How to Turn a Contract into a Startup-Friendly 2 Page Proof of Concept

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Editor's note: Joyce Shen is the Director of Emerging Tech Partnerships & Investments at Thomson Reuters. She leads enterprise and CTO efforts on emerging technology strategy, startup & ecosystem partnerships, and investments globally.

For many large organizations, collaborating with tech startups is no longer a “nice to have” motivated by a longing for innovation. Rather, it is a fundamental need required to accelerate a strategic and/or technology agenda. Building an organization capable of working with early stage companies is no easy task though. Least of all, it requires:

  1. A strategic process of startup engagement for mutual value creation and capture
  2. An operational process that enables business units to onboard startup vendors or partners
  3. An experimentation mindset to develop continuous organizational learning and adoption

1. Create the strategic process of startup engagement that allows for mutual value creation and capture

The first step of successfully working with startups is a clear strategic mandate and support from the top of an organization. Although it goes without saying, strategic alignment is a necessary prerequisite for setting the parameters of engagement and clarifying the models of collaboration that will allow the broader organization to understand how to work with startups.

Once strategic alignment is set, large enterprises need to define the specific business and technology areas of collaboration that could potentially yield the most mutual value creation in the long term. From here, the enterprise needs to define a set of engagement models most appropriate for startups. For example, is it a pure vendor relationship, or is it something more? What parameters, outcomes, and milestones are the most important considerations for your organization? How do you map strategic projects with the right engagement model?

Some of these basic “soul-searching” questions can help guide the construction of a startup engagement model, which should then underpin the strategic process and the downstream considerations around the relationship. A few key examples are:

  • Confidentiality: Not all engagement models require an NDA, and for those that do require more strict confidentiality terms, not all require an NDA upfront.

  • Length of the Engagement: The length of a vendor relationship is likely different from the length of a product innovation project. A pilot of an on-premise offering is different from a trial of a SaaS offering.

  • Assets Shared: Given the different capabilities offered by various startups, the assets and resources brought to bear by the enterprise will likely be different. Some require the availability of assets like access to an infrastructure environment, while others require the availability of an industry expert, a workflow specialist, or a set of APIs.

  • Intellectual Property: Clear definition of ownership of IP based on the expected outcome of the engagement. Some will have limited IP consideration and others will require a more detailed definition of IP up and down the stack. Know whether a startup can use the company logo, and what the right case for co-branding is.

  • Milestones: Define milestones by categories of technology, commercial, and investment. Set milestones with the startup based on the agreed engagement model so these mutually set goalposts mirror the expected mutual value capture.

2. Create the operational processes that enable business units to onboard startups without too much friction

For large companies, once strategic buy-in and process are established, it important to work with specific business units to help them understand a startup’s perspective and pain points to build an operationalized process that allows for the cross-functional support of startups and various engagement models. Some examples of pain points to startups are:

  • Long Contracts and Extensive Terms & Conditions: Challenge the functional areas to create a set of agreements for startups reflecting the most important and relevant terms specific to the engagement model. Identify the top most critical legal protection terms required for the company in working with a startup. Any other terms should be reviewed for limited relevance and put up for debate. Most engagements with startups do not merit long contracts given the initial scope of the collaboration.

  • Decentralized Contracting Process: Work with all functional areas to define a centralized contracting process for startups. Ideally, there should be only one agreement containing universal terms. As engagements evolve, addendum can be incorporated to reflect the specific natures of various engagement.

  • Lack of Transparency to Startups: A collective mindset and effort with functional owners to provide as much detail as possible to startups on how the contracting process works in the company to set the right expectation. This helps startups plan and stay focused on staying on course with the established process.

The first step is helping colleagues understand why certain business processes can be cumbersome for startups. Then, be a close partner to these colleagues to understand their business concerns, performance measurements, and operational parameters. From here, with a holistic understanding, identify and suggest changes to the status quo while striving to maintain the most valued elements by functional areas.

Colleagues in procurement, legal, technology, product management, and marketing need to recognize that their respective areas need to develop function-specific processes to cater to a “new” class of vendors and/or partners that do not have the profiles of their large clients.

With this context and conditioning, work with legal and procurement to create “short form and lean” documents that address the most pertinent operational parameters for the current phase of the engagement, with the recognition on both sides that, as the collaboration expands into the next phase, the contract may expand and more parameters may need to be addressed.

3. Experimentation to develop continuous organizational learning and adoption

Lastly, in many cases, collaboration with startups starts on a small scale to allow room for mutual learning, fine tuning, pivoting, and synchronization for further joint efforts if the first POC or phase of collaboration proves successful. Many of the standard terms & conditions for larger clients are superfluous initially. By enforcing the status quo on startup engagements, large enterprises miss the mark on the strategic imperative to work with startups in the first place.

The better way is to hone in on the absolute minimum parameters needed for cross functional engagement with startups and let the experiment (aka startup engagement) run with close monitoring. Learn from the experiments or POCs and assess whether the operational parameters in place are sufficient. With iteration, the operational process and legal documents created to help govern collaboration with startups can and will become broadly accepted practice in the enterprise. Only this will ultimately enable an environment for mutual value creation and capture with the most compelling startups.

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