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The lifespan of large corporations is getting increasingly shorter, the average tenure of an S&P 500 company has shrunk from 61 years in 1958 to 18 years. In the meantime, young tech companies like Uber, Airbnb, and Snapchat (all less than 10 years of age) are now worth billions and continue to replace the antiquated business models and tech stacks of traditional businesses. Forward-thinking organisations now view startups as potential partners that can help accelerate the pace of product development.
"Start-ups desire to challenge the status quo, have potential for rapid growth and the capacity for a continuous flow of new ideas"
In a recent global innovation survey of insurers, conducted by Rainmaking InsurTech, the top three challenges they saw were:
- External disruption from major players in other industries such as Apple, Amazon, Google, BMW etc
- External startups solving industry issues
- A lack of focus by the insurers on changing consumer behavior
Corporates from across industry sectors are thinking about how to disrupt themselves before an external party beats them to it. Take Dyson, the “vacuum business” they recently invested over a billion dollars to create an electric car manufacturing business in Singapore – how many of the senior execs from the motor industry saw that coming?
Most insurers have tried to deal with this innovation challenge by abdicating responsibility to the handful of people in their innovation labs. However, startups are now widely recognised as invaluable contributors of that innovation.
Insurers collaborate with startups through various models such as corporate venture capital, scouting missions, hackathons, incubators and accelerators. This is not a new, large companies such as Intel, Cisco, IBM, Facebook and Amazon have been doing this for years.
Between 2010 and 2016 the use of corporate incubators and corporate accelerators among the 30 world largest companies in the world rose from just 2% to 44%.
Despite the willingness for collaboration typically only about 25% of Proof of Concept (PoC) projects ever make it through to production and some of the ‘blame’ can be a attributed to the way the startups are ‘on-boarded’ by the insurer and also the framework that is used to manage the PoC.
Startups are usually good at detecting latent demand, creating a proof of concept, and a minimum viable product (MVP). However, scaling the business operation requires a different kind of team and skills, besides distribution channels. Not something a startup can develop in just a few months.
Although some insurers tend to see the startup as a new project that only needs funding and work space, it is often the case that successful collaborations thrive through common goals and mission-led roadmaps.
Creating a long-term win-win situation is not easy for groups with such diverse DNAs so it is really important to start thinking about what each party needs from the collaboration right from the outset.
Some things to consider when on-boarding InsurTechs:
Understand the motivations of the startup’s founders
• Venture start-up (founders are interested in making their money when they exit the business typically in 3 to 5 years and therefore are motivated in driving up the saleable value of their business)
• Equity Start-up (founders are interested in the profits generated by the business and therefore are more likely to be interested in acquiring profitable projects that can be delivered quickly)
• Lifestyle Start-up (Founders are not looking to make a substantial financial return from their involvement in the business – they see the business as a vehicle to support other aspects of their lifestyle)
Corporate procurement process
• They WILL fail your standard procurement process so create a process that works for on-boarding a startup that they can get through in a couple of days rather than weeks or even months
• Don’t exert your buying power; this is not a supplier / buyer discussion. Telling them that they shouldn’t be charging you because they can use your logo for future sales pitches won’t work – they still need to pay rent and eat, you don’t want them to go bust during the process.
• Commit appropriate resources – Don’t underestimate the resources required on your side. Agree from the outset who you need and get their time committed and scheduled
• Be prepared to make quick decisions – startups make decisions very quickly and if you have to wait for a formal meeting once a month to get a decision you will frustrate the startup and create tension as well as losing momentum
• Set clear / achievable POC objectives – really important to agree what the mutual objectives are going to be and what will happen once those objectives are met or not met. Plan for what the PoC to production process will be and what resources will be required, that way the PoC is part of the bigger go to market process rather than losing momentum once the PoC is complete whilst you work out what to do next
• Remember MOST POC’s don’t progress to production so it’s better to run several in parallel if you have the resources to manage them
Large corporations are like big, slow ocean liners: difficult to steer when it comes to innovation at the pace the market requires. Standardised processes, bureaucratic management, risk aversion and lack of creativity are some of the reasons for this. In contrast, start-ups desire to challenge the status quo, have potential for rapid growth and the capacity for a continuous flow of new ideas.
In exchange corporates can offer startups what they lack: capital, workforce, facilities, industry expertise, data and access to the market
Collaboration can be a very effective model that meets the needs of both sides – if done correctly.