Imagine you’re a grocery retailer trying to manage your stores in the midst of a global pandemic. You need to monitor how many shoppers come through your doors, check who’s wearing a mask, and maybe even enforce physical distancing rules. But how do you know when too many shoppers are clustered in the frozen food aisle, or when a mask-less shopper just wandered into the produce section?
In an ideal world, retailers would be able to minimize such risks for their customers by getting answers directly from their security and surveillance systems. Indeed, that’s the goal of startup S&ST, which began operations in 2018 with a simple, but ambitious, plan to create an open-source operating system and app store–type platform for security and surveillance cameras. Manufacturers could develop cameras that use S&ST’s operating system, and the platform would sell third-party apps developed to make those OS-enabled cameras more functional, powerful, and agile.
The S&ST operating system and the availability of add-on apps give users much more latitude to customize their security and surveillance systems than they would achieve with off-the-shelf camera systems. That customization also allows for more agility and flexibility, enabling companies—from retailers to manufacturers—to nimbly respond to emerging challenges such as COVID-19 and beyond.
The Munich-based company—whose abbreviated name stands for “Security and Safety Things”—started with a small but energetic staff with the technical know-how to build such a platform. It also had a big competitive edge: The company was launched by German engineering and tech giant Bosch. This advantage helped S&ST convince clients that its platform was legitimate, well funded, and not short-lived. “It made it easier to be taken seriously by other camera manufacturers,” says Hartmut Schaper, CEO of S&ST. “It would have been much harder if we were a classical stand-alone startup without any history in this industry.”
It helps that Bosch allows the company to maintain its independence—a unique corporate relationship that offers tremendous upsides to S&ST. But such relationships require a deft management touch. When a large enterprise launches a startup, the all-too-familiar approach is to over-manage it. That inevitably leads to the new business struggling because of meddling corporate overlords, staffers whose allegiances favor the parent company, and an overreliance on the larger company’s resources.
Deliberate planning is essential to both avoiding such pitfalls and identifying the killer assets that can stack the competitive deck in their favor. As Markus Berger-de León, a partner with global consulting firm McKinsey & Company, puts it, “Executives need to be open-minded and think about what else they can be doing with the assets they have and where these assets can actually accelerate another business.”
WEIGHING THE PROS AND CONS
Startups connected with larger companies can take advantage of significant resources, including a highly trained sales force and a human resources department with deep experience recruiting top talent, along with a legal department that can solve contract issues and help ease the startup’s ventures across international borders. “That can offer a huge advantage because you can more easily experiment with different solutions around the world,” Berger-de León says.
Of course, there may be a price to pay for incorporating the larger company’s infrastructure, unless its traditional approaches are modified to support the startup. For example, piggybacking on that company’s sales staff may seem like an efficient way for a startup to boost sales. But as Berger-de León points out, the existing sales team may not be able to simply use its existing client base or processes to sell the new product or service without extensive training. The startup also may have to rethink the incentive system used by the sales team so they don’t favor the solutions they’re used to selling. And finally, those employees may bring too much cultural baggage from the incumbent, potentially diluting the startup’s more entrepreneurial mindset.
Given this reality, it’s crucial for the enterprise to recognize it can’t just force-feed resources to the startup—particularly if those resources aren’t easily adapted to the startup or are simply unnecessary. According to Berger-de León, startups may be better served by building their own sales team from the ground up. They can build a dedicated staff that’s fully focused on selling the startup’s solution. “It will also let them train a culture from Day One where they provide feedback from each client conversation straight away so that the startup can improve its products,” he says. “And that can let them scale much quicker and much cheaper.”
MOVING BEYOND “COPY AND PASTE”
S&ST and Bosch thought carefully about how to establish the startup. Bosch allowed S&ST to toss out much of the incumbent’s corporate rulebook. The executives also didn’t put S&ST under Bosch’s camera division, which Schaper says could have invited interference and would have been seen as critical by other partners that compete with the Bosch camera division. Instead, the startup meets a few times a year with a handful of Bosch board members to report its progress. “As a startup, we’re more flexible, more open, and less formal, and there are fewer rules to follow,” Schaper says.
Schaper also thought carefully about which of Bosch’s assets to use. The easy choices were what he calls the “copy-and-paste” types of advantages; the commonplace services that would be hugely time consuming and resource intensive for a startup to recreate—things like security networks for setting up laptops; IT infrastructure, such as email and calendar systems; and financial systems, such as payroll and vendor payment management. “The rule was that we’d do everything ourselves unless there was a clear benefit not to,” Schaper says. “There’s a big risk in doing it the other way around, where you take everything by default from the [parent company].”
For example, S&ST didn’t rely on Bosch for its mission-critical platform design. Schaper and his team decided to only use some parts of existing Bosch software code in the S&ST platform, but keep new and differentiating parts separate for maximum speed and flexibility. The reason: They didn’t want their platform to be reliant on code that was shared among many different users and required upkeep by Bosch’s software engineers. Schaper suspected that S&ST would be low in the priority queue if there was an issue with the software. “If you share software with a division that does $5 billion revenue per year, and you both have an urgent software need, it’s not hard to guess what will happen,” Schaper says.
Every startup looks at a large company’s assets with envy. But the strings attached to those assets can greatly reduce the appeal. That’s why it’s vital for startups and incumbents to think carefully about which of those resources will help a new venture establish a competitive foothold—and which might sap its entrepreneurial energy.
“Executives should think about their business more as a portfolio of assets they have, and always be open minded in thinking about what else they can be doing with those assets,” Berger-de Léon says. “That will help you uncover the right ideas, so you can continue to build great new businesses.”