July 2023
July 20, 2023
July 20, 2023

3 reasons why this is the most cost, time and risk efficient way to innovate

Here are three simple reasons why you should consider collaborating with start-ups as part of your transformation strategy.

Innovating with start-ups is the most cost efficient way to innovate

1.They’re capital-efficient

Internal R&D is capital-intensive. Start-ups are usually either self-funded or (more often) backed by VC money. You might invest but you’re not responsible for initial outlay. Work with start-ups and your money goes further.

Crucially, VC money is risk-tolerant capital. Their calculus is different from in-house R&D, so they can afford to cast a wider net in hopes of catching disruptive innovators. Working with start-ups allows you access to the same innovation without spending the capital.

2.They’re time-efficient

If you’re entering the process with a clear problem statement and an engagement process laid out, ascertaining fit can be a rapid process. It’s never a simple process, in fact it’s quite a highly skilled one, but it can be done quickly and at scale. That means you don’t wind up lavishing resources on a company that will never be a good fit.

Once you have ascertained fit and entered into a relationship with a startup, you have a whole highly-motivated team working to address your business problem. Replicating this in-house is always difficult; working with a start-up lets you leverage other people’s time.

3.They’re less risky

About 90% of start-ups fail. That doesn’t translate exactly into in-house R&D efforts, but it’s not far off. If you want to develop something in-house, you have a roughly 90% chance that the project will end in failure. Working with a start-up means the risk of failure is mainly borne by others. You don’t need to worry about the 90% that will fail, but you do have the opportunity to spread your attention across a wider cross-section of the 10% that will make it. Ending a relationship with a start-up is easier and less expensive than cancelling a long-running in-house R&D project. It also incentivizes you differently: when you’re running in-house projects, the expense and risk tends to make you more cautious and conservative. Great for incremental improvements, not so good for game-changing innovations.


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