Why big and small businesses need to work together for mutual benefit

Sounds like you've been reading too many corporate annual reports. What are you on about?

You're not wrong there. My secret summer reading. But if you look closely enough it seems in the modern business world, big and small can and should work together. Rather than David spending all his time trying to kill Goliath he would better off finding a way to catch his oversized eyes and cosy up together.

David and Goliath, really?

If it catches your attention, then yes. You only have to cast your eyes over to the spirits industry to see how many of the major drinks producers now have their own strategically important innovation hubs set up to specifically work with and invest in start up businesses. Diageo set up its Distill Ventures hub as long ago as 2013 and has already spent £50 million in seeding and funding new spirits entrepreneurs. Pernod Ricard has followed suit with a similar Ventures initiative where it offers up to £1m to invest in startups. These drinks giants have realised the business potential in working with companies who might in sales terms be minnows, but who might have the edge in dreaming up the next creative, cutting edge idea.

You mean nick their ideas for themselves?

You might say that, but I couldn't possibly comment. The explosion in craft beer and spirit products has changed the rules for even the world's biggest drinks companies. They are no longer the all powerful, dominant figures they used to be. They also know they can't keep their investors happy by relying on year in year out growth for all their global power brands when drinks categories are being stretched by an increasing number of niche, more on-trend, craft-driven brands. The likes of Diageo can't compete by creating the cool artisan, authentic brands that consumers now increasingly want. But they can learn from the entrepreneurs behind those brands to find what trigger points they are using, what social media platforms are best for reaching their target customers.

Sounds interesting. What else?

Running these startup hubs has moved up the corporate agenda even more now the major grocers are cutting ranges where even Diageo and Pernod Ricard products are not safe. It is happening right across the food and drink industry where R&D budgets are notoriously much smaller than in other industries - making up only 3% of the $680m global industry spend on R&D, according to PwC. Coca-Cola, Kellogg’s, General Mills, Campbell Soup and Unilever all run similar funding schemes. Unilever says such initiatives are going to be vital for business success in the future. Aline Santos of its start-up division, The Unilever Foundry, says working with startups “can no longer be viewed as an optional extra...it's a strategic imperative”. Adding: “Startups are now widely recognised as invaluable sources of innovation, fuelling growth and providing pioneering business solutions.” Which does not say a lot for the well paid Unilever executives working alongside them.

So how do these start-up initiatives work?

There are all sorts of arrangements and partnerships being set up where the whole purpose of the link-up is for mutual benefit rather than being purely predatory. They simply would not work if they were. A startup might agree for a drinks giant to take a Dragons Den-style stake in their company in return for seed funding and expertise. Take Seedlip, the world’s first non-alcoholic spirit, which allowed Diageo to take a 20% stake in its business to help fund growth and development.

But surely these big drinks giants are looking to ultimately gobble up their competition?

For some, yes. Particularly in the beer industry where all the world’s biggest brewers have now bought up craft beer brands. Anheuser-Busch InBev has acquired 10 alone in the last few years. But again the time comes when smaller players are happy to take the corporate dollar. Super hip Innocent Drinks is now part of Coca-Cola, Ben & Jerry’s is owned by Unilever.

What about the wine industry?

There is, as yet, not the same level of partnership or strategic thinking that start-ups or smaller businesses can take advantage of working with major wine producers or distributors. But it is surely only a matter of time. For all the talk of consolidation in the sector, if two major distributors come together it is only creating more of the same. It's not radically changing the way they work or re-inventing an increasingly broken wheel. Big merger and acquisition deals are also high risk with no guarantee of success.

So how could it work?

Well, what if a national drinks distributor signed strategic partnerships with smaller merchants to bring flair and dynamism to their range? There has to be more room for collaboration and partnership between large and small distributors and importers. Where one can help each other, be it with range, contacts and creativity on the one hand, and efficiencies and distribution on the other. If it makes good business sense for both sides then what's to stop more David and Goliath partnerships evolving in the future? It can only be good news for the industry if it brings out the best of both sides for the benefit of all.