FRIA conference: corporations are not vs startups

We not only write announcements of events, but periodically we also visit them. One of the brightest impressions of this summer for our team was the FRIA conference - “Launching pilots with startups. Cases of corporations. As occupying an intermediate position between these categories, we can play the role of a referee and praise the organizers for the ability to maintain a balance. Contrary to the name of the site, representatives of corporations and startups divided almost equally, the problems and interests of one group didn’t score problems and interests of another in discussions, so the overall picture didn’t turn out to be one-sided.


Photos from the official page of Fria on Facebook

It was mostly about the very first stages of cooperation - the launch of the project in test mode. The program neatly moved from the general to the particular: from the history and the general scheme to the particular moments, surprises and mistakes that participants encountered, trying to attach it to reality. Under the cut, we will tell about everything that we have learned in these few hours.

The first performance belonged to Yevgeny Borisov , the representative of IIDF, who presented a small group with the telling title “How and why should corporations run pilot projects with startups”. In fact, it outlined a problematic and substantive field that, personally, we, a little away from the topic, were pleased with our foresight.


Pilot projects proved to be a necessary stage of digital transformation for large corporations. When this trend was outlined several years ago, the IIDF team was optimistic and expected enthusiasm and vigorous activity from major players. But in fact, companies were not in a hurry to integrate technology solutions from startups. They needed to see the result first.

The reality is this: Russian startups are now undervalued. Foreign corporations are more interested in them than domestic ones, which is not bad for the founders, but not very promising for the economy.

To shake the market, IIDF took the position of an intermediary between giants and indie developers. First of all, it was working with corporations: discussing and identifying their needs. The following two blocks turned out to be the most promising:

• Sophisticated industry solutions for serving private needs. They are also in demand in the foreign market.
• End-to-end digital technologies: Big Data, augmented and virtual reality, cybersecurity.

In these areas, start-ups in theory can bring large companies a lot: new technologies, new business models, access to new markets. But, on the other hand, implementation may not be possible or not bring the expected benefits. That is why the integration process requires a testing stage — that is, a pilot.

A pilot project is a short-term controlled test of a technology or product to test the attainability of a start-up effect, as well as a team, business model, and other parameters.

There are several key points in this definition.

First, as Yevgeny emphasized, the effect here is meant to be economic. A start-up must, within the allotted time, show that its technology is really capable of generating profit growth. For the corporation, this is the main argument in deciding.

Another key word is “short term.” Ideally, tests should be run and run in a month or two. Abroad, they already fit into these deadlines, but pilots for Russian companies still last 3-6 months. This is unprofitable, first of all, for the start-ups themselves, who often devote a lot of time to a dead-end option.

Finally, an important parameter is the existence of a two-way control system. Without this, there will be no material for analysis - the very economic KPIs that should determine the outcome of the case.

The pilot launch consists of five stages:

1. Search for projects: to do this, you can attract existing funnels, go to universities, research institutes and incubators, conduct their own events
2. Selection of projects: it should be carried out by a special expert commission. It is not enough superficial glance: deep tracking, "unpacking" of technology and judgment of its place in business is necessary. Ideal hits almost never happen, most projects have to somehow adapt.
3. Launch and pilot: support and teamwork are underway throughout.
4. Analysis of results: calculation and discussion of KPI, summing up. Even in the case of a successful pilot, you should pay attention to the shortcomings and bottlenecks.
5. The final decision: scaling, investing, buying a startup, entering into a partnership or abandoning the project.

The transition to the next report was smooth: if Yevgeny defined the basic concepts and principles for conducting pilot projects, Vadim Kapustin , development director at X5 Retail Group, spoke about how and why they were put into practice in his company.


Vadim Kapustin “Running pilots with start-ups: practical cases”

The answer to the question “why” turned into a detailed review of the picture of the modern retail market. The main driver of innovation there has been and remains high competition. The main trends today are the intensification and acceleration of technological development, which will entail a fundamental change in the industry. In order to survive on the 10-year interval, it is simply necessary to cooperate with innovative structures to corporations.

In Russia, the volume of investments in innovations now amounts to about 1% of GDP - a lag of 3-4 times in comparison with other states. For startups, this is great news: the money will go first to them. In the experience of large foreign FMCG corporations, one can see how this usually happens. With the growth of scales, all systems and processes of the company become heavy, hindering the introduction of new models. Many giants are now solving this problem radically: experimentation is completely separated from business. Venture funds and laboratories are being created that are engaged in innovations and, in particular, interact with start-ups.

X5 Retail Group followed this path in 2016, followed by such giants as Amazon and Walmart, and Vadim had the opportunity to experience all the financial, logistical and psychological processes associated with him personally. One of the major barriers is the skepticism of the majority. The first stage of innovation is finding inside-company drivers - people from top and middle management who are ready to take risks and invest a lot of resources in excess.

The experience of predecessors shows that the innovation department usually has about two years of “honeymoon”, when they can work calmly and freely receive funding - after that you need to present impressive results. In such a time frame you can meet only if you develop a systematic approach. Therefore, the team immediately identified areas that are most relevant for the implementation of innovations:

• Analytics (big data, effective tools for processing data arrays)
• Marketing (customer focus, deep understanding of customer needs)
• Operations (automation of all processes in the stores, as well as the collection of information)
• HR, analytics and IT (tough cost cutting for price advantage)

Vadim cited several examples of technologies that are in demand for solving acute problems in the retail business:

• Video analytics: necessary to monitor the availability of goods on the shelf, monitor queues, create a black list of customers, create maps of movements and interest.
• Computer vision: used to monitor the prices of competitors
• Big Data: allows you to reduce the information on the price series with a minimum cost.

Technologies and directions are represented unevenly in current pilots. Logistics, HR and finance niches have been mastered most of all - the reason, apparently, lies in the fact that there are few open source solutions on the market, a high level of expertise is required.

To date, the X5 Retail Group special department has reviewed more than 400 projects, 54 of which have entered the pilot stage. The selection takes place according to the scheme presented in the first report. The analysis is conducted by an innovative council of company employees who are well acquainted with internal processes and needs. The threshold of entry is the presence of a prototype: projects at the idea level are much more difficult to evaluate and “promote”. However, the council seeks flexibility, so exceptions are possible. So, the human factor decides a lot - how much people are infected with their idea and how much they are set to cooperate.

After the corporations set out their views on pilot projects and the approach to organizing the process, it is time to look from another angle. The second part of the program was given to representatives of startups with focal cases and broad conclusions. In total, there were three speakers, whose experience for balance and objectivity covered the full range - from apparent success to disappointment.


Najib Muabbat "How to prove value and integrate with the telecom giant?"

The representative of the team of Hot WiFi Najib Muabbata became the first voice from start-ups and immediately set a positive tone: the conquest of the telecom-market went through the guys successfully and even ingeniously. The B2B product they offer functions as a platform for managing a wifi network with a web interface with which the client can interact. Historically, at its inception, a startup worked with the restaurant business, and eventually focused on serving this niche and after acceleration and growth. Now Hot WiFi is working with 3400 points, for a significant part of which went through partners - large telecom companies. This is where the fun begins.

The situation in this market segment is peculiar: since there is no product line as such, operators are trying to increase the value of their services through the aggregation of additional opportunities. Accordingly, it was necessary to sell first of all the idea that wifi can give business more. According to the canons for this it was necessary to go in from partners, proving to them a favor in theory, in order to get access to clients. The team chose the opposite approach: it began to warm up the market, demonstrating value above all to the owners of the restaurant business, who soon began themselves to start conversations with telecom partners. In fact, they dragged demand on their side and managed to close the need before other volunteers appeared. The main conclusion that the speaker draws from this goes against the opinions of other participants - the case is not needed, there are enough convincing arguments in favor of value. If they are, the heated market will work on a startup itself.

In the second part of the speech, several more useful observations were made, which Hot WiFi made in concluding a deal with the giant company Rostelecom.

1. Go on all sides. This applies not only to the chain of start-up partner-client, but also to the search for contacts within the company. Many people prefer to work with one lead, but this is a risky strategy. It is better to strive to reach several contacts: the more people you know, the more likely it is to freeze someone, to get to a person who will be truly interested in this deal.
2. Manage the process. It may sound too ambitious for a startup, but Najib is convinced that even in a more vulnerable position you can set a certain bar for negotiations. If a startup clearly adheres to deadlines, complies with all agreements and maintains a high pace of negotiations, the corporation will have to comply.
3. Work as a team. Here we are talking about the internal culture of a startup. It is difficult for one person to pull out a deal entirely, it is better to distribute tasks among several drivers. Standard separation - legal / financial and technical issues. The founders must supervise the process, giving down only routine tasks.

Sergey Budyakov: Launching a pilot with one private bank

Sergey Budnyakov from usedesk startup presented the very same anti-crisis with disappointment - the negative story of a single large bank and a small technological team working together. The story was pleasantly surprised by its benevolent prudence: no dirty clothes, only objective facts and conclusions.

Each unsuccessful pilot is unsuccessful in its own way, so it makes sense to look into the background. The usedesk service has been designed to combine communications with customers through different channels into one system, minimizing lost profits. The parties came to the fateful deal about a year ago, at the IIDF demo. By that time, the team had already gained some experience - it had several active pilots. However, as the speaker acknowledged, further developments showed that some harsh truths had so far passed them.

Usedesk representatives came to bargain prepared. The plan was to present a project, conduct and show a pre-project study, conclude a contract with a prepayment, take two weeks to launch and spend about a month on a pilot with a supposedly happy outcome.

Reality quickly began to make corrections: although there was no problem with research and demo, contracts had to be entered into according to the form of a bank, without the possibility of making changes and without any mention of prepayment. Then the deadlines floated hopelessly: the launch process took six months. Partly due to purely technological issues (complex network schemes, non-standard technological stack), logistical problems also played a big role. The NDA, signed by the NDA, allowed the team to work only at the bank’s offices and stopped any attempts to bring information out, even for purely working purposes (for example, throwing a copy to a colleague). After all the circles of purgatory, when the service was finally set up, the long-awaited pilot lasted only a week, after which the decision to refuse was announced.

In general, the usedesk team does not rate it as one hundred percent negative (and not only because the payment finally took place). He allowed to reflect on some of the nuances of small-to-large relationships and to derive a number of rules for himself.

1. The project should be allocated to individual people , and on both sides. For startups, this is important, because the resource consumption can greatly exceed the expectations: if necessary, you must be ready to completely “throw” a person on the tasks associated with the transaction. Corporations, by appointing responsible persons, can significantly speed up and facilitate the workflow - it will always be clear to those working in the office who to contact and not have to find at least someone.
2. You should be ready to play on someone else's terms (and not wait for the money immediately). Corporations are not too interested in the preferences of a startup, especially in legal matters. The probability is high that it will act on the part of the force and solve them unilaterally.
3. It is necessary to immediately build and articulate expectations. One of the reasons for the failure Sergey sees is that the team relied too much on the streamlined “product will like it and everything will turn out.” The benefit should not only be felt, but also measured in specific KPIs to which it will be possible to appeal when discussing the results.
4. Similarly, you should consider the sequence of steps after the pilot : with which departments to work, what timeline will be, etc. It is important to imagine at least a general scaling scheme already when the pilot starts. In this case, the startup will immediately have something to offer for a substantive conversation. Otherwise, the process of making a deal runs the risk of delaying for a long time, and the initiative will be missed.

Arkady Alshan "Our experience with large companies and why we are still alive"

Arkady Alshan’s speech as an anti-position was not positioned, but our opinion was close to him in spirit. In fact, the history of the PayZ team also illustrates mistakes in the approach of startups to working with corporations, but with the proviso that they were revealed here at an earlier stage.

The Pay-Z app implements the concept of “smart store”, eliminating the most common irritating factors - queues, communication with the cashier and tape. It allows you to simply get a ready-made grocery set in your hands after scanning all the necessary bar codes in the hall and paying online. The founders of the startup already had some entrepreneurial experience in the BTC sector, which eventually let them down, instilling a false sense that everything in BTB was also caught.

It all started with the fact that the founders fell into a trap, which Arkady defined as a “preliminary yes” - that is, a non-binding manifestation of interest, with which many respond to the pilot's first sentence, especially the free one. Then it seemed that it was enough, even if the deal went nowhere.

Having accumulated a considerable hypothetical portfolio in this way, the team was convinced that the idea would go to the market with a bang, and the main thing now is not to make a bad bargain. Here, in fact, begins and ends the history of their relationship with giant companies. The startup began to focus exclusively on them, but although no one answered with direct refusals, it quickly became clear that something was wrong here. The build-up of contact lists also had no effect.

They opened their eyes to communicate with more experienced people. The solution was to pump a realistic look and choose the right segment - in the case of PayZ, these were small retailers and franchises. It was then that contracts and cases appeared. After 3-4 months, people began to talk about the product and now it took a week or two to complete the transaction. Layfkhak: if you go to the CEO or founder, it will significantly accelerate.

In retrospect, the team realized: with a large network, it makes sense to have only a substantive conversation, with bringing numbers and cases - then the communication will be more or less as equals. Potential deals and a preliminary “yes” have no weight. Accordingly, it makes sense to start with small companies, gradually moving towards larger ones.

Regarding the wishes of corporations, Arkady urged both parties to be as honest as possible. If the implementation is unlikely, it is better to make it clear right away - start-ups cannot afford to wait for the progress for months.

Further, the site again passed to the owners of the market. The panel discussion was very dynamic, the participants touched on many painful topics - from the white label model to the prepayment. If you isolate the most instructive for startups, you need to mention the following:

1. Projects often do not reach the stage of financing primarily due to high expectations. To come and put tough conditions on the prepayment and payment terms of the unborn project is the path to nowhere. Often this is what causes failure. Corporations will be more willing to take a free pilot project and then pay back with interest.
2. Legal rigidity, which looks like a reluctance to make concessions, is more characteristic of government institutions, like long launch periods. Non-state are now rapidly moving to a fast track on the western model. It should take into account the specifics of the sectors.
3. The great and terrible non-disclosure agreement in Russian realities is not as scary as it is painted. There are cases when developers lose serious money on their missteps. But in general and in general, it is difficult to prove the fact of a leak, and the amount of compensation is usually so large that the court often does not allow charging them in full. In addition, domestic companies are relatively loyal and ready for a dialogue - but it’s better not to joke with foreign partners.
4. Some corporations, especially banks, are generally ready to take on technologies that have already been implemented from their competitors. If the idea was able to sell to someone, this does not mean that you can’t sell it anywhere else. But you need to be extremely careful.
5. And, to finish on a positive note, we repeat: in all the areas presented there are many areas where the demand for innovation has not yet been closed. Corporations need start-ups and, for all their differences, they are ready and interested in investing in projects.