How retail chains work with startups

What business values ​​do innovative projects bring with them, and why do more and more corporations single out separate units for working with innovations in their structure?

Why innovation is needed

Working with start-ups and young technology companies helps to quickly and relatively cheaply create new services and products for clients, specifically attracting external expertise for this, without restructuring the entire business process. For example, in Magnit, as part of the new Magnit Master format, a new service is now being tested – contactless rental of construction and garden tools from Youtool startup.

In the case of a successful pilot, the solution goes into scaling and begins to be implemented in all stores of the chain or in all stores of a certain format, or used in management or decision-making processes. For example, Magnit has scaled up and successfully uses the Brand Index solution, which allows you to track the company’s digital footprint.

In addition to piloting and testing new technologies, a corporation can take the path of M&A – the purchase or entry into the share of a young promising startup. This format of interaction allows you to take a step towards diversifying your business, entering new markets and setting yourself apart from competitors.

Sometimes innovations are not attracted from outside, but are born inside the company – in this case we are talking about internal entrepreneurship. This approach is actively used in Magnit. In the spring of 2021, the company hosted a hackathon jointly with VTB, where employees of the two companies offered ideas for new products and services. The solutions that made it to the hackathon final are now being tested in the pilot format.

Who are innovators

A few years ago, Magnit practically did not talk about innovations – the search for and implementation of new technologies was a matter of a point and not a systematic one. Now in the structure of Magnit there is a separate unit – the Innovation Development Center, which is engaged in the search, evaluation and piloting of innovative solutions for business problems.

The model that Magnit is currently working on – open innovation – is a relatively inexpensive and quick way to test those solutions whose effectiveness is not obvious, but likely. Within the framework of this model, in order to close the “pain” of the business, an external carrier of expertise is involved – a startup with a ready-made flexible and inexpensive product that fits the needs.

Most corporations from various business sectors follow this path. This is often cheaper and faster than in-house development.

How innovation is sought

The tools that corporations can use to innovate within this model also differ. Perhaps, the format of corporate accelerators remains the main and most popular now in our country.

In a corporate project, an intensive acceleration program is often replaced with more applied “subjects”. For example, master classes on creating a financial model or developing a pilot card, as in the corporate accelerator “Magnit” MGNTech, which the retailer conducts together with the Skolkovo Foundation.

Each accelerator launch is preceded by painstaking work to identify business needs. Startups entering the accelerator go through a filter of exact match to business needs already at the entrance.

Those solutions that enter Magnit, in particular, through the MGNTech accelerator, definitely fall into the pain of business and bring a tangible economic effect. The Center for Innovation Development is faced with the task of formulating a hypothesis so that it can be digitized. The Center’s employees design a pilot and embed the found solution into the current business process, or find a new user scenario and test the solution on it. Here, a user means any subject — it can be a buyer, a call center operator, an assembler in a warehouse, a driver, a top manager.

There is another separate vector in the work of innovators – this is the search for “weak signals” and the next big thing. Employees are constantly on the lookout for solutions that no one has yet tested or implemented.

Selection stages

But it’s not enough just to get on the radar of corporate scouts, each of the startups goes through several stages of evaluation and selection:

• If we talk about the accelerator funnel, then at the first stage purely formal criteria are applied – the completeness of filling out the application, compliance with the basic requirements – the presence of a legal entity, the availability of a product. At this stage, not a very large part of the funnel is eliminated – about 10%.
• Then innovators move on to a point assessment, and here they carefully look at the essence of the technology, at the maturity of the product, at the team (its size and completeness of competencies). Why is team size important? We can say that corporations are very demanding partners for the implementation of projects. For a pilot to go fast, you need an individual, a project manager from a startup, fully involved and competent, you need technical support. If a startup does not have resources at the piloting stage, then the solution is unlikely to be able to scale.

On the part of the corporation, involvement and readiness for dialogue is also important. A startup is not a counterparty that is customary for a corporation that performs work on the terms of reference, but a partner in a project.

Pitch errors and tips from Magnit

It happens that a startup has passed all the stages of evaluation and selection, but when forming a working group, contradictions are revealed that do not allow the project to move on: this may be a lack of resources, interest from any of the parties, communication problems. To prevent this from happening, here are a few tips:

1. Real numbers

Very often, innovators hear: “Our project will bring you millions” (and no calculations), “We will conquer the market very quickly” (no competitor analysis), “Our technology is unique” (no test results).

Healthy startup ambitions are valuable, but it’s better if they are backed up not only by the founder’s ideas about the technology or product (often distorted precisely because any startup is the founder’s favorite brainchild), but also by the homework done. I would like to see real numbers and real results, albeit modest, otherwise it seems that you are selling air.

2. Ability to negotiate

Or “Don’t you understand that I don’t have time?” Or “I’m very busy, why should I specially adapt to you?”

As a startup, you don’t owe anything, but manipulation and disrespect is the last argument in any discussion (if it has already begun). If the conversation is conducted in this way, then the company will most likely earn millions without you. Any pilot and any cooperation is, first of all, interaction between people. Better be correct and polite, and no one likes manipulators.

3. Don’t underestimate yourself

No need to pitch from the position of an apologetic. Firstly, if the company met with you, it means that your project is interesting for some reason. Second, if you don’t believe the product is profitable, why should others? If now you don’t have enough resources, experience or cases, but you firmly believe in the success of the solution, you can design a pilot on open data. Or if you clearly understand what your business value is, with a high probability in a few months, when you gain the necessary experience, they will return to you.

4. Demonstrate an interest in a particular corporation

“I want to start a pilot with a large company, for example, yours, where should I send the invoice?”

The desire is great, but what does the company have to do with it? Always start with business value for the customer. Most likely, there are several similar solutions on the market, your competitors want the same and, moreover, it is possible that the customer knows them too. Take open data, imagine what the business process looks like, based on this, model interaction options and benefits for the customer. It’s not always easy, but it’s a good exercise and a great way to show that you’re interested.

5. Don’t be offended

If the pitch did not work out, the solution was not chosen, the cooperation did not work out right away, remember this: an accelerator, a pitch session, a demo is a lottery, where a lot depends on luck and many circumstances. In addition, the processes in corporations are built in such a way that the adoption of one seemingly simple decision can take a significant amount of time. Do not quit communication, do not be offended, try to convey your value later. Innovators, for example, love to be sent news about raised rounds, closed deals, new products. So they can conclude that the project is developing and you will probably have something to talk about in the future.

6. Don’t cheat

Definitely, this should never be done. Oversale is a very erroneous tactic when approaching a corporate customer. If you promise to do something in three days, and after a month it turns out that nothing is ready, there is a chance that the cooperation will not continue. If your product does not have half of the declared features, and you finish the other half along the way – the same story.

7. Don’t try to change the customer

Another erroneous tactic following from the previous paragraph is an attempt to remake the customer’s request for the capabilities of their product and prove that the customer really needs something completely different.

Selection for the accelerator is a matter of the successful coincidence of many factors: getting into the need, a successful pitch, passing through the selection sieve at the previous stages. The most difficult part begins after the demo day, when all the champagne has already been drunk and work on the pilot begins – the formation of the scope, the formulation of hypotheses and the selection of metrics.