When Big Companies Support Start-ups, Both Make More Money
September 25, 2013 Editor 0
In the technology world, we’ve seen the tremendous impact that eBay has made in helping small e-commerce businesses get off the ground. Many of them started off selling merchandise from their apartments or homes, and some evolved to become power sellers. Today there are hundreds of thousands of people around the world making their living selling merchandise on eBay. In its turn, eBay has made commissions from every single transaction that has occurred on its platforms.
Now imagine if eBay went beyond providing a technology platform and entered the field of business incubation in a meaningful way, It’s an idea that could have a huge impact. Sellers making $3,000 a month could be coached to get to $15,000 a month. Those making $25,000 a month could perhaps get to $100,000 a month.
Consider, also, Apple and Google. Apple’s iOS and Google’s Android have fueled a global bonanza in app development. Millions of apps have proliferated the world. Some of these generate decent revenues. Most stagnate. But if these two companies took business incubation seriously, and instead of just offering technical guidance on building apps, also offered business guidance, the impact on global GDP would be tremendous.
In the start-up world, there’s a big focus on business incubators such as YCombinator–perhaps too much focus. As we think about the forces that could help more businesses grow into substantial economic engines, it’s important to look at the role that big companies can play, too. Some of them are already providing important platforms that can help small companies get off the ground. But over time, I see the potential for big companies to do much more.
I routinely meet companies that are growing smartly by leveraging platforms provided by big companies. In 2007, I met Kirk Krappe, CEO of a small startup called Apptus. Kirk and his two cofounders Neehar Giri and Nathan Krishnan had earlier done a venture-funded startup called Nextance. Nextance was an enterprise software company providing contract management software. It raised $60 million in venture capital, and eventually failed. The team then decided to take their domain knowledge and start Apptus as a cloud-based contract management software company.
This time round, they decided to take no venture capital. They chose to build the company on Salesforce.com’s Force.com platform, which kept development costs low. The team was able to bootstrap the company, and within a couple of years, shot to $5 million in revenue. Recently, they have received a large influx of funding of $37 million from a group of investors including Salesforce.com.
The beauty of this model is that Salesforce.com has made available a cloud platform-as-a-service upon which entrepreneurs can rapidly and cost-effectively build businesses. The eco-system works really well, and Salesforce.com takes a percentage of the revenues for products built on their platform.
Today, thousands of developers are building on Salesforce.com’s multiple cloud platforms. They all pay royalties to the corporation. Thus, if Salesforce.com were to enter the field of business incubation, helping these companies grow their businesses, the economic benefit would be staggering.
And Salesforce.com itself would also benefit from the increased royalties that would increase their revenues and profits.
The best thing about the corporate incubation model is that it is a win-win for both the corporation and the small business, and it doesn’t have to worry about the startups being fundable by VCs.
Microsoft’s BizSpark program supports 72,000 small businesses building on their various platforms. Oracle’s partner network has a million companies. These massive eco-systems are gold mines of entrepreneurial potential.
As usual, over 99% of these eco-system partners are not venture fundable. But many of them can become $1 million, $5 million, or $20 million a year businesses.
Brian Knight, CEO of Pragmatic Works is one such entrepreneur. Brian has navigated the Microsoft eco-system, and built a $12 million dollar company around the SQL Server platform.
Even on a less mature platform such as SAP’s HANA – a big data analytics platform – entrepreneurs are building significant businesses. Chris Carter, CEO of Approyo, is a great example. Even though SAP only has a couple of thousand entrepreneurs developing on HANA at this point, Chris has already achieved close to a million dollars in revenue developing on it.
Imagine how many Brian Knights, Chris Carters and Kirk Krappes are out there!
If only we could plug the knowledge gaps in these millions of entrepreneurs, and help expand the middle of the pyramid, Capitalism 2.0 would be within reach.
It is, in fact, within reach. Especially, if the corporations wake up and play a bigger part.
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