While digital start-ups are increasingly gaining interest and respect in the technology world, many retailers are too fearful to work with early-stage companies.

Essential eCommerce sits down with Fred Soneya, co-founder of the start-up investor programme Haatch, to discuss why retailers should consider working with early-stage companies.

"Start-ups offer more and better functionality than the big IBMs and Oracles of the world, they move quicker, they're more agile and they are cheaper," he explains. "And they’re right on the cutting edge of innovation."

Start-up risk

While there is a lot of buzz around start-ups caused by the phenomenal success of California's Silicon Valley and London's Tech City, retailers are still scared to work with early-stage start-ups.

"I think start-ups are seen as a risk, they are seen as businesses which aren’t established, and they don't necessarily have other retailers on the platform, meaning they will be the first," says Soneya.

"Lots of retailers still follow," he adds. "There’s a joke I’ve heard which is: 'no one gets fired for putting IBM in'."

Soneya was the eCommerce lead for Kiddicare and in-turn Morrisons.com when the grocer bought the retailer in 2011. He then went on to co-found the early-stage investment company Haatch which works with retail technology companies as well as software-as-a-service and mobile start-ups.

During his time innovating at Kiddicare, he says the company constantly worked with small companies with a 'fail fast' mentality to try different technologies.

"Fail fast and move on is exactly what we did at Kiddicare," he says. "We weren’t afraid to put start-ups in and then we had the advantage where we were their first customer and could leverage that from an agile and cost perspective."

But Soneya says it is not easy for start-up companies to work with retailers. "They put them down because they're not IBM or Oracle and no one has the time to talk to them."

One of the start-ups Haatch has invested in is called Iterate, which tries to solve the relationship problems between start-ups and retailers. The company works with retailers to engage them with the start-up world and match them to appropriate early-stage companies.

But in order for retailer's to work with start-ups, the digital teams need to be encouraged by the executive board. Soneya launched Haatch with Kiddicare CEO Scott Weavers-Wright, who was the innovation-force at the baby specialist retailer. Weavers-Wright's enthusiasm for start-ups made it possible for Soneya to engage and deploy early-stage companies.

Innovation or PR?

But those retailers who do claim to work with start-ups are often doing so to raise their profile, rather than to fully integrate a new technology, argues Soneya.

"There’s lots of talk around innovation labs, but they rarely get integrated into the business and you never really see much come out of the other side of an innovation lab other than PR."

Soneya pointed to Shop Direct as a retailer who is working well with start-ups and integrating new technologies.

"They get involved with hackathons and start-ups in Israel – all types of things," says Soneya, who explains that it is helpful that eCommerce director, Johnathon Wall, is very focused on start-ups.

"The board needs to have a focus on start-ups as well," he adds. "One person running an R&D lab in the corner of the office is great for PR, but is only going to get you so far, you need buy-in from all the teams."

For more information, click below