Big established companies are beginning to actively work with startups, realising they risk being disrupted faster then they can act if they don’t.
Taking a chance on startups is one way Australia’s big businesses can grow, using experimental and disruptive technologies to satisfy consumer demands and take market share.
This relationship isn’t new in the tech sector, with Yahoo, Facebook and Linkedin all working with or acquiring up-and-comers.
But it’s a new concept for Australia’s big banks and telcos.
Realising this, startup accelerators such as Pollenizer are cashing in on managing the changing relationship between startups and big business.
Pollenizer CEO Phil Morle told Business Insider the corporate side of town is being disrupted at pace.
“The whole thing is coming full circle,” he said, adding startups can leverage growth from big business and corporates can learn the power of entrepreneurship.
“We can’t be reactive anymore,” he said. “You have to almost industrialise the creation of new business without knowing what they are.”
Some of Australia’s biggest corporations including Telstra and Coca-Cola Amatil are working with startups because the risk of ignoring the technology and innovative ideas the small companies produce is too high.
Telstra boss David Thodey recently said if startups aren’t supported Australia will lose talent and good ideas. The telco has launched its own tech startup accelerator Muru Digital to harness and develop a group of the country’s startups.
Last week Australian startup poster boy and Atlassian co-founder Mike Cannon-Brookes said startups, including independent EFTPOS terminal provider Tyro of which Cannon-Brookes is a director, are coming after the big banks.
Startups can disrupt the cumbersome processes inherent with big business and of course take a share of the mega profits. PWC estimates Australia’s big four banks posted a combined $27 billion in profits in 2013.
“The profitability of the banking industry in this country is insanity,” Cannon-Brookes said. “It doesn’t appear anywhere else in the world and I think Tyro, like a bunch of others, are trying to change that and doing a phenomenal job.”
However it doesn’t have to be startups against the world in a David and Goliath like battle.
Corporate engagement can “create an unfair advantage for a startup,” Morle said, adding startups can learn what a real and a large customer really needs early on.
He said getting involved with big business in the early stages can also open up investment and customer opportunities.
“To say you’ve got a customer and a material one, is powerful,” he said.
Founder of Australian financial services startup MOGOcheck, Andrew Clouston said there are benefits for both sides and each can learn from one another.
For the big players startups offer a means to test new concepts without risking the inner workings of an organisation. While for startups big companies can provide an emerging business scale.
“Smaller organisations with an entrepreneurial look and an innovative feel about them are able to be more nimble and more creative and probably do that in a much freer environment but all the business exists where the big organisations are,” Clouston said, adding teaming up with startups enables them “to integrate small and innovative solutions that solve some of their problems”.
Pointing to the big four banks in Australia, Clouston said a number of them are “actively looking for innovative solutions”, however they’re “appropriately risk averse because of the industry they exist in”.
Morle agreed, pointing to big banks, including CBA, he said, “if you push the top soil away you see quite a lot of engagement with startups”.
“Banks are starting to disrupt themselves by working with startups,” he said.
Innovating their product offering is important, especially as the big banks fight for market share not just with each other but increasingly against international players offering payment or financial services in Australia.
“They obviously want to get a break on the market, they want to deliver something in the market that their competitors don’t have,” Clouston said.
“To be able to integrate solutions from what are effectively new technical environments into well established and risk averse ones is the real challenge for companies like ours.”
MOGOcheck is working closely with one of the big banks in Australia as well as one in the UK and is expecting user testing on its lending verification product to start later this year, a process which has taken months.
But timing on both sides is everything, too late and a young company can go over the cliff while in big organisations like banks, offering a new product, service or technology even just a couple of months ahead of a competitor can make a big difference.
“We all know in the banking sector that bringing anything on board it’s a reasonable time frame and a four to six month break on your competitors is a lifetime in banking,” he said.
“If you can get that ahead of your competitors for up to a six month period, that’s a huge win.”