History shows us collaborations are key for survival in business

In some ways big business has never been bigger. As Apple surges past an $800bn valuation it’s increasingly clear that a small number of tech companies are monopolising international markets.

But history teaches us that even the largest, most powerful organisations are open to disruption. Blockbuster was riding high when it passed up the chance to buy Netflix for a mere $50m in the year 2000. But just 13 years later the company had shuttered, its business model rendered obsolete by a series of rapid changes in the industry.  

Times have changed since then. The concept of ‘disruption’ has been around long enough for big business to be very aware of the risks from upstarts. So instead of treating start-up disruptors as the enemy, it’s clear that it makes more sense for big business to collaborate with newcomers. It’s a symbiotic relationship - you scratch my back, I scratch yours.

Last year, Xpenditure, the paperless expense management company I co-founded, partnered with French multinational Sodexo. An unexpected pairing, perhaps - but in reality, we’re reaping the benefits of combining a scale-up business culture and cutting edge technology with the clout and customer base a large business provides.

And we’re not the only ones.

Perhaps the current most visible examples of big business teaming up with start-ups comes from artificial intelligence and virtual reality, where tech giants are acquiring young start-ups at a rate of knots, hungry for the latest innovation to power everything from self-driving cars to CRM systems. Recent CB insights data shows that an astonishing 200 plus companies developing artificial intelligence have been acquired since 2012. Things show no sign of slowing with the first quarter of 2017 seeing over 30 acquisitions.

And it’s not just deep tech companies - fintech firms are seeing high levels of interest from established finance firms for either collaboration or acquisition. In an incredibly short period of time, the fledgling industry has fundamentally transformed the way the industry operates. But far from destroying the banks, it’s providing opportunities for more established companies to innovate. Banks have seen the threat and are working quickly to bring fintech companies into the fold.

Read: Why collaboration doesn't have to happen face-to-face

There are a number of fintech firms who are directly taking on the big banks - Monzo, Starling and Atom aren’t called 'challenger' banks for nothing. Starling Bank’s launch of a current account and its deal with TransferWise in March rightly make it a force to be reckoned with.

A lesson from retail (and automotive)

Retail behemoths are jumping at the chance to bring start-up rivals into the fold by striking up alliances rather than entering into outright warfare. The most dramatic examples of this have been in the US. In early 2016, Unilever announced a surprise tie-up, buying minnow Dollar Shave Club for a reported $1bn. Then Walmart shocked markets by acquiring e-commerce company Jet.com. Done ostensibly to ‘jump-start growth’ in the retailer’s ecommerce division, the tie up was also intended to give Walmart access to Jet’s cutting edge software. 

It made sense from a business point of view, but there’s a salutary lesson here in some of the potential pitfalls from integrating two diverse cultures. Walmart, a culturally conservative company, was last week revealed to have banned Jet’s happy hour and in-office drinking. It was also reported that it banned swearing, two measures that did not go down well with the smaller tech company. A recent Wall Street Journal article suggested that Walmart has now bent its rules to fit with Jet’s culture, but the story shows some of the pitfalls from a corporate/ start-up marriage of convenience.

Beyond mergers and acquisitions

Is there an alternative to mergers and acquisitions (M&A) for small businesses looking to work with corporates? A number of big banks like Barclays, Santander and Visa have all opened incubators to ensure that the latest technology talent is on their side from day one. It’s a clear trend, as major corporations from across sectors open accelerators to nurture the latest talent. Telefonica’s WAYRA is one of the best known and most successful, with locations worldwide. Google Entrepreneur is another big name. It’s described as an ecosystem, with Google benefiting from close proximity to cutting edge technology, whilst the start-ups have the option to take Google investment and benefit from access to Google talent.  

Small businesses can also collaborate with corporates looking to offer their services to their customer base. Here is a very clear example of a win-win for both companies. In the UK, Sage, the major accounting software company, has partnered with MarketInvoice and TransferWise to help UK SMEs access alternative finance.

Personal finance tools like Finimize and YNAB are also forging bonds with big business. Finimize, which is in the process of launching a free online financial planning platform for millennials, recently signed up investment management and tax advisory business Smith & Williamson to its platform. This will see Smith & Williamson offering its products and services to a whole new millennial audience when Finimize’s new platform launches. Again, both companies benefit significantly from the tie-up.

So for new businesses looking to get a foothold in an industry, the concept of ‘disrupting’ the big players doesn’t always equal success. In many sectors, collaboration - whether that’s M&A, or something more informal - can often yield great benefits for both parties.

This is a guest blog and may not represent the views of Virgin.com. Please see virgin.com/terms for more details. Thumbnail from gettyimages.

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