How do start-ups impact innovation?

Start-up businesses are at best the ultimate fertile ground for fearless blue-sky thinking, free from the shackles of heavy processes or calcified policies. But successful innovation also benefits from experience and requires investment that a young business may lack. Is this an impossible circle to square?

The lean organization of most start-ups allows for freedom of creativity and agile pivoting at dead ends. Interestingly, it’s also an environment that lends itself for principle and value-driven business – a key to birthing innovative solutions that make a real difference.

“The next generation of entrepreneurs is very purpose driven,” says Antti Ritala, ‘Head of Venturing and Acquisitions, Innovation’ at Neste, the world’s leading producer of renewable diesel, sustainable aviation fuel as well as renewable and circular feedstock for renewable polymers and chemicals. “For example, they are looking for solutions to combat climate change and increase the shift to the circular economy – which is something that is also a strategic aim for Neste.”

“There are motivated people who are willing to put their neck on the line and take risks — you do need to take risks to develop and commercialize radically new innovations in this area,” he adds.

The inherent risks mean that for every unicorn startup that takes off and becomes a household name, thousands return to square one.

“Ideation is risky because there is no guarantee that one idea will catch the market,” observes Marta Dominguez, a start-up expert at IE University in Spain.

There is no doubt that young entrepreneurs and businesses have an important role to play in fostering innovation. How then to ensure that the great innovative ideas graduate into reality?

Smart collaboration is a great way to spread the risk and give the most promising start-ups the leg up they need. Indeed, leveraging the infrastructure of their more established counterparts to bring start-up ideas to fruition is a win-win approach for all parties.

“Telefonica and other big corporations pioneered venture start-up incubators,” says Dominguez. “The focus wasn’t always driving product or business innovation in the vertical of the corporation. This has changed. Companies now use incubators to rapidly test innovations in their verticals.”

The way it works is that start-ups are granted a long leash, allowing them to experiment and innovate — but they are tethered to the financial infrastructure and institutional knowledge of their partners. And the risk is diffused among the various established companies that form the bedrock.

By engaging in these partnerships, says Ritala, “we can utilize the existing capabilities and resources of big corporations. And then tap into the ideas and solutions of the start-up. That can lead to a powerful combination.”

Companies like Neste can then integrate some of these dynamic ideas into their own operations without disrupting existing business.

Selecting the right start-ups to invest in can be a challenge.

“Knowing if there is market-fit is key,” advises Dominguez. “Building the product is secondary. If there's no market fit, there's no need to build the whole thing.”

Ritala adds that an assessment of the project’s potential, its maturity at the time of investment, and the strength of the team behind it, are essential in investment and partnership decisions.

“Prior to the start-up ecosystem of the 2010s, corporations would fund a limited number of ideas,” Dominguez recalls. “Later it was obvious that funding several ideas in parallel was a better idea than the long ideation-to-market model.”

Neste as a company has gone through several transformations, from a regional oil refiner to becoming a global leader in renewable and circular solutions. This has required strong vision and courage - and innovation that runs in its DNA. Nurturing and working with vital, young companies is an important part of Neste’s ongoing business strategy and its purpose to leave a healthier planet for our children.

With that in mind Neste has its own incubator program Veturi to nurture curiosity and innovation in academia as well as in the private sector. The specific goal of the program is to develop sustainable fuels and chemicals from novel renewable and recycled raw materials that have proved difficult to utilize so far, such as forestry residues, municipal waste, algae, waste plastics, and hydrogen.

Among the projects already in motion through this initiative are CaSH (Catalytic Slurry Hydrotreatment), which aims to refine the techniques used to extract energy from lignocellulosics; Sugar Catalyst, a project geared towards the development of useful industry byproducts as adhesives, preservatives, and coatings; and SynBioPro, centered around the production of bio-based plastics using synthetic biological technology.

In addition, Neste’s latest partnership with Circularise is an example of a win-win start-up collaboration. The project sees the implementation of blockchain-based software that allows renewable and recycled materials to be traced throughout the value chains, ensuring much greater and more transparent accountability of various sustainability factors.

Ritala enthuses how this synergistic combination of novel technology with a solid infrastructure and experienced scaling up capabilities constitutes the “building blocks to really drive impact.”

And this holy grail sums up how the role of start-ups is very much at the heart of innovation - with greater than ever opportunities for smart partnerships to nurture them to the next level.