How to Leverage Open Innovation for Small & Medium Enterprises (SMEs)

With millions of startups globally and many more launching each day, companies find it increasingly hard to efficiently search for external innovation. Unlike large companies, small and medium enterprises have smaller teams, scarcer resources, and fewer technological assets. All these factors make it even harder for them to manually scan the external innovation space to find innovations that fit their short- and long- goals. Therefore, it is even more crucial for small & medium enterprises to utilize open innovation services to speed up innovation.

Participating in startup challenges allows SMEs to interact and collaborate with large companies.

How SMEs Innovate

Lower Research and Development (R&D) Spending

Even as a fraction of total costs, SMEs spend way less than large companies on business R&D. This is probably skewed by the fact that most SMEs aren’t entrepreneurial by definition (think of a garage or a neighborhood supermarket). But even entrepreneurial SMEs find that testing and adopting new technologies costs time and money.

Prefer External Innovation

To compensate for low R&D funding, innovative SMEs have no choice but to seek external innovation. In this way, SMEs have been engaging in external innovation much earlier than large companies. However, many of these partnerships are formed with entities like components vendors or enterprise software providers. Lately, small & medium enterprises are leveraging open innovation to scan the competitive environment or speed up product and process development as well.

Focus on Domestic Markets

SMEs generally operate within a city or a country, unlike large companies that are often multinational. This differentiation influences the choice of innovations they seek. SMEs are more likely to invest in products and technologies that improve the value proposition for their customers than enter new markets or segments. Further, it disincentivizes them from seeking partners or vendors globally even when they may provide more value for their money.

Lack of Intellectual Property Rights (IPR) Strategy

Businesses protect their intellectual property and seek ways to bring more proprietary technologies into their portfolio. Many SMEs, on the other hand, lack a clear focus on advancing their IPR. This is primarily because SMEs often lack insights into how critical business innovation is for business growth. Even when they understand the need for IP, they are discouraged to tackle it by the incapability of competing with large companies on the technology front. While seeking innovation, they are more likely to go for creating new segments or niches and establish a first-mover advantage.

What Open Innovation Does for SMEs

While open innovation is increasingly a must-do for companies of all kinds, it’s probably the most critical for SMEs. Open Innovation in small & medium enterprises is also important for the economy as they employ more people than startups or large companies in total. Here are a few opportunities that an open innovation ecosystem brings for small and medium companies:

1. Strategic Partnerships with Large Companies

As more large companies embrace open innovation, they are seeking external innovation partners of all shapes and sizes. While startups steal the show, SMEs with specialized competencies also stand to benefit. For companies looking to develop a technology in a particular geography, the expertise of an SME in that region is highly valuable, creating new business opportunities for the latter.

2. Speeds Up User Innovation

For many large companies operating in the B2B space, SMEs are their primary users. For instance, the majority of customers of a FinTech company developing point-of-sale (POS) solutions are supermarkets and other neighborhood stores. As part of market intelligence, companies regularly seek their feedback. However, open innovation challenges allow SMEs to participate more proactively, thereby speeding up user innovation.

3. Identification of High-Profit Niches

Because large companies operate in economies of scale, they tend to not invest in highly niche markets. However, some of these niches provide high-profit opportunities for SMEs to capture. Some of these “hidden champions” are industry leaders in niche products like wristwatch bands, tripods, optical sensors, and technical textiles.

4. Open-Source Development

For software-based SMEs, participation in open source development can cut costs in the long term as well as build a reputation. Moreover, the transportability of open-source software provides a degree of flexibility that is unmatched by legacy software.

Build Profitable Corporate-SME Partnerships

Corporate-SME partnerships will become increasingly important in the future of innovation. However, with millions of SMEs globally, it can be daunting and time-consuming for innovation management teams to find the ones that best suit a company’s innovation initiatives. On the other hand, SMEs don’t have the resources to conduct an extensive search on large companies. Data-driven solutions like the StartUs Insights Discovery Platform bridges this gap.

Based on your needs, we at StartUs Insights offer the following deliverables, among many others:

• Startup Programs: Boost startup and SME deal flow through data-driven promotion, direct outreach & storytelling that reaches hundreds of thousands of startups & scaleups, making sure you attract the most relevant ones
• Scouting: Discover over 2,5 million startups, scaleups, and SMEs globally, scouting the right partners, saving weeks of desk research
• Technology Scouting: Reveal emerging technologies that match your innovation goals

With data-driven innovation intelligence, StartUs Insights matches SMEs with large companies to accelerate innovation.

Are you building an entrepreneurial SME or looking to collaborate with one? Get in touch to take your open innovation strategy to the next level!