Recently, I was having the conversation with a large company c-level executive who said to me: “Tom, we are going to work with so many more startups next year.”  I said, “That’s great.  How are you going to do it?”  The person looked at me blankly, and they asked, “What do you mean?”

So, I told them a story about one of the startups that I had worked on.  We worked with a very large, Omaha local company that was great to work with from a technology perspective – but gave us the run around on payment.  They weren’t doing it to be intentionally difficult.  I honestly don’t think they even realized how negative this was for my company at the time.  Basically, they owed us a significant sum for us – about 4% of our income for a year – and it was approximately .00013% of theirs.  Thus, in a surprising move, it meant that it was on our CEOs radar but not theirs.  It was something we wasted time on, and they could not bother to return a phone call. 

There is a reason that I am not using the company’s name – because it does not matter.  The reality is that I have worked with tens of large companies that have their own startup blind spot.  Sometimes it is actually “startup blindness”.  Startups need things that are different than other large contractors – or even small businesses in some instances.

For example, in my consulting practice, I have late payments all the time.  Most of the time, I can simply manage around them because we have good cash flow and basically an understanding with our customers on payment.  We aren’t burning through cash; we are cash flow positive.  A startup is not. 

Even though the common refrain is that large companies can work with startups.  I do not think that this is true – unless the large corporation is intentional about the “how” of working with startups.

Here’s five things that a large company needs to do to work with startups:

1.       Establish a front door person.  This person should be known internally as the “startup liaison”, and they should be empowered to manage the relationships and the challenges that startups are having with the company.  If a startup is having a problem with payment, then they call their liaison.  The “startup liaison”, refer to them however you want, understands that it is their job to resolve the issue on behalf of the relatively powerless startup.

2.       Establish a simple contract.  If your contract to work with a startup is longer than five pages and includes any retained IP other than data, you probably need to rewrite it.  As a lawyer, I have read an unfortunate number of twenty-page corporate agreements that include sweeping IP generalizations, mismatched party rights, and other things that a large corporation who wants to infuse their company with startup juice simply should avoid.  Instead, work with a startup lawyer to build a general template that a startup can live with – pay for that lawyer to work on behalf of the fictional client.  Don’t kill a startup with legal bills to negotiate a contract to work with you.

3.       Build the idea of partnership. Every corporate/startup relationship should be defined in a way that benefits both parties.  This is not a contract but a one-page explanation of the goals.  For example, one thing I have done is sit down with clients after they have stopped using the new product and asked why – and the answer was often something a desirable piece of feedback that would have been extremely helpful during the relationship – but there was not a way to have the necessary conversation.  Understand that the value in a relationship is often built on very different premises – and neither realizes that thinking of each other as partners may be the most valuable thing for BOTH parties. 

The startup wants:

• Early revenue to show traction.

• Early signaling to show that they have a large company customer.

• To use your corporate understanding to help navigate future relationships with similar companies. 

The corporation wants:

• The passion and energy of the startup. 

• The innovative mindset. 

• A solution to a problem. 

This alignment miss means that most corporates should assume that the product will only do about 60% of what needs to be done – but that the early decision to buy means that the company can partner with the startup to build the other 40% in alignment with the specific corporation’s needs in mind.  The startup often will not realize, until after the fact, how useful the customer feedback from a corporation can be.  The corporation often will not realize how providing the feedback has required the corporation to look hard at the problem and prioritize the components of the solution.

4.       The startup should own its IP.  If you want to hire a consultant who is going to do work-for-hire and allow you to own the IP, hire them – don’t expect the same treatment from a company seeking to build a product.  Yes, that might mean the large company’s direct competitor will get the benefits of their labor – but it also might mean that they get a differentiated product that their competitor cannot buy because they were not part of the discovery process necessary to build the product – see #3 above.  Being a partner on development is often more valuable than simply implementing an off-the-shelf solution after its built.  So, wading in early and helping the startup build their IP without exclusivity can end up being a very valuable opportunity for a startup.

5.       Money matters WAY more to the startup. Build a process and intentionality around making payments easy, transparent, and speedy.  Ensure that you are paying every startup fast, but more importantly on a transparent, consistent basis.  That may be out of line with a large company’s Accounts Payable procedure but being consistent is the most important thing a large corporation can do for a startup.  The second most important thing is making it easy for a startup to know when the money will arrive.  Saying the check is in the mail on the 30th of the month is fine if it arrives on the 2nd or 3rd – but not if it arrives on the 2nd one month and the 22nd the next.  The size of the deal is often something that gets everyone excited on both sides – startups can be inexpensive and still deliver strong, differentiated products and corporations can write much larger checks.  The key is that the corporation understand they have a significant power over the lifeline of the startup.  A single check is often the difference between failing or flourishing.  So be generous with payment terms and follow through.

Working with startups is hard for large corporations.  However, focusing on the process, “the how”, may make it both easier and more impactful for the corporation. 

Working with corporations is hard for many startups.  The lack of clear authority and the vacuum of decision making makes building strong partnerships a challenge – but with upfront intentionality, the relationship can be valuable not just for revenue or to show a logo – but for the long-term customer feedback built on a trusted relationship.

Both parties can benefit – but it is often up to the corporation to build the framework for a good, sustainable relationship.