It is crucial for corporates to keep up with the pace of innovations. One of the ways they can achieve this is through engagement with startups. The focus of this article is towards B2B SaaS startups, hence the external innovations I am referring to are B2B SaaS companies.
With the right founders and laser-sharp execution, startups can be nimble, more creative and can come out with faster innovations. Corporates can look at engaging with startups for providing better service and value to their customers or look at improving their existing business processes internally, look at partnerships for additional revenue streams and growth opportunities and can also look at getting competitive advantages.
Interacting with startups also helps established companies gain new perspectives on working styles and culture.
Corporates have increasingly sought ways to engage with external innovations. Based on my previous role in a corporate where I headed their startup initiative and my experience advising several corporates in this area, I am writing this article. This article broadly outlines how corporates can work with external B2B SaaS companies.
I use ’corporates’ and ‘enterprises’ interchangeably in this article. I am also using ‘innovations’, ‘startups’ and ’B2B SaaS startups’ interchangeably.
Modes Of Engagement Between Corporates And Innovations
Based on the modes of engagement between corporates and innovations, I have created three categories of corporates: providers, consumers and partners.
The Providers
Corporates in this category offer software products or solutions and hardware that can be used by innovations. Examples include Infrastructure as a Service (IaaS) providers, Platform as a Service (PaaS) providers, Large Language Model providers, DevOps solution providers, GPU providers and software providers.
To elaborate a bit, IaaS is where one would get infrastructure such as servers, storage, firewalls, load balancers provisioned. Once they are provisioned, one would install the necessary software on top of it and then deploy their application. In PaaS, one would get platforms such as application servers, databases and mobile backend as a service provisioned.
The Consumers
Corporates consume the solutions provided by the innovations. Examples include corporates in banking & insurance, telecom, healthcare, pharma, auto, manufacturing sectors etc., using solutions provided by the innovations.
The Partners
Corporates form partnerships with innovations for their customers. Examples include system integrators, software distributors, IaaS, PaaS providers, etc., engaging with innovations for joint go-to-market (GTM) partnerships.
The three categories mentioned above cover the majority of the ways collaboration between corporates and innovations happens. A corporate can fall into one or more of the above categories as means of engagement. For example, a large cloud service provider can have its services used by
startups, use startup solutions for internal consumption, or have a partnership agreement for a joint GTM.
Let us understand each of the categories in detail along with the motive of the corporates to engage with innovations.
The Providers
In this area of engagement, corporates target startups as their clients. The motivation is that if the startup adopts a corporate’s product or solution early in its lifecycle, the propensity of the startup to continue consuming the product or solution increases as it scales.
Now let’s look more in detail at the engagement models of corporates with startups in this category.
Infrastructure Providers
Enterprises falling in this categorisation would provide infrastructure solutions that startups consume. Examples of infrastructure providers include cloud infrastructure providers or no-code application providers.
The startup’s solution runs within the infrastructure provider’s platforms. The stickiness to a particular infrastructure provider depends on the startup using platform-specific code or offerings not available from other infrastructure providers.
API Usage
An Application Programming Interface (API) is a programmatic contractual agreement between two applications. In layman’s terms, there is a client application (in this case, the startup application) that makes a call with certain inputs to the server application (the enterprise solution in our case), which processes the request and provides a response with the desired output.
Here, the enterprise exposes the functionalities of its application through an API.
A simple example would be enterprises offering image recognition as an API service, where the startup application makes an API call with an image as input and the response identifies or classifies the image.
Another example is an enterprise offering authentication services, where the startup makes an authentication API call with user login credentials as input and the response is an authentication token detailing the user’s authentication status and privileges it has.
Core Engine
Here, the startup application uses enterprise solutions such as databases, application servers, data lakes, application messaging engines, LLMs, etc., which form its core engine.
The startup’s application cannot perform without the enterprise solution, creating a strong coupling. As the startup application scales, the likelihood of the enterprise solution scaling is also high, making the enterprise solution a core part of the startup’s application.
Peripheral Usage
In this scenario, enterprise applications used by startups do not form part of their core engine. The downtime of these applications does not affect the transactions of the startup applications. Examples include DevOps tools, backup solutions and BI solutions, which I am terming as peripherals.
Startups may use different solutions from enterprises, making it easier to rip and replace enterprise applications compared to core engine components.
The Consumers
Corporates in this category engage with startups to enhance customer experience or improve existing processes and functions in areas like HR, finance, sales and marketing, legal, supply chain, etc.
Examples include generating more leads and increasing lead conversion using startup solutions, optimising last-mile delivery in the enterprise’s supply chain, providing solutions for financial analysis, budgeting and forecasting, cash flow management, offering new user experiences in digital banking channels, or reducing the steps and time for customers to claim insurance.
Below are some of the models of engagement:
Direct Consumption
Enterprises consume the services of startups either by deploying their applications in their data centres (On Premise) or subscribing to the startup’s services (Over Cloud).
API Usage
We have described what constitutes an API call previously. In this scenario, the startups expose their functionalities through APIs and they are consumed by the Enterprise.
For example, a startup might provide contact coordinates of a corporate’s prospective customer based on inputs like role and organisation name, or the startup may offer predictive analytics using APIs.
The Partners
Corporates in this category could be system integrators, software distributors, cloud providers, Platform as a Service (PaaS) providers, or software product providers. They look for new ways to engage with clients and can consider using the startup’s solution in their overall offering and presenting it as a joint offering.
Value Added Services
In this scenario typically, system integrators wrap their services around the startup solution and position it to the client. For example, if a startup offers a Security Information and Event Management (SIEM) solution, a system integrator would provide services around it and offer it as a solution to their customers.
Companies can form Value-Added Reseller Agreement with the Startups in this scenario.
In simple terms, a Value-added Reseller Agreement is a contract between a supplier of software and/or hardware products (a startup in this case) and a company (the enterprise in this example) who are called as Value-added Reseller and who resell the products to end-customers combined with their installation and support services.
Plug-In
Enterprises would like to plug in the solution of the startup into their overall solution offering and present it as a joint offering. In the illustration below, the enterprise provides its solution to clients, which could be a combination of their own products, IP and services.
They use the startup’s solution to fulfil one or more requirements not met by their own offerings. This may necessitate building an integration between the solutions and undergoing rigorous testing before being positioned to clients.
A typical scenario could be startups offering solutions in areas complementing the corporate’s offerings. By partnering with them, corporates can provide a more holistic offering to their customers without investing resources in product development.
Example: If a corporate offers cloud infrastructure solutions and a startup offers solutions for analysing and optimising cloud infrastructure spend, this could be a candidate for joint collaboration.
There could be a reseller agreement in this scenario between the Corporate and the Startup, where the Corporate sells the startup’s solution bundled with their product lines to their customers.
There can also be an original equipment manufacturer (OEM) agreement between the enterprise and the startup. An OEM agreement is typically used when one company manufactures a product (often referred to as the OEM) which is sold or supplied to another company who then uses it as part of their own product or service.
In the section on The Providers, if the startup and the enterprise decide to go for an OEM agreement, the enterprise will be the OEM. Whenever the startup’s solution is sold, there would be a sale of the enterprise’s product or solution.
Reseller
Enterprises sell the startup’s software solutions as resellers without adding much value. This model is more applicable for software distributors and resellers, who have reseller agreements with startups to sell their solutions to existing clients.
Marketplaces
Marketplace is a platform on the cloud where multiple software applications and services are offered to customers.
There can be two ways of arrangement that can happen between startups and enterprises in Marketplaces. They are as follows:
Marketplace Created By Enterprises For Startup Applications:
Enterprises create marketplaces, where they curate the startups based on criteria such as level of integration with their products, industry, business area, revenues etc and onboard them. The customers of the enterprises can discover the startup solutions in the marketplace. There will be back-to-back partnership agreements between the startup and the enterprises outlining revenue share, responsibilities, indemnities, etc.
Marketplace Created By Startups For Enterprise Applications:
Startups create a Marketplace for enterprise applications or services. Examples can include a B2B marketplace for construction materials or a marketplace for banks and NBFCs providing loans to retail or Small and medium businesses.
According to me, the partnership and collaboration are strong if there are agreements such as OEM, or Value Added Reseller agreements. It is even stronger if corporate sales teams are incentivised for sales resulting from the joint partnership with startups. Enterprises can also run joint marketing programs with startups, allocating budgets for campaigns.
But here’s another important element to consider: how can a corporate really engage with these innovative startups? More on this in the next article of the series.
