What Retail Can Learn From The Startup Community

More and more senior executives from retail chains are visiting startup communities to hear and explore their ideas firsthand. This is how innovation begins.

As digital technologies become a core part of consumers’ lives, they become more and more demanding and increasingly hard to please. This is a big challenge for today’s retailers.

Consider the effect that digital leaders such as Amazon and Netflix have on consumer behavior. Consumers appreciate the immediacy of Netflix, which suggests a movie or TV show and enables them to watch it instantly, just like they enjoy the convenience of receiving their Amazon Prime orders within 24 hours. The challenge for retailers is that these consumers expect the same level of personalization and immediacy across all channels and touchpoints.

Retailers have responded by innovating the consumer experience to give it a more digital flavor. Nike, for example, opened its “store of the future,” which aims to bridge the gap between digital and real-life shopping and provide sports-related “immersive experiences.”

For most retailers, however, true innovation can be more challenging. Above all, it represents a huge investment in specialist talent with skills in the likes of advanced analytics, service design, and machine learning. The competition for people with these skills is fierce.

Innovation Outreach

Sector leaders are taking a new approach. Rather than building up the expertise they need from scratch, they are looking to source it from the growing ecosystem of technology startups through acquisitions or partnerships.

More and more senior executives from retail chains are visiting startup communities to hear and explore their ideas firsthand. This is how innovation begins: You venture out of your comfort zone to seek inspiration. In doing so, senior executives are discovering new business models to reinvigorate their organizations.

Whether it’s San Francisco or New York City, Dublin or London, the world’s creative centers are where new technologies are being developed and tested. To discover the concepts that will help them drive and lead the next transformation in their sector, retail executives need to first engage with the creative minds in these hubs–even, and especially–if the ideas they find there are very different from their own.

To Buy Or To Partner?

Larger retailers are embarking on full-scale acquisition strategies. For them, this is an opportunity not only to harness some of the most disruptive new business models under development in the startup ecosystem, but also to bring on board the expertise of startups.

An acquisition strategy is not for everyone, however. The scale of capital required inevitably reduces options and flexibility–and not every firm can afford to spend hundreds of millions of dollars on a speculative investment in a new business model.

The sheer amount of emerging technology means that businesses must be careful not to put all of their capital into one idea that could fail when a better technology is developed elsewhere.

This risk of failure is driving some retailers toward partnering; for midsize chains, it may make more sense to “borrow” expertise rather than buy it. Over time, we’d expect more and more retailers to take this route. Part of the reason why the partnership system works is because there is clear value for both sides: Retailers get access to the most radical ideas, and startups benefit from the business experience and established networks of their new partners.

Taking Risks And Learning From Them

In the past, retailers launched a new technology in one store and, if it was successful, rolled it out to the others. Today, because a positive experience is, by its nature, intangible, it is more difficult to understand what works and what doesn’t to support the brand. The trick is to measure the impact and focus on the net results. If it doesn’t drive foot traffic, sales, or profit, then the experiment should remain an experiment.

Today’s retailers don’t like shutting experiments, because they are used to piloting and rolling out technology. Today’s most successful business approaches, however, rapidly recognize and decisively shut down failed experiments.

Retail innovation through acquiring or partnering with startups is still an evolving trend. Retail chains want to experiment, but many are unsure about what approach will work best for them. Should they commit their capital to acquiring a startup lock, stock, and barrel, or better to partner with a number of disruptive firms? The first priority for many retailers will be to take that leap outside their traditional boundaries, find out what the wider ecosystem has to offer, then measure the impact. They’ll likely be surprised with the outcomes.