Shark Tank: 3 Ways Leading Companies Are Keeping Their Brands Innovative

Similarly, KPMG in 2013 created KPMG Capital as a fund “to invest in the best and brightest data-analytics technologies that we can take to our clients,” says Mark Toon, CEO of KPMG Capital. Its first investment was in Bottlenose, a $20-million, Los Angeles-based “trend-intelligence” company.

“We’re not the most innovative organization in the world when it comes to creating new technologies to do stuff that’s cutting-edge,” he says of KPMG, the New York based global accounting and consulting firm. “Our investment in Bottlenose was our way of ensuring that we can provide our clients with the brightest thinking in a specific space that we wouldn’t get to for years, if ever.”

Two years ago, Molex, a Lisle, Illinois-based major maker of electronic components, formalized a program of investments in “external innovations that can specifically disrupt our future vision, or in strategic growth areas to get us a jump start in new technologies,” explained Lily Yeung, director of corporate development for the company that Koch Industries acquired in 2013.

Last year, Molex invested in a round of convertible notes and struck a strategic partnership agreement with NuCurrent, a Chicago-based wireless-antenna design outfit. That followed by a year Molex’s similar investment in Vasa Applied Technologies, a startup that developed a technology for accurate measurement of fluid flow rates for medical applications.

For Vasa, says co-founder and CEO Jacob Polger, the opportunity is clear. “With Molex’s global sales force and engineering capabilities, we expect to significantly increase our technology
reach in new geographies and markets,” he says. For Molex, the deals are a way to place more bets on the future.

“It’s related to the many unicorns we see in the startup world,” Yeung says, referring to the term for a new company that quickly burgeons into a big one. “Big companies are learning that these small companies can disrupt their core businesses and become really valuable as well, and tapping into innovation is absolutely crucial for our survival.”

THE MIDDLE MINDSET
Savvy mid-market companies are participating in this trend as well. Executives of Kwikset, for example, a $600-million maker of residential locks owned by Spectrum Brands, in 2012 saw a startup called UniKey on Shark Tank demonstrate a digital “smart lock” that threatened the traditional security devices where Kwikset reigned.

The company quickly partnered with UniKey to introduce its own smart lock ahead of its rivals. The relationship also is making all of Kwikset more nimble. “We looked at our own organization internally and decided to evolve our structure to be more like a small company,” explains Greg Williamson, Kwikset’s chief marketing officer.

“In some ways, mid-market companies are better positioned than big companies for this, because they still possess a fairly nimble structure, making the interface with startups less of a disconnect,” notes Mike Morin, COO at Start Garden, a venture-capital fund based in Grand Rapids, Michigan. “They often have significant regional social capital and relationships through
their employees and their supply base, and that makes them a more likely access point for local innovators.”

While it’s almost too early to recognize failures, a big-to-small strategy clearly carries some risks for both sides. For big companies, the method remains essentially a crapshoot, providing little of the traditional ROI metrics that they typically have used to make investments. And they still may not avoid disruption by some startup that they passed over.

For small companies, the risks are big as well. They may select the wrong big partner and then not be able to escape a corporate vice grip that is fortified by lawyering, or they may be suffocated by their corporate relationships instead of transforming their much larger partners.

But big-to-small thinking is already blowing a big hole in traditional business models and relationships. And it seems here to stay.