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n o i t a v o n n I y e l l Va S ta r t u
p acce l e r at o rs, th of ope e new n est -innov produ a tion-l ct dev ed elopm helpin e n t, a g bra r e nds st their r e n gthen produ ct off and p e rings ositio n them innov s e lv e s at i v e as i n d u s t ry and sa leader vvy m s, arket gettin e r s are g in o n the groun d leve By Mol l ly Soat | st phase
 msoat@
ama.org
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I n n o vat i o n is the buzzword du jour.
It’s on everyone’s lips, and in every CEO’s strategic plan. Innovation is what powers places like Silicon Valley and points much farther afield.
Innovation often results in trade secrets, proprietary particulars that can prompt significant boosts in revenue if they’re brought to market successfully. But for many organizations, innovation no longer is confined to closed-door laboratories. It often is a group effort, in which the open sourcing of ideas is a collaborative effort between companies and their networks, drawing in customers, affiliates and others well outside of company headquarters.
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Such crowdsourced work has been dubbed “open innovation,” and a recent iteration of the process is the startup incubator or accelerator, in which companies provide mentoring, office space and, in many cases, funding to startups that are developing products or services that pertain to the companies’ areas of interest. Some companies work with independent accelerators, fostering the growth of those startups within the accelerators’ networks that are the most
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simpatico. Others invest more earnestly in the accelerator concept, developing in-house accelerators tied closely to their research and development functions in an attempt to expand their ability to innovate, and to leverage the companies’ go-to-market knowledge and the startups’ agility and speed. As a result, brands are able to boost their reputations as innovative thought leaders and can more easily rejuvenate their product portfolios with their direct
access to startups’ cutting-edge offerings—and their “first right of refusal” in deciding whether or not to bring those new offerings into the company’s fold. Open innovation in the startup accelerator setting is an antecedent to more traditional venture capital approaches and mergers and acquisitions. “This has been going on for a really long time in the sense that established brands have historically acquired new companies quite frequently,” says Susan Cohen, assistant professor of management and accelerator program researcher at the University of Richmond’s Robins School of Business, and co-founder of Priceline.com. “[With an accelerator model], they have an opportunity to become familiar with new brands earlier in their development. … It’s very difficult for big companies to stay on the cutting edge, and as companies mature, they typically become inert. Launching an accelerator and being affiliated with acceleration is a great way for them to keep in touch with newer technologies and newer companies.” Startup accelerators have been around for the past decade or so, dating back to about 2005 with the inception of Y Combinator, now one of the most famous accelerators. Now there are accelerators that nurture everything from software as a service to retail products to automotive technologies. Tech giants such as Google, Intel and Microsoft have been leading the way with their creation of internal accelerators, Cohen says, in which a startup is nurtured from within a brand’s existing organization. Other companies are relying on the external model, in which the startup operates independently but collaborates with a brand’s marketing and R&D teams to vet and grow its business model according to the brand’s specifications, and then bring the resulting products to market. Both models create the branding advantages and go-to-market speed that open innovation allows, which makes partnering with an external accelerator such an attractive proposition, says Yael Hochberg, associate professor of finance and entrepreneurship at Rice University in Houston, research affiliate at the Massachusetts Institute of Technology and faculty research fellow at the National Bureau of Economics Research. “When you’re going out and partnering with an accelerator, you are taking advantage of the fact that somebody already knows how to do this. [The company is] able to say, ‘I’ll give you the mentors and connections and all of that strategic benefit from
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“Create holes in your walls and innovation will flow: This is the concept of open innovation.”
consulting services, with a special skill set that you don’t already have in your company,” Nahon says. “It’s a way to reach out to talent, services and expertise that you can’t get from your traditional suppliers.” Orange’s internal R&D department is tasked with incorporating acceleratorled technology development into Orange’s existing infrastructure, which is no easy task, Nahon says. “The issue for large companies is the constraints to be compatible with the past, which is a necessity. You can’t change your IT system or your billing system overnight, so what you do is evolve in increments. The new crowd doesn’t care, and they don’t even know that these constraints ever existed. … It’s like talking about a dial tone: They don’t even know what it is anymore. They’re free in their movements, though, because of that. They have the flexibility and freedom that lots of large companies would love to have because those companies have to be compatible with the past, the legacy. In-house and outside R&D work together to blend the old with the new.”
- Georges Nahon, Orange Silicon Valley my brand, but I need you to give the startup- and entrepreneurship-specific stuff to actually run the program.’ It’s like outsourcing anything else when that’s not your core competency.”
Ripe for the Picking
Three out of four startups fail, according to an oft-quoted study by Harvard Business School’s Shikhar Ghosh, and the odds aren’t any better for startup incubators, themselves, experts say. Parisbased telecom company Orange SA still decided to take the plunge. “Create holes in your walls and innovation will flow: This is the concept of open innovation.” So says Georges Nahon, CEO of Orange Silicon Valley, the company’s San Francisco hub. In 2012, Nahon noticed that brands like Turner Communications and Walt Disney were creating their own proprietary startup accelerators. He then tasked seven-year brand veteran Pascale Diaine, a former brand evangelist for Orange Silicon Valley, with creating a proposal for a telecom-focused internal accelerator, which led to the creation of Orange Fab. In March 2013, the accelerator recruited eight startups to participate in a three-month-long program that consisted of scalable business planning and mentorship. Now there are Orange Fab accelerators in six countries, which have mentored a total of 76 startups across the globe. Orange Fab has nurtured products and services ranging from cloud storage services to pay-as-you-go apps for solar-power panels. “We look at this accelerator as a way to find new contractors, subject matter experts, people who can provide new ideas, new products, and support and
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Marketing Agility
For marketers, it’s been a major adjustment to adapt to the quick go-to-market process that open innovation models create. Increasingly, marketers are part of the initial startup vetting and product development so that marketing campaigns can start to take shape earlier in the process. For Luc Bretones, executive vice president of Orange’s internal R&D hub in Paris, Orange Technocentre, that means choosing startups that have a clear go-to-market strategy that Orange can augment, instead of building a marketing strategy from the ground up. “With Orange Fab, we either integrate that technology [into existing products], or accelerate our go-to-market [as a separate product], so we look for products we can launch very fast. … We are able, working that way, to fail fast if we have to, to be able to have a proof of concept in some weeks and to begin the interaction with the customers very quickly.” Orange Fab looks for startups that already have a physical prototype, which might mean that they’ve already been through an incubator, according to Diaine. Orange is best equipped to provide advice on
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how to scale their offerings to later-stage startups, she says, and how to market to a specific audience. “We don’t think of ourselves as investors yet. We’re still learning, so we like companies that are actually a little more mature to ‘de-risk’ the investment.” Accelerators like Orange Fab, Bretones says, simultaneously force and inspire marketing teams to have a startup’s speed and agility, themselves. He’s had to retrain his teams to be ready to finish, and market, a product in that tight timeframe. “It’s a constraint, but it’s an advantage, too,” he says. “We have to transform the product and deliver [a marketing campaign] within 12 weeks. That’s crazy. What we have to do is make the right selection of startups at the beginning, startups that we want to integrate because we already have an idea of what we could do very effectively with them.” Working with startups has affected Orange’s workplace dynamic by forcing his team to be more
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agile, Bretones says. “[Orange Fab] not only changes the Orange global image as an open and innovative company, but also, and perhaps more importantly, it changed the internal culture. We have thousands of researchers, Ph.D.s and bright people who invented thousands of patents for Orange. … Now, the shift coming from our CEO is to work on a daily basis with small companies and startups that are not well known. They can leverage Orange in accelerating their go-tomarket and reach, and we can leverage the startup because they are very agile and innovative.”
Force Multiplier
Perhaps the strongest benefit of an accelerator program, Nahon says, is the brand cache and culture of innovation that it creates. “We want Orange to walk hand in hand with a startup that could be the future Facebook or the future Skype, and say we spotted them right away and were able to make them our allies, and
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“By being able to communicate that we’re associated with brands like Hilton, Visa and LG, we get access to startups that would never think about us. … The intent is to become top of mind. Our credibility and visibility in Silicon Valley is very important to compete here.”
in their minds between the powerful networks that we’ve deployed and the wealth and innovation that is emerging from our company, our shares. They talk about that. They’re powerful voices for us.” Orange CEO Stéphane Richard makes an annual keynote speech to company stakeholders, economists and journalists in which he discusses innovations and developments achieved over the company’s past year. Since the launch of Orange Fab, these keynotes have had one main focus: the advantages of an open innovation model. In January 2015, Orange Fab announced a brand partnership with Visa, LG, Hilton, Moët Hennessy and other global companies, creating a collaborative program called Fab Force in which the companies weigh in on Orange’s next round of startup applicants, and executives from those brands help in the mentoring process. “By being able to communicate that we’re associated with brands like Hilton, Visa and LG, we get access to startups that would never think about us,” Diaine says. “It’s opening the door for visibility for us. It’s also a way to deliver more value to the startups and position ourselves at the last mile before distribution. … The intent is to become top of mind. Our credibility and visibility in Silicon Valley is very important to compete here.” And on the startups’ end, being involved in an accelerator gives the young companies access to marketing expertise, and allows the startups to
- Pascale Diaine, Orange Fab be friends with them, and have a common mindset moving forward,” he says. According to Nahon, one of the most significant halo effects comes through high-level company stakeholders, whether they’re corporate clients or shareholders. “It’s hard to compete with those new, agile businesses, so we brought them inside, to us,” Nahon says. “Our stakeholders recognize this plan. There’s been a comeback from investors and analysts. They can see the evolution of our technologies with their own eyes, and they’re able to understand it and communicate it. These people have created a link
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leverage their brands’ association with the accelerator’s network, thus expanding their reach. San Franciscobased startup Phone Halo is a startup that was mentored in the first season of Orange Fab in 2013. The company’s founders, Chris Herbert and Christian Smith, conceptualized the brand in 2009 and created a prototype of its flagship product, a small tracking device that can be affixed to keys or any other mobile object, using funds sourced on crowdfunding site IndieGoGo. From there, Orange Fab accepted the well-established startup, where Herbert and Smith received mentoring and guidance on branding strategy and e-mail marketing tactics. “A year ago, we were a great book with an ugly cover,” Herbert says. “We had a good product, good sales and engineering, but our marketing just wasn’t there, which was fine when we were doing technology for other brands, but when we wanted to establish our own brand, we needed help.” The relationship between Orange and Phone Halo is a mutually beneficial one, Herbert and Diaine say. Phone Halo is able to build off of Orange’s global reputation as a leading telecom provider, and Orange, in turn, gains credibility through its association with a hip, agile startup. “We use Orange as a branding point whenever we talk with potential investors and clients,” Herbert says. “They recognize Orange, so they automatically trust our product more. It gives us that brand leverage in our sales process.” Based on the reaction of the higherups at Orange after less than a year of nurturing startups through Orange Fab, Diaine sees the open innovation model as the new future of Orange’s R&D department. Nahon puts it simply: “We like to say that M&A is the new R&D. It’s not a pure replacement, but it’s a way to explain to people that R&D will be fed by acquisitions.”
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According to Rice’s Hochberg, the brandaccelerator model, or an open innovation model based on more traditional M&A activity, likely will be a fixture in organizations’ R&D efforts going forward. “We’re not going to see things going back to a closed innovation system of the sort that we had in the ’70s and ’80s ever again. The model where companies allow others to experiment and then acquire or partner with the most successful of those opportunities is here to stay. Whether companies will continue to do this through accelerator programs, the corporate accelerators haven’t been around long enough to see how they’re going to play out.” The University of Richmond’s Cohen says that open innovation models also are able to teach internal R&D departments how to be more agile and efficient. “I see an opportunity for
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established brands to take some of the philosophies and procedures that are used at accelerators and adopt those to enhance their own R&D process,” she says. “Internal accelerators are not a threat to existing R&D. It’s about whether existing R&D might be modified, but the two will work in tandem.” According to Hochberg, branding and reputation benefits from building relationships with startups are more immediate, but companies willing to play the long game could reap more concrete rewards. “It takes so long to see the money come in,” he says. “It’s much easier to see strategic returns in the short term and to guess how they will affect things in the long term, but benefits will play out, in some form, in the long term: as a window on technology, as inspiration for internal experimentation and, of course, as more innovative R&D.”
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Innovative Alternative
hen a brand doesn’t have the bandwidth to build an internal accelerator from the ground up, it can turn to an outside accelerator program, such as Sunnyvale, Calif.-based Plug and Play Tech Center, which was started in 2006 by Saeed Amidi. Brands pay a fee to partner with Plug and Play, and meet with the Plug and Play team to communicate their product development needs, budgets and ideal timeframes. From there, Plug and Play serves as a matchmaker of sorts between brands and startups—an efficient middleman. Plug and Play has verticals for media, insurance, automotive, the “Internet of Things” and retail, all designed to hasten the journey from product conception and seed funding to product development and go-to-market investments. “In what is typically a very long sales cycle for the B-to-B startup, we are cutting that in half, or more, for them to sell into corporations,” says Michael Olmstead, head of the retail vertical at Plug and Play. “Typically, there are eight- to 12-month sales cycles, and they are getting all of this done in less than three months. We really are accelerating their growth.” Plug and Play provides startups with infrastructure, office space, mentorship and peer collaboration, and also runs its own venture capital arm, regularly investing in the startups that it helps build. The accelerator invested in 82 last year alone, Olmstead says. Plug and Play also helps other companies find worthwhile startup investments within its network, he says. “A brand or retailer can come
to us with specific technology interests and we’ll scan not only our portfolio, but startups that are within our network through our VC relationships,” Olmstead says. “We partner with close to 180 VCs, so if they can introduce one of their companies to one of our corporate partners, it’s fostering a relationship between us and the VC. Everyone wins.” Simon Property Group, the largest U.S.-based mall operator with more than 325 properties in North American and Asia, created an investment arm called Simon Ventures Group and simultaneously partnered with Plug and Play’s retail vertical. According to J. Skyler Fernandes, managing director of the Indianapolis-based company, the goal of partnering with Plug and Play is twofold: “to stay at the forefront of the evolving retail technology ecosystem and maintain Simon’s leadership role in the space, and to be able to provide next-generation tools for our tenant clients. We need to maintain the lead in the evolution of omnichannel retailing, and the convergence that’s happening between physical retail and e-commerce.” If there’s any market that needs an innovation face-lift, it’s the mall industry, Fernandes says. “That was big for us when launching the accelerator: how it helps really attach innovation to our brand. People think that the mall industry is outdated. Seeing that we’re actively engaging with technology companies and investing with them lets [tenant clients] see that we’re imagining the future of the mall and how technology will play a role. The
overall branding of being attached to an accelerator really helps people see the future of the mall.” The brunt of marketing efforts around Simon’s accelerator partnership with Plug and Play is focused on the addition of startupled innovation to Simon’s value proposition for tenants, says Simon CMO Mikael Thygesen. “It’s added a whole new level to what we do, from a marketing standpoint. In addition to doing some of the basic fundamentals of marketing our centers and our retail customers in those centers, we now have an interesting addition to our value prop, and that is looking at these opportunities on behalf of our retailers.” One such solution that the startup affiliation has served up for retail brands is Deliv, a same-day delivery service that’s being piloted in half a dozen Macy’s and Bloomindale’s retail spaces. “That’s an example of us identifying a specific market need and matching that up with the right player, in this case Deliv, and then getting out there and working the relationships we have with our retailers to solicit their participation and help run and market the pilot programs,” Thygesen says. “Sameday delivery is a big opportunity in our space, and the mall will play a value-added role. This program reinforces to retailers that our organization is focused on the future and we’re looking at what’s on the horizon to add value for retailers. … We bring something to the table that a standalone retailer may not be able to execute against, but we, as a mall developer, can bring retailers a mall-wide solution that makes sense.” m
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