The healthy rivalry between enterprises is vital. Traditionally, it breeds market success and general advantage, but this strategy isn’t universal. Today, with the rise of new businesses that deliver innovations, cooperation becomes more and more useful.
In 2016, Imaginatik and MassChallenge published a study with promising insights. According to it, 82% of respondents from big corporations answered that it’s somewhat essential to cooperate with startups. Moreover, 23% of them responded that it’s necessary. There are a few reasons behind this statistic.
Further, we want to talk about the differences between large companies and startups, competition and cooperation, etc. As well, we will reveal top factors that can help you to define the best market strategy. Let’s go!
Nearly all modern industries feature two different approaches to management. The first one is represented by corporate culture. Startups with a fresh vision confront this traditional mindset. Both models have pros and cons, surely. What’s more important, this inequality leads to high market dynamics under which enterprises have to define their strategies carefully.
Take a look at these two cultural systems:
- Corporation. Slow, cautious, and risk-free management. Big companies tend to stick to traditional solutions and strategies without too dangerous moves. They deliver traditional culture, hierarchy, and bureaucracy. Still, they have enough resources and customers to survive.
- Startup. On the contrary, new firms enable risky and brave market behavior. They are flexible and dynamic, can adapt to new conditions quickly, and affect other market players. Startups form new jobs. Still, new businesses lack financial and human resources as well as experience and infrastructure.
As a result, both enterprise types can survive and develop, but they also have unique flaws. In this case, each firm has two options: compete with opponents or cooperate with them.
The Difference Between Market Strategies
While there are dozens of minor approaches to market behavior, we want to focus on two fundamental options. They are available for any firm regardless of the segment and size. One of the most important tasks for executives is to define which of these strategies fits the current company goals the most.
The first approach is the most famous. It’s been here for a long time. Firms emerge and fall, but they always confront each other because they fight for the single market. Comparing business to wildlife, competition is like a battle for a dead antelope between various predators. Lions take the best parts, hyenas and vultures arrive later and get carrion.
In the modern markets, the nature of competition is pretty similar as it was years before. Businesses deny synergy because they opt for independent work. Sometimes, they may outsource tech stuff by hiring a dedicated development team, but it’s more about a partnership with other sectors rather than teamwork with your direct rivals.
Market competition is a viable strategy as long as your company can handle it. If you’re successful at internal development, customer satisfaction, and industry reputation, you can work independently. However, it’s always a good idea to research on how cooperation can affect your current status.
Instead of constant fights, businesses can work together to reach specific goals. Existing corporations may look for fresh blood, out-of-the-box thinking, or just innovative technologies and products developed by smart minds. Simultaneously, startups are often looking for customers, knowledge, experience, and infrastructure. Returning to our wildlife comparison, the main form of cooperation is symbiosis. With it, both parties get benefits.
Precisely, there are several types nowadays:
- Co-advertising – joint marketing communication.
- Co-branding – joint development and usage of one product/service.
- Co-marketing – cooperation on distribution channels with shared profits.
- Co-promotion – joint promotion under a single strategy.
- Cross-media – delivering one message or campaign via several platforms.
- Licensing – providing permission to use/sell products/services.
- Product bundling – offering a few products/services as one package.
- Product placement – including info about products/services into other products/services.
- I am sponsoring – for-profit financial or other support of something or somebody.
Cooperation may take different forms, but it’s more typical for a few industries. For instance, the biotech segment and pharmacology feature highly-innovative technologies with potentially exorbitant profits. Thus, startups cooperate with large firms to get exposure while these corporations take a percentage of profit. In 1999, this happened with Hoffmann-La Roche that collaborated with Trimeris and started selling its anti-HIV drug – Fuzeon.
A more familiar example of cooperation is a strategic acquisition. It’s a hybrid form because large companies consume smaller startups but still let them work almost indecently inside the new structure. Thus, giants like Facebook purchase indie teams like Instagram developers and get their products + revenue. Also, they get modern thinkers who bring their startup culture and help big firms to evolve. In return, startups receive carte blanche on promotion. They can enjoy a broad audience, massive financing, and support.
Factors Affecting the Strategy Choice
The question is: how to choose the right option for your enterprise? While professional executives already know the answer, we want to help people who aren’t sure. The following insights will be useful both for corporations and startups.
Although the article dedicated to factors that were published in 2000, it remains relevant today. The authors focused on three key points:
- Level of intellectual property rights – the number and the importance of patents. In fields like biotech, where patents are valid, startups tend to cooperate. They feel more protected and aren’t afraid that their intellectual property will be stolen. Even one parent increases the chance of cooperation twice, according to the authors.
- Level of partnerships with intermediaries – venture capitalists, devs, lawyers. It’s pretty challenging to find a reliable partner and normalize your relations. For this, companies hire intermediaries. Businesses that already work with skilled lawyers or accountants are more likely to cooperate.
- Level of spending – investments in manufacturing, marketing, analysis, etc. Finally, the more a firm has to invest in the core process, the more chances it will cooperate with partners. Say, car manufacturers require huge upfront expenses to create at least one vehicle, so they want to join forces.
There are more minor factors, but these three points are the most crucial. Mainly, they play a vital role in startups that are looking for new partners. Thus, if your team has a product protected by a patent, an experienced middleman, and relatively high spending, consider cooperating with big corporations.
Choosing the Best Way
Overall, there aren’t universal and 100%-working suggestions. Each business case is unique and requires a unique approach. But startups and traditional firms can benefit greatly from joint work now. Through cooperation, they can create links between two cultures to form the next-gen ecosystem. Moreover, customers will help, as well. And it’s the main goal for both business types.