Dave Wajsgras, CEO, Intelsat.
Across a multitude of high-tech sectors, mature and established companies are persistently challenged to accelerate the introduction of new technologies and bring new services and applications to market that meet the evolving demands of customers and deliver returns to shareholders.
However, the speed and pace at which even the most successful legacy companies can innovate can sometimes be impeded by their size, public market obligations or pressures related to supporting legacy lines of business. And while startups and emerging technology companies may not have the same depth of resources or finances, they typically have more flexibility and freedom to move faster in driving technological advancement and breakthroughs.
Let’s look at the space industry as an example.
Once dominated by a small collection of large, well-funded companies, the space industry has seen the emergence of new players that are transforming the landscape and developing groundbreaking applications and solutions. Unburdened by public company obligations and layers of bureaucratic process, these companies are often able to operate more nimbly and with greater agility without the same fear of failure.
It wouldn’t be unreasonable for legacy companies within the space industry (or other industries) to perceive the influx of new industry entrants as a competitive threat. However, I believe that mindset is misguided. Established companies can advance their own interests and unlock value by supporting these companies through financial investment, trialing innovations and scaling their products and services in ways that advance both companies’ offerings and drive new revenue opportunities.
At my company, our support of early-stage businesses has not only helped us solve problems, reduce costs and enhance sustainability efforts but also allowed us to compete in markets where our competitors may have once had an edge while also opening doors to entirely new markets. Here are five best practices for success that we’ve learned along the way:
1. Widen your lens in your search for the right prospects.
Often, new companies with differentiated technologies can be found within your industry or existing ecosystem of partners and suppliers. However, startups outside your core industry could also be developing complementary technology and applications that can offer game-changing value.
For example, some of my company’s investments enabled us to explore and evaluate technologies and capabilities that, while not central to our current business model, could have future applications and drive growth in new markets. When considering investment targets, widening your scope and looking one step beyond your core industries can increase your likelihood of landing truly transformative partnerships.
2. Align timeframes and corporate strategy.
The size of an investment in a startup should be heavily influenced by timelines and considerations for how the pace of a technology or solution in development aligns with your corporate strategy and goals.
If your company is attempting to accelerate near-term revenue growth by entering a new market, then perhaps a startup that has a real-world solution and can deliver something of value today is worthy of a more substantive commitment. For example, investing in an early-stage satellite terminal company helped us penetrate the Internet of Things (IoT) market for the first time and secure a contract with a major mobile network operator to provide connectivity for monitoring water systems, energy grids and windmills. This initial deal has opened doors to additional opportunities with other telcos.
Conversely, companies with a longer-term view—perhaps those with an eye toward PE exit or acquisition some years down the road—might look to make multiple smaller commitments in earlier-stage startups whose innovations may someday be transformative, but not in the immediate future.
3. Take a deeper dive into due diligence.
While due diligence is a critical part of any investment process, it can take on greater meaning when the investment target could potentially be relied upon by your company as an avenue to new markets or value creation opportunities. Of equal importance to gauging the quality and performance of founders and management is building rapport with technical teams. I’ve found that embedding engineers, scientists and experts alongside the “rank-and-file” can unearth valuable insights.
4. Mind the red flags.
Be wary of prospective investment targets reluctant to share information with openness and transparency. Leverage your in-house expertise by sending teams to work alongside prospective partners to pressure-test and confirm the viability of new technologies. Don’t be misguided by PowerPoint slides with grandiose fundraising numbers, or by financial backing from large and prolific venture capital investors for whom a bad investment may just be a rounding error.
5. Protect your interests and assets.
Concerns about linking up with would-be competitors can be relieved by establishing the right structures and guardrails from the outset of the relationship. Employing ironclad non-competes and highly specific nondisclosure agreements can enable your company to safely invest in early-stage technology and work comfortably alongside industry partners while protecting your business and intellectual property.
Conclusion
I believe that legacy companies need not fear disruption. In the space industry, aligning with startups is helping companies unlock new value and deliver greater benefits to customers and is driving the future of the industry. Partnerships with startups can foster progress, drive innovation and create long-term value for all stakeholders in your industry, as well.
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