Can start-ups dance with grown-ups?

The case for this is self-evident but building such a relationship is difficult

There is much happening in the Indian entrepreneurial space. In my December column, I had wondered whether we would benefit by a more systematic development of an Indian innovation ecosystem, consistent with our background.The transplanted Silicon Valley model can do only that much here. Every society has its own peculiarities, belief systems and ways of working. The subject is a vast. I hope to explore some aspects over the next few columns.

There are several elements that define a national ecosystem. Prof Mohanbir Sawhney of Kellogg School of Management is an experienced and international academic. He counts at least 10 elements in his broad definition of an ‘innovation ecosystem’ -partners, institutions, alumni, professional societies, universities, government agencies, entrepreneurs, innovation marketplaces, industry cohorts and venture capitalists.

One important aspect is the collaboration between start-ups and established companies. The case for this is self-evident — combining scale with agility, creativity with systems, and energy with stability — but building such a relationship has executional complexities. I recall a Tata group attempt to develop a supercomputer by working with a renowned mathematician of Mumbai. Some short-term dramatic results were achieved, but Tata and the innovator could not work together for long.

Nature teaches us that even a big herd of mighty elephants can be distracted and deranged by tiny bees that buzz around their flapping ears!

SPJIMR, Mumbai’s premier business school, has an ongoing drive on thought leadership through which it aims to positively influence management practice. I was happy to participate in the annual SP Jain Business Academic Conclave, SBAC for short. The theme for SBAC, January 2018, was how large companies can leverage the agility and innovativeness of small start-ups. Prof Sawhney participated through a theme paper titled “How to dance with start-ups”.

He illustrated with international examples of idiosyncratic programmes: Unilever's The Foundry, the Siemens Idea Contests, the G-Mill of General Mills, the Start-up Garage of BMW and the Bosch Chicago Connector. He did not use Indian examples. Two case studies on Tata Innoverse and Tata Open Innovation surfaced later in the day in a preview of an ongoing study being done by a team of SPJIMR faculty and Founding Fuel. I feel that it is ripe now for Indian academics to write case studies about success and failures.

An Indian company called Galaxy Surfactants Ltd has just floated an initial public offering in the stock market. As I recall, this company was set up in 1980s by two chemical engineers and two chartered accountants (I think they had interned at HUL). They were bitten by the start-up bug in the 1980s. There was considerable encouragement from HUL’s personal care business. Personal care companies require very small quantities of several organic chemicals for their formulation. To reduce import dependence for their customers, Galaxy reverse-engineered low cost processes to deliver high quality at competitive costs. HUL could focus on formulation and consumer development. From this alliance, Galaxy grew -- steadily and away from the public gaze. The company now boasts of 1,700 customers in India and overseas, listing every major personal care company. After the IPO, the market cap of the company may be around $1 billion. This is a terrific example of a start-up working with a large company by exploiting mutual strengths.

A dramatic American example: Cruise Automation is a San Franciscobased company, founded by serial entrepreneur Kyle Vogt. Kyle graduated in computer science from MIT (he did not drop out), founded Justin.tv, which he sold to Autodesk, founded Twitch, which he sold to Amazon, and in October 2013, he founded Cruise. He sold to General Motors for $1 billion in 2016. GM and Cruise faced many difficulties as they learned to work together. Last month, General Motors unveiled GM Cruise, a fourth-generation vehicle, following their third-generation Chevy Bolt. Now that is progress, frenetic progress.

It took Galaxy Surfactants three decades to reach a market cap of $1 billion; Cruise only three years. Different economies, various times, but the lessons need to be studied.

The idea of small and big Indian companies collaborating is not new. How to do so more effectively and how to accelerate the collaboration with specific reference to innovation within India is a theme worthy of study by management institutes.