Open innovation and software companies: why does this partnership make sense?

open innovation_blue background with a lamp and a team diagram in purple and green

Over the years, innovation has stopped being a buzzword and become a necessity for any company, mainly due to the current context. But even in times when talking about innovation is no longer a differential, a perception that it is a very wide universe with several possibilities still remains.

It is interesting to think that there is probably no company in the world that does not have innovation actions. But, if these actions are not strategically integrated, they can be unprofitable, so it is also necessary to have a very clear strategy, a good implementation plan and to establish a strong culture of innovation.

One of the trends within the innovation universe is open innovation: in contrast to closed innovation, which is internal to the company, open innovation uses external resources such as partnerships with startups, that can be used in part of the innovation process, increasing its efficiency.

In this case, the use of technological resources or innovative ideas is very common in the market, generating the purchase or incorporation of technologies or business models created by third parties, speeding up and making the innovation process more efficient.

It is important to highlight that just like a software company has its own “toolbox” for development – called the tech stack – the same happens in the context of innovation strategies. It is possible to do everything internally, as Amazon, which already has a very strong innovation culture.

Another option is to outline hybrid strategies, like the Brazilian innovation ecosystem, where large corporations invest in many startups, looking for synergies between them. The ideal is to have a mix of internal and external activities, internalizing the most strategic activities and investing in externalizing new businesses through partnerships and investment in startups.

In terms of the level of innovation, we can talk of radical innovation in opposition to low-risk innovation. Radical innovation focuses on the development of a new solution, product or service never made before by the organization, with high risk and investment as its main characteristics.

It may not make sense to invest in something other than core business, but big companies like Picpay, Airbnb, Riot Games, Rent the Runway and DogHero have explored and developed their products and services in new markets, or adjacent markets, reaching the status they have today.

In this scenario of different ways to apply innovation, we still have the concept of Digital Transformation: What used to focus on the application’s functionality as the main metric for a successful technology, is now centered on an experience in constant evolution, focused on the user and their opinions.

This Digital Transformation is a reality in the innovation environment for both large corporations and startups. Proof of this is that at a 2020’s Fortune 500 CEO survey, 75% of CEOs agreed that corporations must accelerate the technological transformation of their businesses by analyzing and optimizing the consumer experience, since currently 67% of the buyer’s journey is done digitally.

Basically, digital transformation proposes a radical change in the way companies currently operate, incorporating digital processes to guarantee their place in the future.

sets of elements using circles, comparing the digital ecosystem in traditional companies and startups _ open innovation

In this context, large corporations have digital as part of the company, while startups that are currently emerging have digital as the center of their business. Thus, the speed and assertiveness of startups’ growth are directly related to the ability to scale the technology associated with their business in a healthy way, regardless of the industry in which they operate.

Open Innovation Journey

Large companies, when looking for companies to partner with and invest on, donate not only financial resources, but also advice for new businesses and contributions based on their knowledge of the market. This kind of help is essential for the healthy development of a startup. In addition, having large companies as partners brings great visibility.

Many companies promote contests, hackathons and acceleration programs to attract startups. As well as selecting the best startups to receive investments, this process also serves as an opportunity to put the business model to test.

This is a very valid resource for startup entrepreneurs, as it allows them to correct and improve their technologies and services even before launching them to the market, which saves resources and prevents the entrepreneur from discovering new potentials only after the project is completed.

It is possible to say that there is an “Innovation Journey”, divided into some steps as described by Liga Ventures:

  • Step 1: The journey begins when the company identifies that innovation is necessary. At this point, the search for innovation poles, concepts and understanding of the functioning of the ecosystem begins.
  • Step 2: In this phase, there is the engagement with startups and the search for solutions to the company’s problems, networking with the ecosystem and with pairs of other companies that work with open innovation, in addition to the internal awareness of company executives.
  • Step 3: Finding startups and generating business is the next phase of the journey, starting the search for matches with startups that solve corporate problems.
  • Step 4: The fourth phase is related to the search for results, developing proof of concept, pilots, and testing the hypotheses raised by the selected startups, seeking to generate new business and/or reducing the bureaucracy of the corporation.
  • Stage 5: The last stage of the journey involves expanding and reverberating the initiatives developed.

grey and blue board showing the cycle oh the journey to open innovation

Often, when matching startups with companies (on Step 4 of the journey described above), the growth of startups needs to be accelerated, otherwise there is a need to create pilots and MVPs (minimum viable products) for which there are not enough development professionals. This highlights the need for a technology specialist partner to keep up with the necessary growth speed and meet the expected schedule.

Partnership with software companies along the journey

How can Cheesecake Labs help? During the process of innovation and connection between startups and large companies, one of the points that are frequently evaluated is the team: knowing how much the startup team is capable of executing, and how the relationship between the team and the company will be are essential to the success of the project. The team is so important that there are several examples of startups that received funding without even having a product.

On the other hand, it is common for startups to go through acceleration programs and hackathons in which the solution prototypes are validated (which, as we saw earlier, are in most cases related to technological solutions), and in which the associated business models are validated too. Once the prototype is validated, time-to-market is often a decisive factor for the startup’s success, and assembling a complete development team from scratch in a short time to launch the minimum viable product (MVP) can be a winding and risky path.

It is in this sense that a software company with strategy and product specialists can help: the technological success of the product and the quality of the MVP and the team are guaranteed, while the time-to-market of this already validated solution is prioritized.

Finally, the partnership with software companies can be strategic to achieve quick wins: carrying out projects that have a greater chance of bringing short term benefits, such as the generation of financial results and consolidation in the market, which can be an excellent strategy to earn points and supporters before going deep into the main product, mitigating the pressure of the immediate result. This can even more quickly validate the partnership between the startup and the corporation, accelerating the Open Innovation Journey.

Are you part of a startup or a company with open innovation initiatives and the above points make sense to you? Please send us a message so we can explore how we can work together.

About the author.

Tania Nalborczyk Leites
Tania Nalborczyk Leites

A Uruguayan electrical engineer who loves innovation, music and dancing.