspect for constructive cooperation between the corporation and the start-up. In one of my online surveys on social media on the subject of “expanding fiber optic”, which met with a large response, the overall conclusion was that only a few countries lead in this area. As one participant commented, “How do we want to promote start-ups with their innovations if we don’t manage to do it?” Technology hubs can no longer afford to move at a snail’s pace when it comes to fiber-optic expansion and digitization. Greenfield startups, such as those in Silicon Valley, are much admired.

Nevertheless, incentives to do the same elsewhere are often ignored. When interdisciplinary teams of economists, computer specialists, engineers, and specialists from design and marketing join forces, they are usually left with only the large, expensive cities. However, the trend is currently moving in a different direction, especially among younger people. I am therefore certain that, in the future, specialists will also be drawn to attractive, spacious premises on greenfield sites close to the industry — and certainly on an international scale.

The production shift to electric mobility will require more and more people who can work together in flexible teams. Negotiations with start-ups will therefore also demand more flexibility from corporations. Suppliers will (have to) enter into new partnerships that require a large-scale change in thinking.

After all, what options does purchasing have when it wants to integrate a start-up into its supply chain? One option is to buy small quantities until everything has been tested to save costs. What a time-consuming approach! As we all know, this is because the market will punish a slow pace. The other, much more promising solution relies on trust. In this case, the purchaser assumes more responsibility for buying certain components. Project groups are created from individual suppliers, who develop from classic suppliers of sheet-metal parts into providers of a module.

My advice to supplier companies is, by forming an alliance with a start-up, you can participate in the bidding processes together. This increases the chances of becoming a preferred partner company for the automotive industry.

And my advice to purchasers is to set up a mixed team from purchasing, engineering, and marketing to take on the responsibility for purchasing specific components. When supplier collaborations become module suppliers and meet interdisciplinary teams within the corporation, then the ideal basis for innovation is created.

Bridge builders in demand to help start-ups

A trustful partnership between the corporation and the start-up requires open communication from the very beginning. To kick off a partnership between the two worlds, I recommend working together with a “bridge builder.” This is a person who knows both sides and mediates between the different thinking and working processes. This could be an external mediator or experts on exchange between the parties. In this case, however, it is important that the corporation’s influence on the start-up does not begin too early in the product phase. It could bring the innovation process to a halt. As a result of the collaboration, the understanding of flexible methods on the corporate side will grow and the newcomers will recognize the advantages of standardized processes.

Article published in “Beschaffung Aktuell” 06/2021