Business model innovation through start-ups: new study on cooperation between young companies and DAX groups

Resting on one’s laurels is not a good idea. Especially not in the digital age. Even established DAX companies have recognized this for a long time. Many of them therefore enter into cooperations with start-ups in order to drive innovations forward and open up new fields of business. The Berlin researchers Prof. Julian Kawohl, Andrej Welsch and Florian Nöll have investigated which big players are most active and what they are looking for in the young companies. We were able to talk to Julian about the results of the new study.

Julian, how did you come to deal with cooperations between startups and DAX companies within the scope of a study?
I have been researching for some time on how established corporations can reinvent themselves and successfully establish digital ecosystems. This is possible internally through their own programs, but also externally through cooperation with start-ups as levers for innovation.

What database did you use for your investigation?
We have used two different types of sources: On the one hand, there were annual reports and management reports of DAX companies which contained data on cooperation measures and on the other hand databases such as Crunchbase which provide further information on the startups. In total, we looked at over 400 examples. It has to be mentioned, however, that the number of unreported cases is much higher, because especially when it comes to new technologies, companies do not necessarily want to publish immediately what they are investing in.

What has surprised you most in the course of the study?
I was surprised that three-quarters of the start-ups were interesting for DAX companies primarily because of their business model innovations. Only a quarter were about product and process innovations. The German economy is often accused of not paying enough attention to innovation and of focusing more on processes. Our data did not confirm this.
The second surprise was that only four DAX companies, namely Deutsche Telekom, Pro Sieben, SAP and BMW, made up half of all partnerships. Many other well-known players, at least if you look at the information in the annual reports as we do, seem comparatively reluctant to cooperate with start-ups.
The third surprise was the distribution among the different forms of cooperation. In 82 percent the DAX companies have only invested, in 12 it is an acquisition and in the remaining 6 percent a partnership.

I would like to go into these points in more detail. Why are business model innovations so attractive for DAX companies?
First of all the DAX companies, as “sluggish tankers” with sometimes hundreds of thousands of employees, have been sailing in calm waters for decades, doing above all what they are good at, e.g. building, selling and further developing machines, cars and insurances. What they are often not so good at is thinking digitally and finding ways to support new products or services digitally. This is exactly where it makes sense to cooperate with start-ups that contain this in their DNA, that think quite differently and consciously seek new ways of dealing with problems. The start-ups are a way to acquire this knowledge and possibly also new market access quickly and cost-effectively. In an economic system in which industry boundaries are increasingly falling and product companies are being replaced by ecosystems, I have to quickly recognize the needs of users and create appropriate offers. The start-ups are much stronger in this area.

The fact that Germany is lagging behind in terms of digitization has been a much discussed topic for years. How do you explain the fact that the number of DAX companies seeking cooperation with start-ups on a large scale is still pretty modest?
For DAX companies, there are two reasons why they enter into such cooperations. Either they are under pressure to innovate because their water is up to their necks or they want to be independent thinkers in a certain field. I can imagine that the current success is making many companies a little inert. Others may not really understand that something has to change. That’s probably also because many of the top managers are not digital natives. This is exactly what we proved in a study last year.

Only 12 percent of the companies you analyzed were bought by a DAX group. So should startup founders rather not hope for an exit?
You can’t stop the entrepreneurs from speculating on the exit. However, the fact that this works with a DAX group is actually the exception in Germany when measured according to our data. For the founders perhaps this means looking across the pond or considering how to become such an attractive proposition for the companies so they want to buy.
However, I believe that if we repeat the study in two or three years, the takeover rate will be much higher. Other successful exits are needed for corporations to dare. If you look around the German start-up scene, there are currently too few positive examples.

About Julian Kawohl
In his professorship, Prof. Dr. Julian Kawohl pursues a holistic, forward-thinking perspective on the digital management of the future. In the sense of a comprehensive “Leibniz Approach” he is concerned with understanding and analyzing essential levers and success factors of digital transformation in a broad context and making them tangible for management practice in the form of concrete best-practice-oriented recommendations for action and implementation. He combines scientific foundation with a high degree of application compact (“for practice, with practice”). The basis for this approach is the permanent “change between the worlds” of corporates and start-ups.