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An alternative route to help startups thrive in the new normal

on Tuesday, 12 May 2020. Posted in Funding, Finance

Didier Dumont, President of Sodexo Mobility & Expense, describes how a corp-up alternative is the new way of finding support for startups.

An alternative route to help startups thrive in the new normal

Didier Dumont, President of Sodexo Mobility & Expense, describes how a corp-up alternative is the new way of finding support for startups.  

The UK has seen a successful startup industry build over the last decade, attracting more than £9.5bn in venture capital funding, more than France and Germany combined[1]. However, these huge investments hide the fact that many new businesses struggle to make it past the two year mark, no matter how much capital they raise. With the landscape more uncertain than ever thanks to the global instability caused by the COVID-19 pandemic, what is the alternative for startups looking to raise funds and how does the support of a "corp-up" model help?

As a global business, Sodexo’s creation of our travel and expenses brand Rydoo has taught us a lot about helping a startup culture to flourish when it is given the right support. Rydoo, the first mobile application in business travel and business expenses, aims to change the way we work, starting by revamping the travel and expense management experience.

The failures of fundraising

Airbnb, Deliveroo and Revolut are some of the biggest start-up names in the UK and have disrupted entire industries in just a few short years. However, that is not always the case for brands who often convince investors to see potential, build a strong reputation and then don't make it past the first few months after a quick rise to success.

One example, London-based healthy food delivery service Pronto, was forced to shut down in 2016 after failing to keep up with competition. The brand raised a huge £1.2m at launch, including £800,000 on crowdfunding platform Seedrs, but with the likes of UberEats and Deliveroo expanding across the country, they were unable to hold onto a place in the market, even with significant investment[2].

Sadly, Pronto’s story is not an uncommon one. Almost half of all startups do not make it to their third year of business - a fact that has remained since 1998 according to data collected by the Enterprise Research Centre.[3] For these businesses, some of the most common reasons for failure include running out of funds and a lack of knowledge about the market when launching a new service or product. 

Considering these major obstacles for startup success, what are the alternative ways of keeping brands alive?

The corp-up, a win-win alternative

Could a solution to the pitfalls of external financing for SMEs be found within the corp-up model? This new form of collaboration between startups and large companies, which combines the agility and creativity of the new business, with the support and knowledge of a more established company, is becoming increasingly attractive. And for good reason.

On paper, this relationship between big companies and startups addresses their respective problems. Many large brands are seeking to incubate or draw on the best practices of start-ups to expand their capacity for innovation and accelerate their development in enabling markets. Similarly, startups that are new to the market find that with more established brands supporting them, they have access to financial resources and consultation, invaluable assets when looking  to scale-up and build your own brand image.

But whilst the benefits of a corp-up relationship may seem simple, learning to work in tandem and ensuring growth for both sides is much less so. You need to understand the differences between both parties, whether that is the way they work, the stage of development they are at, or even the business cultures and personality. Establishing shared rules and frameworks while preserving the excitement and flexibility of a startup is a necessary approach. Entrepreneurs and Innovation Directors must ask themselves the right questions, for example;

  1. How do we combine a risky approach with a prudent approach?
  2. How can horizontal management and pyramid organization be combined?
  3. How can synergies be created to continue to boost growth and innovation?

This is where the corp-up model provides some answers. A hybrid between large groups and startups, it benefits both sides with investment capabilities, market penetration, infrastructure and organizational processes. This hybridization enriches the culture of each brand without distorting what each business has to offer. In contrast to investor relations which largely focus on the profitability of a brand, entrepreneurs can see that longer term problems that startups are faced with, finance struggles, HR issues and marketing reach, can be solved with the help of a bigger business.

Henry Ford may well have said it best, when he said, “Meeting is a start, staying together is progress; working together is success."

This article comes courtesy of Rydoo, Rydoo reinvents and simplifies business travel and expense management for high-growth companies.

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