Collaboration between established businesses and startups is generally considered a win-win strategy. However, according to Kommersant magazine, 78% of larger companies see startups as a threat, and 45% fear they won’t be able to compete with the young “piranhas.”
What is a startup
Thousands of companies are started around the world every year. Strictly speaking, however, only a few are startups.
Let's start with the definition. A startup is a company with a short history of operations. The company is created for the purpose of making high-volume sales of a particular solution and growing the project further.
The main factor that distinguishes startups from small businesses is their ability to grow without geographical restrictions. Not every neighborhood store or mom-and-pop cafe is designed for rapid growth and geographical expansion. Startups, on the other hand, are built to grow from the very beginning. Therefore, companies such as Uber or Facebook can potentially develop so rapidly that they rival the financial performance of large corporations within 5-10 years.
Nothing ventured, nothing gained
According to the rules of good business, experienced players should help newcomers spread their economic wings. Accordingly, the idea of venture investment appeared.
Such investing is intended to finance new or growing companies taking a high degree of risk. As a rule, they are long-term investments in a company in exchange for a share of its profits. Investors expect returns above the average for a particular industry.
At first glance, collaboration between corporations and startups is a win-win. However, larger companies often fear losing their market positions to the newcomers.
Why corporations are afraid of startups
As Kommersant magazine highlights, a study conducted by Dell Technologies and Vanson Bourne in 16 countries among top managers at medium and large-sized businesses showed that established companies view startups as piranhas waiting to "eat" their market share.
According to the results of the survey, 45% of respondents believe that their organizations will become obsolete in the next three to five years due to competition with startups. In addition, 60% of the respondents said that their organizations do not satisfy their customers’ main requirements, which include strong security and round-the-clock access to services and information.
“There are many examples of startups’ changing an industry and causing its leaders to lose ground. For example, Uber. After creating an innovative passenger transport model, Uber applied the same concept to freight. The newly developed UberFreight and UberRush applications eliminate freight forwarders. The AsstrA international corporate group is keeping an eye on these projects and overall market trends,” says Dmitrij Lagun, AsstrA-Associated Traffic AG Chief Executive Officer.
According to leading experts, if companies do not keep up with progress, they are destined to become outsiders.
“Startups are changing the rules of the game in a growing number of sectors. The old ways of doing business are collapsing. New players are overtaking large companies by doing business differently or better.
If corporations do not support startups, they risk weakening their business models or, worse, they risk being competitively isolated. It's not about whether corporations should invest in startups but rather how much and how aggressively,” says Dmitrij Lagun.