Understanding the why, when and how to collaborate with startups as an incumbent

(L to R): Prof Abhishek Kathuria, Abhishek Kumar, Murali Talasila & Ravi Kanniganti at the panel discussion during Digital Transformation Workshop at ISB

by Soumik Dey

In 1942, four friends in the chemical business, decided to take advantage of a temporary ban on paint imports, owing to the Quit India movement and World War-II. They founded Asian Paints in a garage at Girgaum, Mumbai, to compete against existing foreign brands and Shalimar Paints. By 1967, it became the market leader in India, and by 1980, it was one of the largest paint manufacturers in the world – supplying to 45,000 dealers and exporting to 60 nations.

The real change the company initiated, however, took root in 2001. That is when it partnered with SAP to design a valid customer, dealer, and employee engagement integration tool. The result was a software that allowed customers to upload pictures of their homes and then select different colour tones to check what would suit best. The next step was to call a toll free number, and the right shades in the required quantity would be available at their doorstep from the nearest distributor. Even painters for the job can get arranged through this.

It transformed the business, and a decade later, Asian Paints, now the third-largest paint manufacturer in Asia, beats its competitors by miles and retains 54% of the Indian paint market. Today, the company has kept its digital transformation journey ongoing. It is partnering with startups like four-year-old Integration Wizards to introduce the Industrial Internet of Things (IIOT) in its manufacturing units. It has started internal drives for its employees to come up with business plans, aligned to their core business, which the company funds and employees run like a startup.

To spur many such success stories, the Srini Raju Centre for IT and the Networked Economy (SRITNE) of ISB, held a panel discussion on how incumbents could leverage the startup ecosystem to beat the competency trap, at its recently concluded Digital Transformation Workshop 2019.

Abhishek Kathuria, assistant professor – Information Systems at ISB and an independent consultant on the board of many startups moderated the talk. Present with him were Ravi Kanniganti, director and head, Target Accelerator, Murali Talasila, PwC India’s partner and innovation leader, and Anil Kumar, CTO, ToneTag, a fintech and retail solution startup.

The conversation was flagged off by Prof Abhishek Kathuria, seeking to understand how do incumbents engage with startups. Representative of US-based large retailer-manufacturer Target, Ravi Kanniganti, said that the company runs an accelerator program, where they present a use case to startups and then monitor their progress over four months. Murali Talasila of PwC said that they aid in understanding a problem and create a bridge between the problem owners and the solution providers.
 

Anil Kumar of ToneTag highlighted that 20 years back as a student, he was learning about time and motion concepts, generally termed as Business Process Engineering. He marveled that two decades later, he is discussing how to avoid that same trap by partnering with startups. He said he took a personal plunge in his career coming out from Oracle and joining this startup in a bid to avoid the competency trap and found digital transformation offered by the startup to be ‘enriching.’

But how do incumbents collaborate with startups? Especially when many companies do not have the resources, time, money, or skill sets to run an incubator or accelerator program. To this, Ravi Kanniganti of Target offered a three-step solution. “The first challenge is to identify why you need to work with a startup. Then you need to be clear if you are building a use case or building a capability that does not exist. The third one, you can also say I want to do this because I want to acqui-hire,” said Kanniganti.

According to him, once the purpose of partnering with a startup becomes apparent, an incumbent can work with boutique firms or even incubators with institutions like D Labs at ISB, T Hub at IIIT Hyderabad, or the incubation cell of IIT Madras.
 

Murali Talasila, the innovation leader of PwC, advised that the first question that the incumbent needed to ask was what is that they are trying to solve. “What are you solving should define the solution and the method of collaboration,” he said. “Then comes the commercial engagement model.” Giving examples of deep pocket firms like Jio, which acquired ten startups over the past two years, or by adopting the minimalist approach of just licensing someone’s code into one’s product.

But given a proliferation of innumerable startups, incumbents also face the problem of evaluating which one is genuine and with whom to start. “Even if you say this is a startup that is doing this and can solve your use case, whether it is true or not, is a big question. That’s where the easiest thing to do is to collaborate. Start with collaboration and see whether it fits your needs or not,” advised Anil Kumar of ToneTag.

Interestingly, Kanniganti said that to choose the right startup partner, Target uses the metric of meeting the founders and evaluating how passionate they are about what they are doing. Secondly, they go on to assess the maturity curve the startup is in before exposing its supply chain, logistics, or any core function of the business.

This approach was approved even by Murali Talasila of PwC, who said they go a step further, and touch base with startups on their deck, meeting the people behind them, even without any real client opportunity. “On an average anywhere in a year, we touch between 1,000 and 1,500 startups,” he said. He highlighted, as there is no ready reckoner to assess startups, they aim to live in the startup ecosystem, sit in their offices, and invest ahead of the curve.

But what drives startups to work with an incumbent firm and help them come out of the competency trap? The obvious answer that came up was because startups themselves aspire to grow and become big organisations themselves one day. “It is a dichotomy that you start with a startup, get that agility and then become a bigger organisation and lose that agility,” pointed out Anil Kumar of ToneTag. He said that while they are currently working with a large firm like Amazon, the same thing reverberates. Which is: What you can do in one day, will take me 30 days to do.

While many organisations would like to leverage the startup ecosystem, the organisation needs to have some prerequisites in place to ensure that they do not organically reject a new idea. “It is not an internal resources versus startup thing. Organisations have to be ready from a top leadership point of view to say that this is the ecosystem and my internal teams. And I am going to leverage both of them equally and create an environment where they are working together to build something awesome,” said Kanniganti.

On pitfalls of collaborating with startups, the business leaders advised that working with startups should not be done for brand building or marketing, but some real purpose. Also, it was proposed to fail a lot and gather essential lessons from those failures. The other advice was not to do something for the sake of doing it or for joining any bandwagon like adopting AI or ML. “Everybody talks about Artifical Intelligence, I talk about national stupidity,” said Murali Talasila, highlighting this.

By the end of the talk, three clear lessons emerged for incumbents on engaging startups. First is to identify the problems they want to solve i.e., if they are solving for today or inventing for tomorrow. Second, to ensure they are collaborating with a startup that aligns to their business strategy. Third, identify the time horizon in business as to when they want to work with a startup.

Send feedbacks to: soumik_dey@isb.edu