from our magazine When Start-Up Brain Meets Corporate Brawn

Hardly a week goes by without a new corporate incubator or innovation lab getting into gear. But there are even better ways for companies to collaborate with start-ups.
Quelle: Bloomberg
Hacker, disrupter, startup, techie: a new world in the making.

Mobileye doesn’t fit the cliché of a start-up. It’s not a social app, an online marketplace or an internet store. Few consumers have ever heard of the company. It’s not based in Seattle or Silicon Valley, but in Israel. Mobileye has no intention of killing a traditional industry, like Amazon did to bookstores, Expedia did to travel agents and Uber is doing to taxis.

Yet Mobileye is changing our world just as much as any of these famous disruptors. In 2007, BMW premiered the world’s first “seeing” car – a 5 Series sedan equipped with Mobileye cameras and artificial intelligence software for a safety feature that warns drivers when they are drifting out of their lane. In January, Mobileye and BMW announced a partnership with chipmaker Intel in the race to bring the world’s first fully self-driving car to market. Later this year, 40 BMWs with Mobileye self-driving technology will launch road tests in Europe and the United States.

Piggybacking on BMW has been good for Mobileye: The 17-year-old company is worth $10 billion on the New York Stock Exchange. And the partnership has been good for BMW, too. If work proceeds according to plan, the carmaker has a good chance of winning the global race for truly autonomous driving.

The link-up between BMW and Mobileye is the model that legions of corporate executives are hoping to replicate. Despite their armies of researchers and engineers – BMW alone has 10,000 – big companies have often struggled to keep up with the accelerating pace of technological change. Big companies are slow to make decisions, weighed down by hierarchy and a thousand conference calls; start-ups have speed and agility encoded in their DNA.

The link-up between BMW and Mobileye is the model that legions of corporate executives are hoping to replicate.

That’s why just about every large corporation has entered into partnerships with start-ups. Instead of trying to beat them back – a fight Goliath can only lose – big corporations have embraced collaboration.

Of course, companies have a tradition of buying smaller ones to access products and technology, or of investing in start-ups. But lately, the number of large corporations setting up incubators, accelerators or innovation labs for start-ups is soaring. And the corporate venturing business – large companies playing venture capitalist by funding entrepreneurs – is also flying high. Some companies, like BMW, are leapfrogging all these methods of collaboration, and are using start-ups to reinvent the very process of innovation itself.

For start-ups, the push to collaborate with big players, instead of fighting against them, is driven by a changing market. The Silicon Valley engine is showing signs of sputtering. Last year was the worst for California tech IPOs since 2009, when the market was all but shut down during the recession. Only 11 companies went public in 2016, and the $1.2 billion they raised was far from the peak of nearly $20 billion in 2012. Companies like Uber and Tesla have been hemorrhaging money. Europe’s largest digital start-up, Berlin-based Rocket Internet, has seen its market value crash as its business model – carpeting the globe with copycat online stores and delivery services – runs out of steam.

No wonder, then, that many start-ups are looking for new avenues. It seems not a week goes by without a major corporate player setting up an incubator or accelerator for start-ups (or for teams hoping to become one). In Berlin alone, 13 of the 30 leading German companies that make up the DAX stock index have opened one of these facilities.

In the German capital, Lufthansa runs a campus named Innovation Hub, where start-up teams develop mobile apps for the airline. Pharmaceuticals giant Bayer has coLaborator, a lab and office space for start-ups. Even smaller, family-owned companies are in on the act. Otto Bock, a global supplier of high-tech prostheses, has left its small-town headquarters in Duderstadt to set up an accelerator in Berlin, working with start-ups on robotic hands and 3D measuring technologies for next-generation prosthetics.

In Stuttgart, construction proceeds apace on Arena 2036, Daimler’s new start-up campus. In the middle of the region’s “Cyber Valley,” dozens of start-ups specializing in machine learning and artificial intelligence cluster around Daimler, Porsche and the big auto suppliers like Robert Bosch. The new campus hopes to replicate the kind of success that competitor BMW has had with Mobileye. One start-up already working with Daimler is Gauzy, another Israeli company. Gauzy applies nanotechnology to change the shade of car windows and to produce images in the glass at the press of a button.

Even more than new ideas, big companies hope to gain a dose of the speed and agility with which start-ups operate. “Big companies have just as many ideas as start-ups do,” says Henning Kagermann, head of Acatech, the German Academy of Technology. Kagermann should know. He’s the former CEO of software giant SAP, who, during his time there, introduced various ways of collaborating with start-ups. “The problem for big companies is not ideas, but corporate culture and speed,” he says. That’s why traditional M&A often fails. A larger company finds an interesting start-up and buys it, but as soon as the start-up’s team is integrated into the company, everything slows down.

Perhaps that’s also why few big successes like Mobileye have yet to emerge from all these new corporate accelerators, incubators, hackathons, and innovation labs. Kagermann says despite all this activity, it is not nearly enough to change a sluggish corporate culture. “This is the fashion right now, to show your presence in Silicon Valley or Berlin,” he says.

Auto supplier Bosch is experimenting with a different model. In 2016, it set up Bezirk as a start-up within the company. The start-up develops mobile apps and data systems for the internet of things. Because Bezirk is outside the company hierarchy, its teams deal with the parent company at eye level and don’t have to wait for someone higher up to give the go-ahead. Other companies, like Siemens and SAP, are creating open platforms that start-ups can dock into with their products and services. It’s another way for companies to collaborate with start-ups without suffocating them with their corporate corsets.

But perhaps no one is as aggressively reinventing the way corporates engage with start-ups as Gregor Gimmy, a former Silicon Valley entrepreneur and founder of the BMW Startup Garage. Gimmy’s ambition is to replicate BMW’s success with Mobileye – just faster, and more often.

The way the Startup Garage works is brilliantly simple. Gimmy and his small team select a start-up and immediately put it to work.

A good start-up doesn’t want to be stuck in an incubator, waiting for a mentor from the company to show up. Gregor Gimmy, Founder, BMW Startup Garage

The start-up gets a supplier number and purchase order, and is then hooked up with a BMW development team. Straight away, the start-up is involved in one of the carmaker’s actual pilot projects – whether in autonomous driving, electric battery technology or cybersecurity for factories. Gimmy gives the start-up about three months to prove its worth before the next order is issued. There is no investment and no commitment, but BMW pays the start-up for its work. Infinitely more valuable, however, is the immediate feedback the start-up gets from BMW, as well as the chance to get its technology into millions of cars. Gimmy calls it a “venture client” system.

What’s truly revolutionary is the speed. “We’ve cut the time from the first contact to the first pilot project from two years to a couple of weeks,” Gimmy says. Two years, he says, is how long it took Mobileye, from the first contact with BMW until the cooperation got underway. It took that long to convince the larger company’s managers and departments. This makes success too dependent on whim, and in Mobileye’s case, on the stamina of an engineer inside BMW who kept pushing his superiors. Gimmy says he just talked to another Israeli start-up that has been in contact with a rival carmaker for six months, and still doesn’t have a contract. Several French startups now work with Gimmy’s outfit, he says, because their own country’s carmakers kept them dangling.

Gimmy won’t say how many start-ups he’s selected since launching the project in 2015, but reports say close to 100. The largest share of them aren’t from Germany, but from the U.S. and Israel. “We can scale it up,” Gimmy says. “BMW has 10,000 engineers and each one of them has an innovation challenge to solve.” Though participants are sworn to secrecy and Gimmy wouldn’t let Handelsblatt Global talk to any of the start-ups, he insists they’re happy with the immediate feedback and the chance to work on a real project, instead of just pitching ideas and writing business plans. “A good start-up doesn’t want to be stuck in some incubator for three months, where every two weeks a mentor from the company shows up,” Gimmy says. “That’s start-up kindergarten.” What’s more, a corporate accelerator or incubator only has the capacity for a handful of teams at a time – an expensive and inefficient process. BMW’s system avoids the cost of a physical space, such as Daimler’s Arena 2036, altogether.

The big money is still in corporate venture capital, which makes up roughly a quarter of all start-up investments. Last year, large corporates were involved in close to 300 deals in Europe, the largest of which was a $400 million investment in Africa Internet Group by insurer AXA and mobile provider Orange. Dedicated corporate venture funds like Allianz Ventures or Intel Capital scour the globe for start-ups, but many of the deals are more about financial return than about collaborating on early innovation. This model, too, is limited in the number of start-ups it can engage by money and management bandwidth, and the investments are hit-and-miss.

How many of the corporate accelerators, incubators and innovation labs will truly transform the way large companies innovate is still unclear. Is much of it just corporate “innovation theater,” as a recent Fortune magazine report claims – in essence, a clever PR ploy to market a company as hip and innovative? Or is it driven by the wish to expose managers and staff to the start-ups’ way of thinking, while company business keeps chugging along, largely unchanged? The jury is still out.

But the corporations’ lunge for an accelerated uptake of new technology is real. In a 2016 study by start-up accelerator MassChallenge and consulting firm Imaginatik, 23 percent of corporate decision-makers say collaboration with start-ups is “mission-critical,” while 82 percent said it was at least “somewhat important.” Whether companies have carved out the right tools for collaboration is still uncertain. But the need to find many more Mobileyes – and become much faster at embracing innovation and change – means they have no choice but to try.


This article first appeared in the Spring 2017 issue of Handelsblatt Global Magazine. Stefan Theil is the magazine's executive editor. To contact the author: [email protected]