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Open Innovation Gives Small Business an 'In'

Large corporations that once depended on internal R&D are now seeking outside partnerships.

CHICAGO (TheStreet) -- It's not enough to have a great idea. Year after year, small businesses go under because they can't translate their concepts into workable, profit-generating products.

Now creative, independent businesses have a better shot at turning their ideas into reality. While large corporations used to depend exclusively on internal research and development departments to generate products, many are now seeking outside partnerships as a way to broaden their pipeline.

This strategy, known as open innovation, invites outsiders inside to help solve problems. The benefit for small businesses is clear: They get the marketing and development muscle of a major corporation while maintaining independence as a business owner.

GE recently put one innovation model to the test with its

Ecoimagination Challenge

. Along with four major venture capital firms, the company pledged $200 million to find and fund the most promising ideas in three areas: renewable energy, power grid efficiency and residential energy conservation.

"The challenge has ignited innovation and a strong global dialogue around clean energy," GE representative Jamie Loftus says. "It's about finding the best ideas from researchers, entrepreneurs, start-ups, academics and anyone that will help create a smarter, cleaner and more efficient electric grid."

By this week, when the challenge closed, more than 3,000 ideas had been submitted from more than 90 countries. Entries came from people in a variety of industries, including from software engineers, sales managers, nursing directors and military officers. Winners, who will be announced in late October, get funding and the chance to partner with GE for production and distribution.

Proctor & Gamble is another company that takes open innovation seriously. Its

Connect + Develop strategy

solicits partnerships with outside companies, resulting in more than 1,000 active agreements.

While the company is open to product ideas, the mandate is much broader than discovering the next great soap. Proposals for business models, technology, packaging or production processes are all open for consideration. P&G even posts specific needs on its website; recent items on their product-development wish list included ingredients to make lipstick adhere longer and a process to make snack bags more rigid.

The biggest plus to partnering with a large, established corporation is financial security: With someone else sharing the risk, you can move forward without worrying about funding. You also gain access to that company's supply chain, customer relationships and marketing know-how, drastically speeding up the distribution process.

But as with any partnership, there are potential pitfalls. While money might be an initial lure, the financial arrangement can also lead to tension. A few years down the road, you might feel that your partner provides minimal benefits while collecting an outsized share of the profits. That's why it's crucial to scour contracts carefully and retain the right to renegotiate as circumstances change.

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Cultural clashes are another concern when two organizations of vastly different sizes work together. Your business' entrepreneurial spirit may not blend well with the management-heavy structure of your corporate partner, and you may have different perspectives on everything from advertising to logo designs.

Still, companies that are developing the next big thing in hot industries such as clean energy should have no shortage of corporate suitors. Once upon a time, if a large company showed interest in your work, your only choice was to sell or walk away. Today, collaboration is becoming a more common option -- and that can be a win-win for both sides.

Just remember that open innovation only works if you've got a genuinely great idea. If you're not truly innovative, don't expect an invitation to join in.

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Elizabeth Blackwell is a freelance writer based in Chicago. She is the author of Frommer's Chicago guidebook and writes for The Wall Street Journal, Chicago and other national magazines.