by Kim S. Nash

Why Tech Startups Partner With Companies In Industries They Want to Disrupt

Jan 30, 20133 mins
IT Strategy

Sometimes tech startups make deals with the very industry players they're trying to disrupt.

Part of what fuels entrepreneurs is the belief that they’re doing something different than what’s been done before. But those inventive scrappers also need other forms of fuel to launch a company, including money, influence and experience.

Often those tools come from partnerships with established companies in the very industry that the startup wants to disrupt. (For much more, see “CIOs Can Help Their Companies Survive Industry Disruption.”)

Recyclebank uses sensors and GPS technology to track how much plastic, paper and other material people recycle, then gives them points to redeem at 4,000 businesses.

The young company says the gamification of recycling encourages individuals and towns to change their behavior–once they sign up. Convincing them to join can be slow going, says Javier Flaim, chief sales and marketing officer at Recyclebank, and wading through municipal bureaucracies and contracting procedures can take years.

But a relationship with the $13.2 billion Waste Management gives Recyclebank access to the giant’s 20 million customers. Recyclebank also gains inroads into regions across the country where Waste Management is already established, as well as an undisclosed financial investment. Waste Management gets a ready-made, consumer-friendly mobile app and website to boost its recycling reputation.

The symbiotic relationship doesn’t threaten Recyclebank’s independence, Flaim says. Waste Management’s marketing team and Recyclebank’s IT team work closely together to make sure customer data and reward points are accurate and shared, he says.

Upstarts in other industries, however, aren’t so friendly with established players. A financial services company called Simple launched in May, offering real-time Web and mobile monitoring tools to give customers frequent updates about their personal finances. With Simple’s website and mobile apps, customers receive alerts about account balances and spending levels.

They can also attach photos and notes to transactions records, allowing them to more readily understand their financial behaviors. A “Safe to Spend” figure shows not just an account balance snapshot but how much money is actually available after factoring in pending transactions, scheduled payments and personalized goals, such as saving for vacation.

A customer who is kept apprised about his money will use it more carefully, says founder and CEO Josh Reich, but traditional banks don’t encourage that behavior. Simple’s customers transfer their funds to Simple’s commercial bank partner, Bancorp, which has no branches and serves as the regulatory and compliance back end to Simple’s customer experience front end.

Reich relishes disrupting the banking business. Banking should be like an easy-to-use utility integrated into your life, he says, not “an adversarial struggle.”