Startups and innovation: Partnerships build intangible ROI

Some of the industry’s ‘rockstar’ strategists and celebrity agencies are coming to realise the pedestal they stand upon may be a lot shakier than they thought. As traditional firms struggle to get keep up with the pace of technological change, the more enlightened ones see they need to make fundamental changes to the way they operate.

Just ask VLT, a digital agency based in Malaysia. In its belief that the future lies in partnership with innovative startups, VLT grew a limb – a startup incubation arm called VLT Labs, then threw everything the agency knew out of the window. 

For one, the agency’s standard process — from strategising to gathering insights to preparing contact reports and Powerpoint decks — takes far too long for agile startups.

Startups also face their own specific set of challenges, ones VLT rarely encounters with typical brands — budgets are generally miniscule, and sometimes even the products are nonexistent. 

When the virtual assistant service Supahands first approached VLT, the founders had an idea, but little else. Their budget was tight, and the platform for the service had not been developed. As a result, VLT Labs designed the website, UX and branding for Supahands in exchange for a stake in the company.

“We discovered that we couldn’t just apply standard agency resources and talents to startups’ problems,” explains Warren Tan, CEO of VLT. “You can’t treat [partnership with startups] as a side project — that’s why we created it as a separate unit. It needs to have its own P&L, its own dedicated resources.” 

VLT Labs currently has about 20 staff of various technical backgrounds providing standard agency services and technical expertise to about 30 to 40 startups. Taking equity instead of dollars for the resources they invest means not gaining ROI for perhaps three to five years — if at all.

While the returns may be fuzzy to a dollar-minded person, the potential gains are clear to VLT Labs’ director of innovation, Andrew Tan.

“The next great thing will most likely come from [a startup],” says Tan.

He points out that virtually all big companies are keen to work with startups, citing Unilever’s launch of a global startup community engagement programme earlier this year and Mondelez’s ongoing collaboration with mobile startups since 2012. 

The agency’s investment in VLT Labs, Tan adds, helps it to be at the forefront of “figuring out the mechanisms and process in working with startups”.

Tom Kelshaw, director of technology at Metalworks by Maxus, agrees that brands are growing keen to deliver innovation strategies. He points out that Metalworks, the R&D division of Maxus, helps the global media agency gain “hands-on experience” in emerging technologies to solve clients’ problems. 

According to Vivian Zhu, head of digital, data and analytics at Starcom MediaVest Group in China, the agency’s partnership with the startup accelerator Chinaaccelerator helps it align the interests of startups with those of commercial clients. “Clients always need very clear objectives with promised ROI. But startups are about developing products, not about marketing. They have very different goals,” Zhu says.

To ensure a startup stays committed to a partnership, Kelshaw says that agencies have to respect and uphold its core mission. On the other hand, an agency also needs to manage the risk that brands bear when putting their name and investment behind a startup that has no track record. 

Risk, however, is a crucial component of innovation. The question is how much do you pump into ideas that may or may not develop into the game-changer of tomorrow?

Kelshaw questions the much-lauded “70:20:10” strategy of placing 70 per cent of investment in established programmes, 20 per cent in emerging innovations that are gaining a following, and 10 per cent into completely untested innovation. 

“It’s a myth,” he says, adding that “a more reasonable model” would be 90:9:1. 

“One per cent [of investment] into trying something that has not been done before? That risk is very palatable.” 

However, Kelshaw notes that while big-budget campaigns with established methods may get approved with ease, a modest US$15,000 innovation budget often “takes 12 meetings to debate on”. 

“The key is don’t sweat the 1 per cent more than you would sweat the 99 per cent.”

Our view: A partnership between agencies and startups potentially allows both parties to focus on what they do best. For comments, contact [email protected]

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CASE STUDY Reaching round restrictions

Tiger Beer (GAB Malaysia) was looking to retain an association with English Premier League football without broadcast sponsorship, according to Tom Kelshaw, director of technology at Metalworks by Maxus. Additionally, advertisements for alcohol drinks are prohibited in Malaysia.
Through R&D in real-time mobile web and a tie-up with an Asia-Pacific startup, Metalworks delivered a mobile second-screen platform to engage with football fans in bars instead.

The application, called Gameday, operates from any mobile web browser without installation. Fans use the app to predict scores of their favourite matches during the event, play real-time guessing games, and share their passion for the game via social media, earning points that are redeemable for exclusive prizes.

“We’ve had multiple campaigns in Malaysia, with 3.6 social shares per active user and a 38-per-cent redemption rate. Off the back of this success, we’re rolling out upgrades for alcohol, sports and entertainment clients globally in 2015,” Kelshaw says.

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BIG IDEAS Relationship between startups and agencies is no bed of roses

The return on investment agencies get from startups is not usually financial. It is more behavioural or experiential, such as learning to be more agile, open-minded and innovative around new trending technologies.

If an agency can bring these elements into their work environment, it can be leveraged to lead to an ROI. For example, boosting talent retention (a massive challenge) by inspiring staff to learn, or bringing clients innovative ideas that lead to increased revenue for the agency. But once the initial euphoria of working with a startup wears off, there are many challenges to be mindful of.

The startup should realise that while the agency will be excited about the tie-up, it also has a full roster of demanding clients to support, which will always be the top priority. This can mean slower timelines or even long communication gaps, followed by an urgent call: “We have a pitch tomorrow and would love you to mock something up tonight or  even do a custom demo that blows the client’s socks off.”

They agency should understand it may be working with young entrepreneurs who have little experience working in a corporate environment.

The way to overcome these differences is for the agency and startup to be very clear and upfront with each other about their respective overall ambitions and goals. The agency’s goals might be “to beat the other agencies and survive” but the startup’s goal could well be “to change the world”.
The two sides should then draft a document that clearly states the objectives of the partnership, both parties’ definition of success, and the rules of engagement.

Finally, the startup needs an empowered champion and advocate within the agency it can confide in if things go off the rails. However, given the agency’s size compared to the startup, it is important that the startup does not get pulled in different directions due to having too many points of contact.

Ken Mandel is chairman of the Interactive Advertising Bureau’s social media committee and the founder of mentorship and digital accelerator firm JAM Ventures