6 ways to utilize the clever ideas behind innovative startups

Great ideas can come from anywhere. In a digital age where companies use data and artificial intelligence (AI) to gain a competitive advantage, business leaders must tap ideas from a broad ecosystem of partners, including startups.

Here are six ways to connect with entrepreneurial businesses and give your business an innovative edge.

1. Proceed with caution

Jon Grainger, CTO at legal firm DWF, said business leaders must think carefully about how their company will work with younger firms — and that includes being prepared for things going wrong.

“Look at a startup a bit like you’d look at a team,” he said. “Focus on the strength of the team that exists because startups are smaller than big providers and they can vanish. If you bet the farm on a startup, and it suddenly doesn’t exist anymore, you’re in trouble.”

Also: 5 reasons to work with the competition, according to business leaders

Grainger told ZDNET that business leaders who find a company that offers something “amazing” can use some techniques to ensure their business is not at risk.

One such technique is escrow, a financial agreement that places assets with a third party on behalf of two other parties.

He said the key to success is proceeding with care to ensure your business isn’t too exposed in the event of a failure.

“There are ways that you could say, If the worst-case scenario comes, we could run this ourselves. And you need to have that view. Because what you mustn’t do is interact with startups as a way of betting on the future rising stars.”

2. Solve a business problem

Nigel Richardson, chief digital and information officer at PepsiCo Europe, said startups play a crucial role in his company’s attempts to use emerging technologies to solve its business challenges.

“When problems are difficult to solve, we’ll go to several startup communities to get ideas,” he said.

The company’s pioneering work on startups is led by David Schwartz, VP of PepsiCo Labs, a specialist team tasked with harnessing innovation. 

“David has a good process for screening startups, and we’ve had some very successful examples of companies that have worked with us,” said Richardson.

He pointed to the example of a partnership with technology firm WINT, which uses AI to prevent water leaks in PepsiCo factories — estimates suggest the system can cut annual water consumption by as much as 25%. 

Also: ‘Not just another initiative’: How PepsiCo is combining innovation and sustainability

“It’s a nice example of two things. One, it’s about using advanced technology to have a good impact and, in that case, reduce water waste,” he said.

“It’s also a nice example of working with someone to help solve an issue that’s a problem for many businesses. Therefore, it makes more sense for us to find a startup already solving the challenge for other organizations, rather than just trying to do that work ourselves.”

3. Keep all channels open

Sasha Jory, CIO at the insurance firm Hastings Direct, said working with startups is always an interesting and potentially challenging part of the digital leader’s role.

“They either fly, or they die,” she said. “It’s difficult to know who’s good, who’s isn’t, and who’ll survive. If you think your investment isn’t going to turn into anything, then you should get out quickly.”

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Jory recognized that innovative ideas could bubble up unexpectedly. She advised other professionals to explore every avenue.

“Remaining academically curious, talking to people, identifying opportunities, and being interested is important,” she said to ZDNET.

“If you find something that looks like it’s got legs, then working much closer with them and trying to invest is a good idea. But keep open channels, keep talking to people, and test and learn.”

4. Take an ethical approach

DWF’s Grainger said his firm works with a range of suppliers and it’s crucial to avoid exploiting your partner when you work with a smaller firm.

“Don’t work with a startup to get great, disruptive ideas from them, and then not give them anything back,” he said.

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Grainger said ethics are important, particularly when working as part of a wider ecosystem that includes all kinds of firms in a region or country, like the UK.

“You’ve got to remember there’s a responsibility. In my case, that’s about taking a step back and thinking about the greater benefit for UK PLC,” he said.

“If we support entrepreneurial activity, we can all benefit. What I hear is there are many opportunities in AI. I want to embrace and support those opportunities.”

5. Aim for standardization

Gerard Francis, firmwide product head for data and analytics at JP Morgan Chase and head of Fusion by JP Morgan, said the key to embracing emerging technology is to create standardization.

“The way we approach the problem is that the more we can standardize the data and APIs, the more we can standardize delivery points. The result is a level playing field,” he said.

Also: 4 ways to help your organization overcome AI inertia

Francis told ZDNET that standardization makes it easier for his firm to work with its customers and the technologies they use, whether from a startup or a big-name provider.

“The approach means that, regardless of the technologies the client chooses, we can work with them and support them on their journey,” he said.

“Some clients will use bigger tech, some will use smaller tech. But we want to ensure we are not determining what technology they choose. They make the choices, and we just work with them.”

6. Maintain a critical view

DWF’s Grainger said business leaders must be “brutally honest” with startup founders. Honesty at the beginning of a conversation means there’s less chance of problems later.

“Don’t hold back,” he said. “If I have a one-to-one interaction with a founder, and they come up with an idea that could be exploited, I’ll say, ‘That’s going to get replaced very easily.’ I’m brutally honest.”

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Grainger said he wants to provide a critical view. Giving straightforward feedback creates benefits for both parties.

“I’m open because I know that individual has put everything and more into their business. I want them to be a success,” he said.  

“I’m pretty sure I’ve got a reputation of having some conversations with founders who have probably come away and thought, ‘Okay, this guy is the CTO. He uses this stuff for real and he’s shown us where some of the edges might need to be smoothed.'”