Encouraging sustainability through partnerships | INSEAD Knowledge

Big companies play a crucial role in ensuring that countries follow the rules Paris Agreement and reaching the United Nations Sustainable Development Goals (SDGs) in 2030. However, many companies are struggle to meet their net-zero commitments, citing issues such as the challenges in reducing indirect (Scope 3) emissions, the lack of viable technology and potentially conflicting regulations.

One way for companies to tackle these obstacles is by working with startups and impact entrepreneurs (those who integrate social or environmental goals into creating new business models). A good example is energy giant Enel, which boosted its sustainability efforts by looking beyond the organization and gathering solutions external sources through its network of global innovation hubs.

What motivates companies to enter into these partnerships with startups? What are some challenges that impact entrepreneurs may face, and what can they do to foster fruitful collaborations that can enable the world to achieve its sustainability goals?

I recently answered these questions INSEAD Impact Entrepreneurship Forum. This was part of INSEAD’s programming during the 2024 edition Change nowa global summit that brings together impact entrepreneurs and sustainability leaders to discuss solutions for the planet.

Why corporates collaborate with start-ups

The idea of ​​large companies collaborating with start-ups is nothing new. For example, many pharmaceutical giants have long abandoned the belief that everything they bring to market must come from their own R&D labs. They have been working with start-ups for the past decades to bring new products to the market.

How and why did this happen? It all has to do with the patent cliff – the point at which patents reach their expiration dates and the market is flooded with cheaper generic versions of the product. This causes pharmaceutical companies to experience a sharp decline in revenue, often worth billions of dollars.

Big pharmaceutical companies realized that the solutions to address this blow couldn’t just come from their own R&D labs; they had to find new sources of income. To achieve this, many of them partnered with start-ups to help them scale and commercialize their inventions. From 2010 onwards, for example about two-thirds of Merck’s sales were attributed to licensed products from external partners.

A parallel can be drawn with the sustainability challenges faced by companies. Consider a large utility company that is under pressure from regulators, the markets and society to change the way they do business in order to meet sustainability goals. If they can’t, they will likely see a sudden drop in revenue after the “expiration” of their current business model. This can happen, for example, if the company does not adhere to sustainability rules or falls out of favor with sustainability-conscious consumers, making their business model obsolete.

Many CEOs I’ve spoken to recognize this is true a huge gap between the sustainability commitments they have made and the progress made to date. They know that to avoid falling off the edge of the abyss, they must admit that they don’t have all the answers, look beyond a self-sufficient approach and work much more collaboratively in figuring out ways to achieve their sustainability goals.

This creates enormous opportunities for impact entrepreneurs and start-ups designing sustainable solutions to enable a greener future. However, realizing the ideal partnership is not an easy task.

The challenges of collaborations

The participants in my session at ChangeNow – many of whom were INSEAD alumni working or interested in the impact entrepreneurship sector – raised several challenges in working with large companies. These include the fact that companies may view impact entrepreneurs as dreamers, that it can be difficult to connect with the right decision makers within an organization, and that some companies may have unrealistically high expectations for what startups have to offer.

Another key obstacle mentioned was that the environmental, social and governance (ESG) topics that many start-ups are addressing may be seen as too “soft” by some company directors. The latter may not be particularly concerned about ESG and have not made it a priority within their organization. Start-ups may also face a lack of resources, especially during economic recessions, or companies that do not allocate sufficient resources for the successful realization of ESG-related initiatives.

How collaborations can be made more effective

During my session, I asked participants to form small groups and discuss ideas on how startups can make their collaborations with companies more effective. They came up with a list of “doses” – ensuring alignment with the company’s vision and mission, starting with a pilot, identifying a key decision maker, building a relationship with a champion in the organization and understanding the business value you bring before you try to sell them a solution.

High on their list of ‘don’ts’ was not charging for your services. Money isn’t usually the biggest barrier for large organizations, and companies may not be as committed to seeing a project through if they’re not in control. Other “don’ts” included not making solutions tangible, moving forward before aligning with desired outcomes, depending on one person, and pitching to a company without first understanding their unique business model and how you fit into it.

Many of the participants’ suggestions align with my own recommendations for startups looking to collaborate with companies on the sustainability transition. My first piece of advice would be to clearly define the purpose of the partnership and how you can solve a specific problem the company is facing.

While large companies typically have ample resources, chances are they are considering or already juggling multiple projects at the same time. To get their attention, a startup must be able to clearly articulate what they bring to the table and translate their specific solution into the company’s own language. Ultimately, it’s not about your startup, it’s about how your solution can work for the organization you want to work with.

The second would be to agree on the right architecture for collaboration. Make sure you understand the company’s internal processes and use them to move the partnership forward in a mutually beneficial way. It’s important for startups to evaluate not only the public, outwardly visible aspects of a large company, but also its inner workings. The latter are the culture and processes that will make the difference when it comes to making longer-term decisions.

Third, map the relevant processes to help overcome any internal barriers and biases. Certain companies may suffer from the “not invented here” syndrome, where they cannot ignore the fact that an outside solution might be superior to what they can come up with internally. Start-ups should not underestimate how crucial it is to work with companies to overcome this barrier.

Finally, it is crucial to create a culture of collaboration, mutual understanding and humility in all facets of the partnership. It can be tempting for startups to be somewhat arrogant, because they know more about their solution, business or focus area than the company they are dealing with. On the other hand, companies may look down on startups because they think they don’t understand business realities. If startups approach their partnerships with companies from the perspective of working together to solve a problem, they can be part of the solution.

I believe the future is bright for partnerships between startups and large corporations. Large organizations are facing serious pressure to take their operations to the next level sustainability efforts. They also have the resources to help startups grow their innovations. Meanwhile, start-ups working in the sustainability sector have the knowledge, passion and burgeoning networks that can lead to very fruitful collaborations. With the right approach, both parties can work together to scale impactful solutions for the benefit of the planet.