The retail technology start-up community is booming. Retail Week finds out how retailers can tap into what the sector has to offer.

Retail technology start-ups in particular are flourishing – entrepreneurs have cottoned on to the fact that retail is changing, and many start-ups are coming up with their own ways of solving the problems retailers face.

The start-up community is rapidly growing in the UK but it can seem opaque to newcomers.

Retail technology start-ups in particular are flourishing – entrepreneurs have cottoned on to the fact that retail is changing, and many start-ups are coming up with their own ways of solving the problems retailers face.

Retail chief information officers or innovation managers can receive hundreds of pitches a week, so how can they sift through the huge volume of options available and find the businesses and ideas that are right for them?

And once they’ve found businesses they’re interested in, how can they marry a large, traditional retailer with the agility and entrepreneurial vigour of a start-up?

It’s not easy to do but, as Bertrand Bodson, chief digital officer at Argos says, it’s worth it. “It is vital that we set ourselves up to be able to work with some of the best start-ups around. There is huge opportunity but it is challenging to get it right,” he says. “Start-ups can add a lot of energy and fresh ideas to our teams, and they operate at speed and with incredible focus.”

So what’s the first step? The best thing to do if unsure how to start is simply to jump in, says Jon Bradford, managing director of accelerator Tech Stars London. “Just start something, as opposed to hesitating. It’s better to try something than try nothing at all.”

Once the decision has been made to get started, there are obvious next steps.

1. Choosing your start-ups

Stephen Millard, chief executive of accelerator Eccomplished, says a good first step is to speak to investors because they often have a bird’s-eye view of the market and will be able to advise on who might work for a particular retailer.

He says: “We have visibility because these companies come to us for funding all the time.” Accelerators and investment companies such as TrueCapital, Forward Partners and Tech Stars London are all among good first points of contact.

Competitions are another option – John Lewis is in the middle of working with the five finalists from its JLab project, and Tesco regularly runs small-scale competitions to give start-ups access to executives.

Bradford says: “I’m a great believer in potentially running a small competition just to get a sense of what’s in the market. From that, pick someone you want to work with as a trial.”

2. Working with start-ups

Bradford says: “Working with early-stage technology and businesses is so different. It typically has to be run as a slightly separate entity.” He advises having a specific team to work with start-ups.

Start-ups are a very different breed from large software vendors and need a different approach and different policies.

Millard says: “The first thing people have got to realise about start-ups is that they run very lean in terms of cash, resources, people and time.

“Any of the time you take is incredibly valuable – they don’t have the ability to run multiple projects or work with multiple clients.”

That means start-ups can’t complete the same onerous procurement cycles that are required of bigger technology firms. Red tape, bureaucracy and slow payment times are all big problems for smaller companies.

“Give start-ups licence to use their creative energy to solve problems in creative ways”

Stephen Millard, chief executive, Eccomplished

Millard says: “Many retailers have strict payment terms. Taking on new clients can take three to four months and sometimes it can take 90 days to get paid.

“Most start-ups just wouldn’t be able to engage with you on that basis. You’re making it incredibly difficult for them.” You also need to pay start-ups a decent amount, he adds.

Retailers need to start small and be very clear about the project and expectations. There must be key success indicators, and Millard says retailers should not ask for exclusivity or intellectual property ownership. “That will kill innovation,” he says.

Perhaps most importantly, start-ups need to be given freedom to think creatively. Millard says: “Give them licence to use their creative energy to solve problems in creative ways. Remove the barriers that can slow them down.”

What start-ups most want from retailers is the ability to learn – about their product, and about what their product offers. “They’re looking to learn and to prove that the concept that they’re working on has legs. They’re looking for validation. It gives them evidence that says we’re really on to something,” says Millard.

He says agility is what makes start-ups so good at absorbing lessons: “These guys are fast and keen as mustard. They have the ability to adapt and respond to feedback very quickly – they’re learning machines,” he adds.

3. Getting results

Start-ups learn by failing often and fast – and some forward-thinking retailers such as Shop Direct (see box, right) are doing the same. Millard says: “It’s as good to fail early as it is to succeed early. Retail has the potential to be reinvented by technology and consumer behaviour is changing so fast. Start-ups can bring with them that rapid innovation culture – the ‘move quickly, fail quickly, succeed quickly’ kind of culture.

“Innovation is based upon failure in order to achieve the breakthroughs.”

Acceptance of failure is crucial – the whole point of an innovative, fast-paced culture is that failure happens fast and leads to better results in the long term. As Shop Direct chief information officer Andy Wolfe says: “You will get more failures, but you will also get more business success because the tests mean you understand what the consumer is looking for.”

Once you do achieve success with start-ups, it is important to let them talk about their work.

Millard says: “Be open and transparent and let them talk about what they’re doing – they need to be able to talk about it and share what they’re doing.

“Case studies are really important for them. By being more supportive, retailers can have an impact on the road map of these start-ups.”

There are two kinds of start-up to look for – the first, more common, type is a business that does something you are already doing, but does it better. The second is a more disruptive organisation and rare, and has the potential to reinvent your business model in the longer term.

It’s worth putting some effort into start-ups – retailers who choose their start-up partners well won’t be surprised and overwhelmed by future disruptive technologies or companies. They will be working alongside them instead.