In the business world, there are different types of organizations that can vary in size, structure, culture and objectives. Two of the most common types of companies that we will discuss below are startups and corporations.
While both seek to be profitable, there are significant differences in how they operate and their approaches to success. In this article, we explain some of the key differences and synergies between startups and corporations and how these can affect and benefit your strategy, culture and long-term outlook.
The current situation
Ignited by the Covid-19 pandemic, entrepreneurship has been on the rise globally since 2020. This trend can be generally attributed to the pandemic’s economic repercussions that resulted in lockdowns and massive layoffs, as well as to the chasm and opportunities that digital transformation has left in its wake.
Specifically in industries, such as the construction sector, that have been late to digitalize, startups have an opportunity to provide tangible and considerable value with new products and services that solve glaring pain points and challenges, many of which have gone unsolved for years.
In fact, in the construction industry alone, investment in construction technology (Contech) startups totaled more than $1 billion USD in the first half of 2022, and despite the downturn in our current macroeconomic environment, this represents over a 40% increase from H2 in 2021.
Investment in construction technology is growing faster than innovation in other sectors, with venture capital and private equity investment in Contech startups increasing more than 3x from 2017 to 2022. For reference, in other tech industries, this figure is around just 2x, which is why corporates are starting to take notice.
However, one of the biggest challenges for any startup, regardless of sector or stage, is funding, especially if you work in a capital-intensive industry or your protype is costly to develop and build. One strategic investor that many startups fail to realize is the one they might know the best: corporates.
Corporates can be a valuable source of capital and resources for the most promising startups. And despite the billions of public dollars spent on startups, in recent years private spending has outperformed public spending in certain industries like construction, with the gap between private and public growing larger and larger. The synergies that can arise from the relationship between corporates and startups are boundless, so let’s take a closer look at the two and the different avenues for collaboration that exist.
What are the major differences between corporates and startups?
Corporations and startups are undoubtedly different from one another, however, the tendency to juxtapose the two is an impediment to the success that can result from cooperation, instead of acting in disjunct parallels.
A corporation is defined as a legal entity that is separate and distinct from its owners, and although it is not a requirement, we tend to associate corporations with having many employees and operating in multiple countries. A company tends to apply for incorporation after it has been established and experienced stable success.
On the other hand, a startup refers to a company in the first stages of operations. These companies usually incur high costs and limited revenues, which is why they look to other sources of capital for funding and growth.
Startup vs corporate: Advantages and disadvantages
For example, some of the defining characteristics of leading corporations in the industry are:
- They tend to have a structured set of processes.
- They are more risk averse.
- They have influential brand recognition.
- They have more resources than startups.
However, because processes and functions tend to be more established, this can be a drawback to innovation and change.
On the other hand, startups tend to have the following characteristics:
- They are less structured.
- They are less risk-averse and tend to be non-hierarchical.
- They are generally at the forefront of innovation with their new business models and technologies.
If we stick to the construction sector itself, construction technology startups such as Synhelion, Carbon Clean, and Carbon Upcycling have developed some of the most innovative technologies that reduce the sector’s dependence on fossil fuels and reduce CO2 emissions. Although corporates and startups are undeniably disparate in their structure and their advantages, in the areas where corporates fall short, startups tend to excel, and vice versa. Like two pieces in a puzzle, startups and corporates fit seamlessly when correctly placed beside one another.
How can we make them work together and achieve synergies?
We’ve spoken theoretically about the synergies that can be created when corporates and startups collaborate, but how does this look in practice? The good news is there are many different courses for success, some more direct than others.
For starters, some corporates have an open innovation strategy that uses a corporate venture capital (CVC) model to participate in the development of new technologies or business models. Through this mechanism, corporates intend to gain a competitive advantage by investing funds into external startups.
Some CVCs may also provide guidance related to the management and development of the startup; however, these investment vehicles tend to work with startups with already validated business models that have received prior funding.
Another example of collaboration between corporates and startups is corporate accelerators. In contrast to CVCs, corporate acceleration programs aim to help early-stage startups test their business models and scale their solutions. They usually run within a short time frame, anywhere between three to six months, and are cohort-based programs that run annually or biannually.
However, if we’re talking about all avenues for collaboration, we can’t forget about corporate incubators. Incubators work with newly launched startups in order to develop their product or service and business model from the ground up.
Unlike accelerators, incubators last years and work with startups that have not already validated their solutions in the market. While accelerators and incubators both provide support, networking, recognition, and mentoring, which program a startup applies to or a corporation offers depends entirely on the stage of the startup and priorities of the corporation involved.
Last but not least, strategic partnerships are a pivotal way for corporations and startups to find synergies and support one another. Strategic partnerships can result from the aforementioned models or be independently forged.
This is a reciprocal relationship, where both parties achieve more together than separately. For example, at CEMEX Ventures, we offer a unique value preposition where startups can test their technology in real conditions at an industrial scale with the support of well-developed and highly respected R+D.
Our strategic partnerships involve testing and scaling the most promising startup technologies in our corporate plants and operations around the world to strengthen our corporate innovation strategy and solve the industry’s greatest pain points. As a leading supplier of concrete and building materials, we’re able to target startups from around the world, proving that geography is no barrier to progress.
Today’s business ecosystem
We’re entering a volatile and uncertain market environment, so collaboration is a valuable tool to navigate forward and prosper. There are numerous paths to building relationships and finding synergies between corporates and startups. The course of action taken depends entirely on each corporate and startup’s business objectives. Regardless of industry or economy, corporates and startups have a lot to learn from and achieve with one another. As the saying goes, two heads are better than one.
At CEMEX Ventures we empower startups and entrepreneurs in the construction industry around the world. Write to us and we’ll answer you as soon as possible!