Every year, large corporations spend billions of dollars on supporting, investing in, marketing to, and donating to small businesses, startups, and the organizations that support them. These numbers are rising dramatically as interest in the entrepreneurship ecosystem rises.
Startups who understand this new landscape stand to save money via discounted products and services, receive money via loans, investments, licensing, procurement, and acquisition, build brand & customer base via partnerships, and access startup support.
As a co-founder of Empact, I’ve gained a unique, all-encompassing perspective. Empact is both a convener of the country's top young entrepreneurs (Extreme Entrepreneurship Tour / Empact Showcase) and of entrepreneur-focused Fortune 500 Companies (Empact Summit on the Future of Entrepreneurship Education).
Why the Boom Is Happening
Core reasons that companies work with entrepreneurs include:
Bolstering Innovation
The largest competitor in 10 years for top corporations may be companies that don’t exist today. As I learned at the Corporate Venturing & Innovation Partnering Summit, corporations realize this, and they use strategies like partnerships, investments, licensing, and acquisitions to bring innovation into their organizations. Over the past three years, 182 corporate venture funds were launched, bringing the total number to roughly 900. In 2012, 15.2% of all venture capital deals included corporate venture funds according to a MoneyTree Report created in collaboration with PricewaterhouseCoopers and the National Venture Capital Association.
Acquiring New Customers
There are over 25 million small businesses in the US. Approximately, 750,000 are started every year. The small business segment is starting to dramatically increase their usage of new technologies such as social,Internet, and mobile (CEB’s 2013 Marketing to Small Business Summit). This means they’re purchasing products they wouldn’t have in the past.
Furthermore, a small percentage of startups are high-growth and can scale to hundreds or even thousands of employees in a few years. Servicing a high-growth business in its beginning can lead to a very valuable lifetime customer.
Given the need to operate at scale, corporations partner with associations and organizations with large bases of small businesses and entrepreneurs. For example, Fedex has partnered with the US Chamber of Commerce [disclosure: The Chamber is a sponsor of Empact Sphere] to provide shipping discounts to Chamber members. This creates a a big win for entrepreneurs who can find discounts by joining relevant associations such as the Chamber, National Association for the Self Employed, Freelancers’ Union, and FoundersCard.
Making Their Industry Larger
For example, one of Visa’s goals is for people to use credit cards for more transactions instead of cash. More people use Google products when the Internet is faster.
Encouraging Platform Development
In the world of winner-take-all platforms, technology companies want developers to use their platform. Examples of different approaches companies have taken to accomplish this include creating an accelerator (ie, Nike partnered with TechStars to create the Nike+ Accelerator), sponsoring hacker events (ie, Amazon Web Services and Google Developers, have partnered with Startup Weekend), and providing discounted and free software and cloud services for startups (ie, Microsoft created BizSpark).
Diversifying Procurement
Corporations spend hundreds of billions of dollars per year purchasing products and services. According to Gwendolyn Turner, Former Director, Worldwide Supplier Diversity, Pfizer and a Small Business Advisor, “Large corporations procure from small businesses for a few reasons; (1) Responding to government compliance regulations (2) Building the company’s reputation (3) Complying with a client requirement that mandates procuring from a small business.” She maintains that, “Large businesses obtain greater value working with the the small business segment because the segment provides lower costs, higher quality, and better service.”
Two prominent initiatives that are helping to make the procurement process easier are IBM Supplier Connection (the ‘common application’ for procurement) and NYSE Corporate Connections (online platform where established companies can tap a trusted network of entrepreneurs to build strategic relationships and obtain ideas for products, services and other innovations).
Building a Philanthropic Brand
The importance of job creation has gone mainstream in the media as the pain of unemployment has persisted. At the same time, Kauffman Foundation research has shown that startups created in the last five years are the major cause of job creation. Therefore, supporting entrepreneurs has become a widely accepted strategy for fighting unemployment. For example, The Startup America Partnership, launched at the White House in 2011, has been effective at rallying corporations behind the idea of supporting high-growth entrepreneurs that could be future job creators.
Forward-looking companies are looking at all of the ways they can support entrepreneurs even if it isn’t directly related to selling their product in the short-term including:
Advocacy. Dell's Center for Entrepreneurs supports the establishment of Federal and state government Entrepreneurs-in-Residence (EIR’s) who would serve limited terms in government as a way to bring the “outside in” and provide entrepreneurs with a voice and an advocate in government.
Loans. Starbucks’ Indivisible Divisible campaign has partnered with the Opportunity Finance Network (OFN), a national network of community development financial institutions (CDFIs), and donated $15M+ to CDFIs. Other examples of loan programs are the Dell Innovators Credit Fund ($100M fund) and Goldman Sach’s 10,000 Small Businesses Initiative ($300M fund).
Marketing. American Airlines [disclosure: American Airlines is a sponsor of Empact], partnered with MassChallenge to feature two of their startups in their inflight magazine, which reaches millions of travelers every month. AMEX Open's Small Business Saturday leverages AMEX's media channels as well as its partners' to encourage millions of people to buy local from small businesses.
Mentorship & Space. Google for Entrepreneurs has created a co-working space and leverages the time of Google employees to mentor startups, judge competitions, and speak. Ford has partnered with Techshop to Techshop Detroit to help entrepreneurs in the automative sector.
Awards & Contests. Do Something has partnered with VH1 to create the Do Something Awards, which provides $100,000 in grants to young social entrepreneurs. Subway, in partnership with Young & Successful Media, created the Subway Challenge where young entrepreneurs receive startup resources and compete to form the best virtual Subway store.
It's Time to Consider the Corporate Market
Now that you have the 30,000-foot perspective, I hope you see the huge potential of working with large corporations to scale your startup or small business. In future Forbes articles, I will provide detailed case studies of startups that have partnered with corporations along with strategies on getting in the door.
Michael Simmons is the co-founder of Empact, a global entrepreneurship education organization that has held 500+ entrepreneurship events including Summits at the White House, US Chamber of Commerce, and United Nations. Connect with him on Twitter (@michaeldsimmons) and his Blog.
