Companies Make Mad Dash to Partner With Startups

The trickle of such companies has become a torrent lately as CEOs and business owners attempt to fight stagnation, maturation, wider competition and dwindling growth prospects. When they’re not trying to find the next big thing in their vertical, they’re working with startups in the burgeoning social-media field and other digital venues in the hopes of discovering and developing apps and other new tools that will give them a competitive edge.

“By sitting out this phenomenon, CEOs risk being the last horse out of the barn.”

CEOs for companies such as Chobani, Diageo and Nike are heading into such deals by shooting from the hip, with no proven ROI or other considerations they might normally have when making a capital expenditure or more traditional investment. Yet, there’s more competition than ever to find these diamond-in-the-rough startups that are truly worthy of their attention and funding; like the risk of any new endeavor, most won’t pan out even after selected.

But the rewards of a few successes can be significant even for a big company, and by sitting out this phenomenon, CEOs risk being the last horse out of the barn. Consider Chobani, for example.

The Greek-style yogurt maker is just the latest company to move in this direction. Founder and CEO Hamdi Ulukaya took a chance as an entrepreneur several years ago in launching his firm. With Chobani having grabbed an estimated 36% of the U.S. yogurt market in just a decade, he wants to give a hand up to other entrepreneurs who might have a similarly winning idea.

So Ulukaya is plowing $2 million of Chobani’s into a food incubator in New York City, and planning to choose 10 companies, for which he will provide test kitchens, office space, mentorship and access to chefs and other Chobani resources.

“We’re about creating the future, but also about creating future revenue streams for Diageo that don’t currently exist.”

Meanwhile, spirits giant Diageo, based in the UK with U.S. headquarters in Connecticut, recently launched Diageo Technology Ventures, which is trying to partner with innovative digital and technology companies. Each startup gets $100,000 to support projects that address vital areas of interest for the company, such as responsible-drinking marketing programs.

“We’re about creating the future, but also about creating future revenue streams for Diageo that don’t currently exist,” Helen Michaels, head of Diageo Futures, told CEO Briefing.

Two years ago, Lexus ran a contest called Lexus Ignition in which a Facebook app solicited votes on eight technology startups, whose four winners split up to $100,000 in funding. PepsiCo runs its PepsiCo10 program, which aims to discover, nurture and harness technology, media and communications entrepreneurs in the United States, Brazil, India and other crucial markets in new initiatives that lead to effective digital- and social-marketing efforts for the company.

Nike has sponsored the LAUNCH Systems Innovation Challenge, which is an open-call competition for innovative ideas and processes to transform the way fabrics are made. The challenge will result in 10 product innovations which will be matched up with a team of investors and marketers to aid in the manufacturing process.

“The Nike challenge will result in 10 product innovations which will be matched up with a team of investors and marketers.”

And Domino’s Pizza last year sponsored a “Pizzavestment” promotion that tapped  crowdsourcing of innovative ideas and awarded $500 pizza gift cards to about 30 startup companies around the country.

Are these efforts working? The ROI can be hard to calculate, since there’s no way to predict exactly when a product will reach the customer tipping point. However, it’s not hard to see that all it would take to make a project worthwhile is finding one golden nugget. And in this exciting digital revolutionary age, it’s clear that there are golden nuggets to be had if companies are willing to look.

Is your company involved in an innovation startup or partnership? Share your story in the comment section below.

Dale Buss: Dale Buss is a long-time contributor to Chief Executive, Forbes, The Wall Street Journal and other business publications. He lives in Michigan.