How Startups Secure Valuable Partnerships
Make sure that windfall isn’t a deathtrap
A partnership with an existing business can be a huge win for a startup. But just because a bigger, shinier company wants to be your new BFF, it doesn’t mean the revenue firehose is going to be aimed your way.
It’s almost a requirement these days for an up-and-coming startup to join forces with a slower, less-flexible, more networked company as part of an overarching sales strategy. Whether your startup offers a product or a service, high-tech or low-tech, hardware or software, gaining access to a bigger partner’s customer base, marketing reach, and industry expertise can advance your startup along its growth curve like rocket fuel.
Furthermore, the more strategic partnerships can create a new slate of future options for your startup — everything from access to new markets to investment to eventual acquisition.
But partnerships — and especially the pursuit of them — can suck up a ton of time, a bunch of resources, and an ample amount of lost revenue while your company ramps up for a book of business that may never materialize.
So here are some questions to ask yourself to help recognize when a partnership is real.
Where are you on the timeline of partnership viability?
A partnership deal, like any other transactional deal — be it customer, investor, or acquirer — follows a specific viability timeline.
Early Timeline: Until your company shows up on the “radar” of a few potential partners, no one is going to be reaching out to you with a partnership proposal. How your startup gets on that radar is unique to your business and your market, but having a lot of big splashy sales in a short period of time is usually the booster I work with.
Middle Timeline: Once your startup begins to show up on some of those radars, you’ll indeed get people lining up to partner with you. The problem is, these can be the wrong kinds of companies — in that your company can do way more for them than they can do for you. Oddly enough, that won’t stop them from proposing some crazily lopsided-in-their-favor partnership deals.
Late Timeline: As your startup becomes a known quantity, the more coveted kinds of partnership opportunities will come your way. Keep in mind, however, that just because a partner is large and established, that doesn’t mean that the partnership will work in your favor, or that it will work at all.
Are they eager to work with you?
If you’re in the early to middle timeline, the short answer is usually no.
You’re going to have to make cold calls and send cold emails, usually to at least three or four people who have nothing to do with partnering their company with other companies. Once you do happen to reach the right person, your name is going to land amongst the hundreds of other startups who are also the perfect small partner for Big Company X.
You’re going to hear “no” and silence a lot. So keep the fire burning. At some point, what you’re hoping is that your potential partners will figure out your company’s value for themselves. So shift from two-way communication requests (“Is there a good time next week to spend 15 minutes talking about our solution?”) to one-way communication (“Hey, this happened and I thought you should see it.”).
Along with that, if there was ever a good time to pursue mention in the industry press that your potential partners are going to see, this is it. If there was ever a good excuse for networking at industry events and in industry groups where your potential partners are going to gather, this is it.
At some point, your sales will catch up to the edges of their radar, or your company’s name will pop up in a publication they trust, or they’ll see your demo at the next convention. Then it’s time to strike.
I’ve even had one scenario where the contact at the potential partner had changed and the new person called me and admitted she was baffled by the fact that the person she replaced hadn’t partnered with us much earlier.
Do they really want to do the deal?
A lot of potential big company partners, especially the ones that inbound to you, will be very excited to talk about the partnership, plan the partnership, discuss the broad terms of the partnership, and strategize about how the partnership could quite possibly change the world.
Then they go dark, because the excitement has worn off and they’ve moved on to the next shiny thing.
Don’t get me wrong. A partnership should be exciting, and there should be a lot of talk around it. But the steps of the partnership should move as follows:
- An NDA is signed, then there’s an intro call or meeting where everyone shares their deck and learns what everyone in the room does.
- Future plans and roadmaps are discussed to determine what strategies make the most sense.
- Wishlists are drawn up and ideas are brainstormed as to what should be shared and what projects should be initiated.
- Goals are documented, terms are decided, contracts are signed, permissions are granted, work starts.
Sometimes I can go through all these steps in a single phone call, and other times it takes months just to get the first three steps done. The former is glorious, and usually the partnership it produces realizes the most beneficial results for both sides. The latter is all right too, because I never spin anything up until we get to step 4 anyway.
Don’t spend too much time working on something that isn’t imminent.
What do they mean by “marketing push”?
There’s nothing wrong with a marketing partnership, and in fact, oftentimes a more integrated partnership evolves from a simple marketing partnership. But remember what I said before about companies offering blatantly one-sided proposals? Some of these marketing partnerships can look more like ad sales, and some of those can turn out to be even more expensive than an ad sale.
One surefire way to see through a bad marketing partnership is to qualify the ones that only offer a “marketing push” or something like it in return for revenue or margin concessions on your side.
This is the business-world version of influencer marketing, when the potential partner will offer the strength of their brand for a piece of your revenue. If the potential partner can’t offer something more tangible in return, they likely have little intention of adding value down the road, and likely won’t ever offer anything more than what is essentially a long term ad buy.
How much do they want for free?
I get this all the time, even, oddly enough, from massive corporations with names you know. They reach out and ask me to do something for free in return for something nebulous, usually related to the fact that it’d be good for my company to be friends with their company.
They never quite state it, but they imply all over the place that this free thing I give them could most probably almost definitely turn into a windfall for my company.
I’m rarely a proponent of free work. There has to be some skin in the game, even if it’s just enough to make them remember my company’s name when they pay the invoice. But I’m also a bit of a gambler and I like making people happy.
However you come down on those things, at least make them stop hinting and map out what the next steps will be after the free work. Then it’s up to you to decide if it’s worth your time and lost revenue.
If it’s worth it, go for it, just don’t go into it on hints and implied promises.
Do they understand exactly what it is you do?
Remember back in Partnership Step 1 when I said everybody goes through their deck and learns what everyone in the room does? This is necessary, and I get a bad feeling when it’s rushed or someone is laser focused on only the part that can make them money.
Good business partners don’t have to love each other, but they have to understand each other. For example, with my current startup Spiffy — a mobile vehicle wash and maintenance company with amazing software — I can tell you that more than once during a late stage of the process, someone on the other side of the table has said a variation of: “Wait a minute. You guys don’t have physical locations?”
We do not.
But what’s worse is when the potential partner works something into the process assuming that it’s something our company does. Back to my previous example, this would be something like “Worst case, our customers will just go to your physical location.”
Here’s the thing. When you’re the startup, you’re going to have a lot more things for your partner to misunderstand than you will of them. And since they’re the big player, you’re going to have to work around them, not the other way around.
That’s sort of the ethos of finding value in partnerships. There are a lot of hoops to jump through, just like with any customer. The difference is, when you plan ahead and set your startup up to jump through all of the hoops at the beginning, the value keeps coming long after that initial work is complete.
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