Digging into “The Startup Goldmine”: Takeaways for Chemistry Focused Startups
I’ve recently been reading “The Startup Goldmine: How to Tap the Hidden Innovation Agendas of Large Companies to Fund and Grow Your Business,” by Neil Soni. It’s a great book full of practical information and insights for entrepreneurs aiming to move their business forward by partnering with a large corporate player. It’s funny and an easy read, so if you are at all interested in how these types of business partnerships can be fostered and grown, I recommend adding it to your reading list.
This book also got me thinking about how startups commercializing chemical innovations can apply some of Soni’s most important points for building successful partnerships. Innovating and creating a viable business from a chemical technology is a very different game than building a startup from an app or data-based innovation. Commercializing chemistry requires significant material resources to make and validate a product or successfully demonstrate a process, a good handle on supply chains to source materials at a required price point, and an understanding of the regulatory issues for the market you are aiming to enter. The expertise of a strategic partner can be invaluable in addressing these challenges. But how can a startup founder find a suitable corporate partner and best position their company to be successful in building a beneficial partnership?
One of Neil Soni’s main points is that entrepreneurs must first understand that a large company has a very different mindset and is under different economic pressures than a startup. A larger company and its people are conditioned to minimize risk. A large corporation has become successful by offering solutions and employing systems that have been developed over time and have been proven in the market. It will not make changes quickly and without good validation that a change addresses a need and allows the company to stay competitive. Contrast this with a startup that is still getting their offering to market and looking for traction. These companies must be opportunistic and open to risk as they develop their business model.
Fortunately for startup founders, large companies maintain “innovation groups” to foster development of their own innovative technologies, and seek out solutions being invented/developed by startups. These innovation groups serve as a hedge against the company being caught flatfooted by innovations with potential to disrupt their business. These corporate innovation groups thus offer a route for startups to build partnerships with larger companies.
Ideally, such an interaction progresses from initial contact and meetings, to the startup pitching their innovation to the large corporation, to an eventual pilot project. After a successful pilot, the corporate partner may want to run another project and further validate the technology or take the partnership to the next stage of commitment. This could include the corporate partner becoming a client of the startup, making an investment in the startup, or even acquiring the startup.
So how do entrepreneurs developing chemical innovations find good strategic partners that can help them move forward in commercialization and getting their solution to market? As mentioned above, working in chemical innovation is demanding. Making product on scale, sourcing materials, validating performance, and navigating regulatory issues can be significant challenges and roadblocks to building a successful partnership with a large corporation. With these issues in mind, here are my thoughts on how startups working on chemical technologies can position themselves for success in finding a building the right corporate partnership.
1. Know your potential partner: This is true for any startup but is particularly important in the chemical industry which is huge and where corporations vary significantly in the scope of their businesses. For example, while BASF has a significant paints and coatings business it is only a portion of what they do. Contrast this to numerous other companies that focus almost exclusively on coating products (e.g., Valspar, AkzoNobel). How you present your innovation and the value your startup offers should depend on the potential partner’s needs and how they compete in the marketplace. Make your pitch appropriate to the partner.
2. Seek out a champion- but then be patient: One of the mandates of innovation groups at larger companies is to source innovations that can address a key challenge or have potential to disrupt the business. These departments are where you are likely to find an advocate for your innovation. Finding that champion is critically important- this person can help you navigate contacts at the company, and eventually bring in a decision maker (or coalition of decision makers!) that can green light a pilot project. In the chemical industry this can be a slow process: budgets are set annually and finding funding for a partnership with a startup midyear is difficult. Also, the timelines around development of internal R&D projects and deployment of large-scale capital are often years in the making. This all highlights the need to be patient in navigating these relationships.
3. Look for ways to minimize the risk to the partner: A pilot project with a corporation will involve significant investment on their part. This includes investment of both capital resources (e.g., space and facilities to do work) and people who are spending time to help make the project a success. The chances of getting a pilot project off the ground go up significantly if a startup can show that critical risks have been addressed. For example, if you have a prototype product or material you are pitching, having made it on a significant scale will help alleviate concerns R&D people will have around scale-up issues (of course “significant scale” will vary according to the technology). Having solid IP and a strategy for expanding the protection around your innovation will also increase the confidence of a potential partner. Your startup will be competing with other innovators for a potential partnership, so anything you can do to minimize a corporate partner’s risk will make your company more competitive.
4. Build a coalition of supporters: You can accelerate your development and address scale-up challenges by building a coalition of organizations that believe in your innovation and can offer financial support and/or business expertise. Innovation is supported through numerous government programs- In Canada, the NRC offers the Industrial Research Assistance Program (IRAP). This program offers funding for qualified startups/SMEs to address specific R&D challenges related to commercialization, and assistance in finding the right lab or partner to assist in completing the work. In the US, the Small Business Innovation Research (SBIR) program is run by a number of federal agencies (e.g., NSF, Dept. of Energy, etc.). SBIR offers funding to support R&D driving innovative businesses, but also offers access to numerous accelerator programs. There are a lot of other programs available (and I’ll do a survey of what’s out there in a future post). Support from these organizations can go a long way toward filling technical gaps in your scale-up and commercialization effort and can give credibility from a third-party to your innovation. This in turn allows you to go to corporate partners with more confidence and data supporting your business case.
Those would be my four top points for chemistry-based startups aiming find a suitable corporate partner and advance their innovation to market. Since the infrastructure needed for chemical manufacturing is so large, these partnerships can be vital for getting a fledgling innovation to a scale that can validate performance and consistency, meet needed price-points, and get traction with customers.
“The Startup Goldmine” has lots of great info and goes well beyond what I’ve highlighted here. Other important sections include managing communications with corporate partners and navigating corporate venture deals. I’ve really enjoyed it. If you are a startup founder or innovator keen on learning about and building similar relationships in your work, I recommend it.