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Dating Outside Your Gene Pool: Why Fortune 500s And Startups Make The Perfect Match

The more events I attended around town, the more entrepreneurs I meet. And the more entrepreneurs I meet, the more it becomes clear to me that someone is missing in almost every room: Atlanta’s Fortune 500 corporations. Other than the TAG/GRA Business Plan Finals, I can’t recall seeing anyone from Home Depot, Georgia Pacific, AT&T’s Wireless Group, Kimberly Clark, Coca-Cola, UPS, Turner or Cox anywhere about town. So why is that? Why is there little to no interaction between the biggest companies who need innovation to continue powering their businesses and those most suited to creating innovation?

And while I detest those who compare resumes, I’ll give the three-sentence version of mine to provide some context for my comments. I’ve spent 20 years in technology in Atlanta, always in interactive marketing but on both the agency and corporate side. My earliest agency run was technically PR, but we were really launching brands and companies into that newly created Internet thing. From there I spent just over five years inside UPS, then popped out into the big agency world with outfits like Digitas and Tribal DDB. I’ve literally seen all three sides of this fence: startups, corporate and agency. Okay, lineage defined. Now on to my theories on this problem, and how we solve it.

So why is there a complete disconnect between entrepreneurs and big companies? One of the main reasons is the source of innovation inside large companies. While some of the best have dedicated staff thinking about the future, most are awash with wide ranks of middle management trying to get promoted to the next level – which more often than not means incremental improvement, not blow-the-world-up ideas. And I have an entire theory about the source of real innovation in companies of more than 500 employees: unless your in the C-suite, the system only allows Big Ideas to come from outside consultants or agencies. The political capital required to push an idea through an entire management chain is absolutely more painful than when the Omnicom account guy convinces your boss’ boss that same idea would increase revenue and decrease cost-to-serve. And somehow the IBM sales guy always seems to be right there with an army of interactive consultants to staff up two more IT projects than your own resources can handle. My challenge to the Fortune 500 leaders is to isolate and cultivate the brightest among your ranks, and set them loose – particularly those 5-7 years experience. Why not encourage them to leave the fold to start companies in the same space (think Google’s mantra that engineers spend 10% of their time working on their own projects). Certainly a $150,000 bet on someone who knows your business inside-and-out is a smarter move than pounding dollars at some buzzword-crazed consultant.

A second reason for this disconnect is that most entrepreneurs aren’t considering these local companies when formulating new businesses. Why not start a company with a big-ass paying customer in mind? Granted there aren’t 3-4 huge success stories to make it really obvious, but why aren’t there more logistics startups in Atlanta? It’s not as if UPS hasn’t snapped-up players in every corner of the shipping and logistics markets – plus they even have a strategic investment fund. Again I ask, why aren’t smart engineers creating companies tailor-made for investment or purchase by Big Brown? And why are there no startup ecosystems surrounding Coca-Cola, Home Depot or Turner?

Let me give everyone a real-life example of Fortune 500 working with early-stage startups here in town. In early 2000, I was asked to define the corporate-wide policies and channel implementation of marketing email at UPS (yep, nothing existed before then). Neither the Bain or IBM guys had a group I could turn to, so I ran across a small startup in town that had done some great pro bono work for the Annie Casey Foundation. That 10-person company was called Silverpop. I worked many days, nights and weekends with Bill Nussey and his just-assembled management team to get the effort in-place ahead of our Teamsters contract negotiations. In the process, Silverpop won full delivery of customer email for UPS. It was a perfect example of leveraging an external subject matter expert, and Silverpop today employs more than 300 people in Atlanta. I got the industry’s sharpest minds, and Silverpop got themselves one hell of a reference client. The relationship still pays dividends for both companies today – more than 10 years later. This is a great example of a large corporation finding a small startup to execute on programs outside their core competencies. Why aren’t there 100 more stories like that?

A third reason for this disconnect is the ‘work-for-hire’ mentality most IT procurement managers take of technology that’s created externally. Again, I could wax at-length on the comedy of melding UPS and Silverpop from a contractual perspective, but those who find it funniest already know all the stories (Hint: think external security audits of hosting facilities). While there are some natural points of contention among entrepreneurs and companies, it seems there’s plenty of middle ground. If you’re on the corporate side, setup a strategic pool where the entrepreneur retains 15% of the licensing rights to their innovations. The reason for this is simple: the biggest consultants and agencies have a standard playbook – one that rehashes many of the same ideas over and over. And an entrepreneur, by nature, desires to create something completely different. For a great example, remember the Netflix Prize, where they challenged developers worldwide to improve their algorithm by 10%. Why settle for the IBM sales guy who’s been instructed to sell “cloud computing” this quarter when you could have the brightest entrepreneurial minds cranking on a solution? And if they do create the future of your industry and you’re scared about not owning 100%, just buy them and move on. Google does it all the time… And from an entrepreneur’s perspective, be prepared to run a couple projects as an outsourced development shop in order to prove your worth. By the way, this is a perfectly viable way to secure dollars for your own ventures – most large corporations are accustomed to paying well over $150/hour for external marketing and IT expertise. Not without some quid pro quo, but get in there and prove your value. And here the reality: 15% of something that has UPS or Kimberly Clark as a reference customer is probably more loot than almost any other idea you could take to market alone.

So the final question is how do we fix this? It starts with the two camps talking first. I know of a few experiments like Lunch 2.0, but we need to get serious about creating these relationships. This is a common debate around the TechDrawl Cave, and we’re interested in hearing everyone’s take on tactics. And speaking of tax credits, why not give state incentives to corporations who invest or simply spend money on local startups? And what about the role of organizations like GTRI and ATDC as honest brokers between entrepreneurs and Fortune 500 companies? And if I really think hard about it, give these organizations a matchmaking fee to help solve their budgetary issues. My primary point is there are lots of great ecosystems that simply aren’t working together.

So I challenge everyone reading this – regardless of whether you’re in Atlanta, Charlotte or Austin – what are you doing to connect startups with your town’s biggest companies? And for senior management inside these companies, what better way to improve your hometown economy than to prove a rising tide floats all boats? Everyone should care, but not enough do. Stop whining about the West Coast, and become part of the solution.

comments 

 
0 # pfreet 2010-07-09 11:12
Thanks for the great post Dave. Yes, this is an area that we should absolutely improve on.

One of the small things we at ATDC are trying to do to help is taking an active involvement in the new TAG Corporate Development Society headed up John Ryan of IBM. http://tagthink.com/society-blogs/tag-launches-its-new-corporate-development-society.html.html
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0 # local guy 2010-07-09 12:36
OK, so I've a similar lineage to yours, and I've also worked in both a smallish logistics company (that got acquired) and my own start-up.

You've hit a nail on the head from my pov. F500 people need to be a part of this ecosystem, and they are not.

While I like your story, my experience suggests that the reason you could innovate was that you introduced non-core technology (eg, marketing vs logistics) in an otherwise misunderstood department so it wasn't a threat to anyone that counted. Our Logistics company had very large competitor companies in the core business, but could not get HD or UPS to even talk because we were not in bed with their professional services and IT vendors. The CTO blocked every follow-up meeting that made it up to his desk.

Two recent stories.

I sit on a university advisory board mixed with innovators and F500 companies, including some you list above. As we've been working through the vision, mission, governance, etc, TWO of the F500 companies made declarations that the board composition should only reflect donations and the research agenda should be outsourced to vendors whom they approve despite the offers of the innovators in the room who voiced a willingness to donate their services.

Second, I'm at lunch with a SVP, Corporate Innovation of one of the aforementioned F500 companies. Says he, in cloaked summary: "I love what you're doing. We're ten steps behind that. Great idea we could surely use to reduce cost and grow revenues at the department or division level. But how we'd approach this is to bring interns into corporate to tackle that, see what they can do, then rotate them into a full time job in one of our groups hoping it sinks in. We really don't have ability to think this way or the time to systematize our approach."

ATDC could do more by meeting with every F500 "innovation" or start-up related exec, and encouraging what they do in SV, lunch and learned presented by local start-ups. ATDC could offer scheduling as a service or ask for donations to arrange monthly learning sessions. But getting the word out to these F500 exec's that we've a community of strong technologists is as important as anything right now.
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0 # Andrew Watson 2010-07-09 13:40
I worked for Cox for 6 years and I can't see them EVER buying something important from a small company. In fact, I was involved in purchasing decisions where that was specifically brought up as a reason NOT to buy a solution.

Management at these companies is frequently as concerned with covering their asses as they are with solving their problems. If there's a chance your startup might croak in 6 months and leave them hanging then they won't even consider your solution because they'll be known as the person who brought in "that startup that fell apart" and then they won't get promoted to executive director.

Seriously. I've witnessed it.

The other problem with big companies: they tend to want everything customized to meet their needs... exactly. The struggle for the F500 is that nothing meets their exact needs to they use their IT staff or their contract armies to modify whatever "solution" they find. Truly "off the shelf" software never works and is hardly ever desired.

Cox was particularly bad at this. We modified "COTS" software so badly that it wasn't supportable or upgradeable anymore. We didn't just do it once. We did it repeatedly.

Personally, after spending so much time at Cox and Fedex the thought of trying to sell a solution to them makes me cringe.

Sure, they have money but it comes with giant strings attached. I'd rather sell solutions to small companies. There's way more than 500 of them and they're usually a lot more flexible.
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0 # Murem Sharpe 2010-07-09 15:37
Terrific article. You are part of the solution: relating the success stories. Gotta bring it up: The west coast vs Atlanta DNA issue does exist: Silicon Valley thrives on technology innovation. Its leaders, developers, and marketers from both large and small companies, sit around the table with each other as peers.
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0 # Feb0zdou1 2010-07-10 20:25
Although I wish southern F500 companies would sponsor TechDrawl through advertising as a gesture of community goodwill and because we need it, I doubt many technology startups realistically could gear up to supply F500 spending, nor would these startups be very happy in doing so.

Some exceptions might be in green tech and Internet security. Qoil Technologies http://atdc.org/2008/07/new-atdc-member.html could certainly save fuel costs for UPS and FedEx. And, truly disruptive and timely solutions like ISS was can do business with the F500.

But, the problems as I see them in doing business with the F500 are supply chain, ramping up for enterprise-level demand, strategic offshore sourcing where labor is cheaper, the lack of economies of scale to compete on price (think Walmart "Always Low Prices"), and supplier consolidation. When I was a shareholder in JCrew [JCG] (when I had a dollar), I was surprised to read in their annual report they rely on a veritable handful of key (huge) suppliers. They couldn't possibly bird dog lots of small manufacturers. They likely own part of their suppliers, and staff them with quality control engineers.

Besides being too small to ramp up and compete on price, do startups really want to do business with the F500? Ask companies who sell to Walmart. Walmart is legendary for demanding suppliers redesign products, accept RTVs a year later, and examining their private financial records to see if profit margins could be lower. Some small companies made dangerous concessions to sell to Walmart such as Vlasic pickle (the $2.97 jar of pickles, a year's worth). Vlasic is now bankrupt.

Of course, these are goods and not services, but I still think the logistics are usually a poor match between an F500 and a startup.

The exceptions I see are green tech and security tech, really disruptive technologies timed right (i.e. so desperately needed that a startup has some leverage with the big guy).

Good post, Dave.
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0 # GFRRTDEFF 2010-07-11 04:34
Great comments all. I’d agree this isn’t an easy road to travel as a few of you pointed out from real-life experiences. But I ask a simple question: in a town chock full o’ B2B startups, are they really avoiding doing business with the deepest pockets around? If so, someone needs to explain the concept of strategic customers. And sure, some startups will have to make tough decisions when a Fortune 500 wants to drag you down a different product roadmap, but that’s a pretty good problem to have, no? Certainly you don’t chase elephants 100% of the time, but successfully selling to (and building strategic partnerships with) the Fortune 500 better be a skill in your organization.

And there are plenty of examples of startups selling into huge companies. A good friend of mine has built and run Staples’ entire e-commerce business. In addition to his core set of products, he’s constantly experimenting with startup-created tools that improve targeting, efficiency, conversion, etc. I’m sure he’s ‘made’ a few companies in the process, and has moved a ton more SKUs as a result.

I love to hear ATDC and TAG have teamed up to create a group. Getting everyone in one room is a good start, but the cultures need to find some common ground too. Entrepreneurs need to step up their sales and relationship games to focus on the Fortune 500, and two or three senior-level executives need to lead the way in championing innovation. Not just to support a community, but to put real dollars on the bottom line. Success breeds success…
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0 # Mike Thomas 2010-07-14 18:27
Big entrepreneurial company is an oxymoron. Big companies aren't able to cut through the management hairball they created on the way to becoming a big company.
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