As we help BigCo teams grow current brands and seek new sources of growth, we consistently look to startups to see how they are innovating and growing fast, and solving unmet consumer needs, penetrating markets in new ways. Startups are disrupting traditional BigCo brands, and the way that many BigCos have reacted is to not only incrementally improve their current brands and operating like a startup to launch new ones, but also partner with or acquire the startups. BigCos and startups alike are increasingly realizing that teaming up is a great approach to innovate and drive growth at scale.
Why are Startups and BigCos Teaming up?
First, startups test and learn fast. BigCos tend to push products through highly regimented process seeking perfection before a product hits store, or Amazon, shelves. Recognizing that some industries (e.g. pharmaceuticals) require longer very deliberate tests, for good reason, many big companies could build, measure, and learn with new products more quickly. If they can’t, teaming up with a startup could catalyze the process.
Second, startups often times want to team up with big companies to increase their own chances of success. 90% of startups fail, thus getting investment from/partnering with BigCos may be an attractive option to increase odds of success. Bringing innovative new products to market is a race against time. Startups have to prove product market fit and make money before the coffers run dry. The right connection with a BigCo may help alleviate some of the risk and give the startup more runway to succeed.
Third, sometimes the whole is greater than the sum of its parts. The right collaboration between a BigCo and startup can bring meaningful growth to both companies. BigCos have lofty growth expectations to satisfy Wall St; in the grand scheme of things, the goals seem small. For example, P&G seeks 3-4% organic sales growth from year to year; that’s $2 billion on its $65 billion sales base. Many of P&G’s brands compete in categories with 90 plus percent household penetration, and given that their brands are oftentimes the market leaders in these categories, growth can be challenging. The $2 billion has to come from new sources. The startup may offer a new category but doesn’t have the network to open the path to growth. If they combine, the BigCo may get a new way to achieve growth expectations while the startup gets on the fast track to growth.
A few noteworthy examples of BigCo/startup partnerships include Whirlpool buying Yummly; Google buying Waze; Unilever buying Dollar Shave Club, and NBCUniversal’s investment in Peloton.
Improve Product Offerings: Whirlpool bought Yummly, a recipe search engine, in 2017. For Whirlpool, Yummly helps the company improve its product offerings. It reduces complexity for consumers and helps them usher in the kitchen of the future. Yummly gets the backing of a venerable company with likely more opportunities to invest in growth opportunities to compete with Pinterest, another tech company that has a clear right to win in a similar space. We saw this partnership come to life at CES.
Maintain Competitiveness: Google bought Waze, a GPS community navigation software app, in 2013. According speculation from Forbes and Mashable, Google likely bought Waze to improve its own community and user experience, maintain its foothold in GPS navigation, and likely to defend its space from Apple and Facebook. For Waze, Google’s offer came at the right time, during a round of financing. This partnership has not only enabled Waze to continue growing their mission, but also Google to compete in new spaces. Since 2016, Waze has been testing and learning with carpooling, competing with Uber, Lyft, and other ridesharing apps. To continue expanding, Waze Carpool is starting to partner with other BigCos like Amazon, allowing employees to specific facilities to carpool to work together.
Enter New Categories: Unilever bought Dollar Shave Club in 2016. One, of many, reason Unilever bought Dollar Shave Club was to gain a foothold on the growing Men’s Personal Care market. This is clear in the company’s latest ad campaign in which other grooming products halo the core offering of shaving. Dollar Shave Club gets the opportunity to tap into the Unilever global distribution engine without having to raise further rounds of funding or test an IPO.
Reach New Audiences: Peloton, founded in 2012, is seemingly omnipresent. Between Thanksgiving and New Years, this unicorn’s commercials rolled nonstop trying to convince consumers to pay $2,000 for a spin bike or nearly $5,000 for a treadmill. Today the New York based company has raised nearly $1 billion across 8 rounds of funding from VC’s, Fidelity Investments, JP Morgan, and more. A notable investment was from NBCUniversal. CEO John Foley shared in Fortune how NBCUniversal was a strategic investor; Peloton streams twelve hours of live TV a day; no “media company” is getting people to pay $39 per month for one channel of content, but Peloton is for their content.
A good example of how this partnership came to life was during the PyeongChang Olympics: NBC streamed Peloton workouts from South Korea as a way to drive more viewership to the Olympics. They saw Peloton’s audiences as a valuable one full of influencers and it was important to strategically get in front of them.
“Twenty years ago, you could hit everyone with some really good network television and cable. Today, we need to extend that. Part of our strategy to reassemble an otherwise fragmented media audience is to reach into as many media spaces that our audience is spending part of their day in,” said Gary Zenkel, president of NBC Olympics and Business.
Win-wins can be created, but the pitfalls need to be addressed.
Beth Comstock, during our recent Courageous Minds Only Chat, shared some of the pitfalls she experienced with NBC’s acquisition of iVillage.
Other pitfalls include:
We’re forward to hearing from Loreal, Covestro, Kraft Heinz, and more share their experiences partnering with startups at this year’s FEI conference. We also saw quite a few examples when we were out at CES and Lean Startup. What are other examples that you have seen of BigCos and startups partnering?
