By Matthew Kleiman, CEO of Cumulus
On March 14th, I participated in a panel discussion at the Shell House at SXSW titled, “What I Wish I Had Known: The Start-Up’s Tale of Working with Big Companies”. This was a fun topic for me because I have spent more than 15 years navigating the startup/large company dynamic, first as an attorney for startup companies, then in leadership roles at Draper and Shell, and most recently as the co-founder and CEO of Cumulus.
Start-ups gravitate towards working with large companies for several reasons: large addressable markets, (perceived) large budgets, scalability, stickiness, and recognizable logos for pitch decks. Nevertheless, most start-ups soon find that these benefits are illusive as they navigate Byzantine organizational structures, opaque approval processes, and maddeningly slow timelines.
Large companies have valid reasons to be cautious when working with startups. Startups add risk. There is a risk that the company will be unable to scale, that the company will not meet regulatory requirements, the company may not even be in business in the future, or that the product will not deliver the advertised benefits.
Yet working with startups can be immensely rewarding for large organizations. The hunger, agility, and “can-do” attitude of startup teams can help these companies achieve challenging goals much faster and more creatively than more established competitors. Startups will move heaven and earth to succeed for their large customers; their future as a company depends on it.
A recent high profile example is NASA’s Commercial Crew program for developing a new vehicle for transporting astronauts to and from the International Space Station (ISS). There is an old expression in the aerospace industry that nobody was ever fired for hiring Boeing, and in 2016, NASA awarded two contracts to develop the new spacecraft: SpaceX, the “risky” newcomer, and Boeing, the “safe” stalwart. SpaceX flew their first crewed mission on its Crew Dragon vehicle on May 30, 2020, and has flown multiple operational flights since then. Boeing’s development program has been beset by delays and as of this writing there is not yet a set date for its first crewed flight.
It is therefore possible for startups to overcome the perception of risk and create win-win business relationships with larger customers. Here are three strategies I have learned to employ to increase the odds of success.
1. Give your customer the answers to the test: the value of a pre-packaged solution
An experienced, grizzled VP in Shell once gave me the following advice: “if you want to have any chance of people accepting something new, make sure it’s a pre-packaged solution, that way they don’t have to think too hard.” The point he was making was that big companies become big by standardizing and scaling complex processes into large bureaucracies. Despite the best intentions, large bureaucracies do not respond well to new and innovative ideas. To be successful in building something new, you have to package the new thing in a way that makes it easy for the bureaucracy to digest without requiring too much extra work.
If you are selling a new product or service to a large company, you cannot rely on them to put all the pieces together themselves. Have ready solutions available for everything the customer will need to implement your solution: supplier relationships, third party integrations, permits, training, and anything else that might become a gating item. Either be able to provide these yourself, or have third parties identified who can help. Give your customer the answers to the test, do not make them figure it out themselves.
2. Showing stakeholders the Art of the Possible
As a start-up asking your customer to change long-established business practices, you should be prepared to evangelize not only why they should change, but how they should change. Many people assume that the large company will be able to tell the start-up what they should be doing and how they should be doing it. The reality is that they probably don’t have a clue. Your champion has probably been at that company for many years, and may not be familiar with how other companies do things. Your champion has probably also never implemented a technology like yours before.
On the other hand, you have seen others implement your solution, with varying levels of success. Communicate clearly to your new customers what has worked and failed at other companies. They will most likely appreciate the perspective and adapt your advice to their own circumstances, making ultimate success more likely. You may also gain the reputation as a “trusted advisor,” which can lead to exciting new opportunities in the future.
3. Price your products the way your customers buy things
Start-up founders can be dogmatic about pricing. We come up with a model and build a financial model for our business assuming all customers buy our product the same way. Deviations from standard pricing make financial reporting more complicated and can lead to uncomfortable questions from investors.
Nevertheless, when selling into large companies, especially legacy industries, start-ups have to adapt their pricing to the way the customer is most comfortable buying related goods and services. Do not be dogmatic about pricing. We must stay humble and remember that we do not (yet) have the pricing power of Amazon, Microsoft, Google, or Salesforce.
Develop a clear understanding of your costs and margin expectations, and then adapt to how your customers are most comfortable buying your service. Some customers may value the predictability of a flat rate while others may appreciate being able to tie spend directly to value delivery with consumption pricing. You can achieve similar economic results under each structure, even if the reporting becomes a little messy. Rigidity will slow the sales process as your customer tries to understand something that is perceived as foreign or risky; flexibility will help your customers get to “yes” faster.
Thank you to Shell for inviting me to participate in this fun and timely discussion at SXSW. Navigating the startup/big company dynamic is challenging, but with agility, perseverance, and realistic expectations, a win-win outcome is possible for both sides.