Open Innovation: Time for Maltese Family Business to build relationships with startups
I was naive to think that the Maltese business ecosystem will take to startups seamlessly. Over the last 5 years, it has become so easy to start-up a new company with a big idea and software development skills, I simply believed that the amount of novelty will excite the incumbent players to seek new opportunities. I underestimated that what was needed was increased awareness about new technologies and motivation to take more risk.
To a certain extent increased awareness has taken place as Malta boasts of several internationally appealing events, the SIGMA conference, the DELTA Summit and Changemakers, just to name a few. All these have a strong innovation and startup presence at their core, yet startups have not started to infiltrate the day-to-day realities of doing business in Malta.
I think we remain for now at the experimental phase, which is a positive thing. Go Ventures has recently been setup , and Harvest has been around since 2016, not to mention the various accelerators and incubators with business affiliations.
The question is, what is the next phase? Is Malta ́s business community ready to start taking chances with technology and startups.
A while ago I spoke to an interested person from a renowned family business in Malta. The main point of the discussion to me remains the prevalent culture in Malta to this date:
“It took us 3 months to investigate a €50k investment in a startup, we finally turned it down. In the same meeting we ideated and approved a project for a €5Mln construction site.”
The state of business in Malta
PWC Malta released their 2019 Family Business Survey which gives some insight into the attitudes and cultures towards innovation amongst Malta´s family business, the core of Maltese entrepreneurship. Here are my highlights in relation to the topic of innovation and startups:
Malta´s family business have actively diversified their business:
Strategically planning for innovation is important but not commonplace
They do not feel vulnerable to digital disruption
Long Term is mainly to “protect” the family business
Time has come to pass-on to next generation
In summary, my key takeaways are that Maltese Family businesses have successfully progressed to diversifying their business offering in order to protect the longevity of their business. This should give them a platform on which to start experimentation into new ventures. They see talent and upskilling as the next challenges faced by the business.
The report however seems to not consider digital disruption as a real perceived threat. The immediate need is to “protect” the family business asset, with innovation being seen as a key challenge, yet many family businesses admittedly do not have a structured strategic approach. Possibly this is because they are fully aware of their strengths and weaknesses and grossly stick to what they know. This makes for fertile land for a disruptive business.
Finally, family businesses are currently going through a transition of ownership and management, which usually means a renewed attitude towards innovation and growth as the newly appointed leaders would seek to leave their mark on the business.
What is open innovation?
In the startup world we usually talk of two kinds of innovation. Incremental (or sustaining) innovation, which is usually focussed in retaining and growing the current market of the incumbent ́s client base. Here the business ensures it maintains its market share and fights off apparent competition through marketing and pricing approaches. This talks greatly to the protectionist attitude of family businesses and the business reality of Malta.
The world of startups is exciting because of the digital disruption phenomenon it brings. The advancements in technology and availability of data and information make it fair game for an entrepreneur to identify gaps in the market and build an unstoppable growth opportunity.
Entrepreneurs specifically target niche or under-served clients, who are early adopters of the new solution as it provides them with utility that the incumbents do not provide. The trick for a successful entrepreneur is not just to find a niche market, but to find one that is trending upwards as it rides on the wave of new technology or business model that is newly entering the market.
These technologies include new trends brought in by mobile-first solutions (think Revolut vs retail banks), use of digital marketing and social media distribution (think Lovin Malta vs incumbent newspapers or QuickLets vs incumbent real estate agents) or low cost solutions across the value chain (think buying from Amazon, Asos vs retail shopping).
Open innovation is the business practice of creating a culture or opportunity of disrupting your own business from within. The Innovator´s Dilemma by Clayton Christianson explains that in the digital age, any business focussed on sustaining innovation allows itself to be prone to digital disruption. It is simply no longer sufficient to serve your best customers well. Businesses need to think of what lies ahead, but they need to be searching laterally.
In Open Innovation practices an incumbent business uses its internal research and development teams, whether these are a fully fledged business unit, or an innovation committee of key managers and talented employees, to develop a strategy around innovation that involves both internal as well as external resources.
This could be effectively achieved through intrapreneurship practices, whereby selected employees work as an “agile” independent business unit with their own decision making structure outside of that of the general business or it could be achieved through interaction with new market players such as startup.
In simple terms, three models exist:
1. Building an investment portfolio — high cost, high risk
This requires taking an equity stake in a portfolio of startups allowing these teams to develop products that could either be deployed in the market as “partners” and could eventually lead to an acquisition of the same company.
At Go Beyond Investing I had experience with such an initiative where one of our portfolio startups was initially invested in and later acquired by an incumbent in the market. The acquirer, a leading insurance company worked with many players in the startup ecosystem to gain front-seat access to new technologies and talent. They now deploy this business offering with any home insurance package, thereby creating a competitive advantage in the market.
2. Strategic fit, portfolio approach — mid cost, mid risk
Here the business enters into various proof of concept or business pilots with startups it encounters by being active in the startup ecosystem (or through intrapreneurship schemes). The strategic approach is to gradually increase their involvement with the startup as the concept offered by the startup improves and is increasingly more relevant to the target audience of the incumbent.
The idea is to use “lean startup” methodologies, whereby the deployment happens first in enclosed environments such as a one-off event and slowly graduates to increasing access from one set of demographics for example (mobile only users) to a final full deployment across the business line.
An example in the market is the use of bots for customer support. The deployment is first launched with a select user group before it is advanced forward.
3. Problem solution project — low cost, low risk
Engaging with the entrepreneurial ecosystem can bring many unexpected outcomes. Businesses may outsource their problem solving by engaging with startups to solve a specific business problem they may be facing.Companies achieve this through competitions or hackathons that allow them to innovate upon specific tasks.
Even if the outcome of the event may not lead to a perfect solution, chances are some new potential avenues are unearthed and critically some new talent encountered.
Unintended benefits of open innovation
In fact it is the unintended benefits that are usually brought up when I discuss open innovation with managers. First of these is that is fosters a culture of innovation and technology within the organisation. It excites those team members that are asked to get involved which overall makes the organisation a more interesting place to work. Furthermore it exposes management to new markets and technologies that may have not been considered relevant prior to the open innovation activity.
Critically also talent scouting. We are familiar with the high failure rate of startups and that their grand ideas may tend to fizzle out as they meet the marketplace. But great talent with great ideas is hard to come by and some of the major rewards from open innovation is indeed access to talent.
Based on the outcome of the family business report, open innovation seems to be an ideal fit for the longevity targets of family businesses in Malta and it could be an exciting department led by the next generation of family business leaders.
Application in Malta
Malta seems to be on a journey to attract the high tech world through its initiatives with blockchain, A.I. and cryptography. Whilst these indeed are technologies that will disrupt the future of work, they may not be seen as immediately relevant and applicable to the current incumbent Maltese businesses.
This is why I presume Maltese family business do not see digital disruption as a relevant threat. I believe that if those same businesses where to look at advancements in markets like Design tech, Agritech, RealEstate tech, Travel tech, Adtech as well as Digital Health, disruption will feel closer to home, at minimum they will get curious about the opportunities available as well as the talent involved.
Given the digital nature of these solutions, the market place is not limited to Malta´s geographical boundaries, as the right solution may be sourced from pretty much anywhere.
Concluding remarks
My exposure to different startup ecosystems have influenced my openness towards how technology can affect change and critically my attitude towards risk. Especially in the Swiss startup ecosystem, the prevalent attitude is that “If something is not risky, then as innovators we are not interested” and it will take a shift towards this attitude for Maltese businesses to appreciate that real growth and competitive advantages may reveal themselves with a renewed attitude to risk.
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