Corporates give startups needed boost in emerging markets

By Vegard Aas September 26, 2017

Individual startups who have a bona fide “reference” hold power
A corporate partner means a startup has reached product or market fit

Corporates give startups needed boost in emerging markets

ASIA is radiant with entrepreneurial heat these days. Cities like Beijing and Singapore are showing up on lists of the top startup ecosystems in the world (Startup Genome, 2017).

Inspired by local success stories like e-commerce platform Lazada and ride-hailing app Grab, some entrepreneurs are foregoing the traditional uphill climb in Silicon Valley, opting instead to find a foothold in the developing East.

Emerging from the global financial crisis in 2009, South- and Southeast Asia have built toward this moment particularly well and is currently experiencing something of an innovation boom.

Startups certainly deserve some of the credit for this progress.

The virtuous cycle

Beyond pure, direct job creation, young companies breathe life into their sectors, creating employment in related industries, inspiring innovation on the part of their competitors and larger corporate counterparts.

And once a startup gains traction and turns a profit, the fiscal rewards reverberate into the regional economy.

The newly rich re-invest in the businesses of peers and partners and on it goes.

The region has been building on this kind of momentum for some time and a lot of credit goes to deeper internet penetration, the result of better mobile networks, affordable connectivity and devices.

With more economic opportunities and awareness of their options, more families can afford to send their children to larger cities or abroad to work and study.

While that kind of thinking used to mean an exodus of the brain trust, today, young people are more likely to return, looking to make an impact.

Those who come home find a market ripe with problems to solve – and affordable resources to aid in the solving.

Innovation with a conscience

In a white paper for the Corporate Social Responsibility Initiative at Harvard’s Kennedy School in 2010, Shannon Murphy observed that the increased presence of startups in developing countries isn’t only acting as “an engine of innovation, efficiency and creativity in the market… Increasingly, entrepreneurial principles are being leveraged to solve complex public problems.”

Examples include the influx of microfinance providers and platforms in countries like Myanmar, where small and medium enterprises (SMEs) make up the overwhelming majority of the country’s economy.

Startups in the country responded to the need for credible, efficient microlending in a bid to lift more people out of poverty.

A lit match

The need for startups in this region’s developing economies is great and growing; their benefits are manifold.

But an emerging startup ecosystem is like a lit match. Without carefully placed fuel, oxygen, and someone to tend to it, the resulting fire will either burn out quickly or burn out of control.

This is where large, international companies have an important role to play.

A startup’s basic needs are fairly universal: funding and financial services, knowledge sharing and education, and access to a broad and relevant network.

According to startup analysis lab Startup Genome, though, the health of an entrepreneurial ecosystem requires more than the basics.

Right now, for example, there’s a lot of money pouring into emerging hubs of innovation, but there is a difference between quantity of investment and quality of investment.

A chain reaction

Investment comes in all shapes and sizes, and one of them is becoming a coveted “reference client”. Individual startups who have a bona fide “reference” hold power.

Beyond the revenue from the contract, this backing becomes a kind of proof point for the startup to show off to the ecosystem.

A corporate partner means they’ve reached product or market fit. Sourcing teams in other multinationals see that they’re vetted. Startups can make their case to sell to smaller companies or build their brand to attract more investors.

And all of that to say nothing of the bottom line, as revenue for the “reference client” boosts valuation, and as startups get access to untapped networks of possibly millions of customers. The doors swing open.

Startups get it. Boston Consulting Group found that more than 95% of them look to develop a long-term partnership with a corporate, while StartupBootcamp found that seven in 10 startups believe corporate partnerships are “very relevant”.

Their corporate counterparts, meanwhile, are happy to support. A 500-Startups study of 100 innovation professionals at Fortune 1000 companies found that 53% would allow the right startups to use them as “reference clients”, just under half would support case studies, and 36% would rev up their in-house PR engines to help.

A lasting, bright burn

Corporates can make bigger differences in the health of startup ecosystems in emerging markets than anywhere else.

This because they can help younger ecosystems in crucial areas like intellectual property rights, governance and infrastructure.

They create an appetite for entrepreneurship by showing more traditional cultures that being a startup founder is a viable career track.

The presence of large, international corporates in a developing startup scene can also legitimise local growth efforts.

And in environments when resources are slimmer, ‘frugal innovation’ is forced. This is also seen in social entrepreneurship programs which are bourgeoning in so many developing markets.

In such climates, startups and corporates have to co-innovate to provide access to novel technologies with smart solutions.

Embracing the entrepreneurial spirit means nodding toward independence, self-reliance, and a willingness to take risk.

Across emerging Asia, there’s a hunger for this new way of thinking – among established institutions looking to reinvent themselves, and among the region’s plugged-in youth, who have an awareness of possibilities beyond their own neighbourhoods and family businesses.

Startups and corporates alike have the chance to contribute to and profit by the professional potential of Southeast Asia, but the real possibility for a lasting, bright burn lies in cooperation between the two.

Vegard Aas is head of innovation at Telenor Group.