Last week Enable told you that all venture firms are not created equal and that you must find the one that provides more than money. Today's column focuses on corporate strategic partnerships as an alternative - or complement - to venture funding. Strategic partnering can be extremely beneficial to an early stage company. To get the most out of strategic partnering, you must begin to plan for it and to make initial approaches to potential partners as early as possible in your company's development. Today's column will help you do so.
Corporate Strategic Partnering - Win-Win Relationships
Strategic partnering is the establishment of a win-win relationship between major corporations and up and coming entrepreneurial companies. Typically, the relationship is based on some kind of business agreement: joint technology development, marketing, or manufacturing. It may also include an equity investment made by the large company in the up and coming entrepreneurial entity.
Unlike venture capital, strategic partnerships focus on the business agreement - not the equity position or the exit. This means that the emphasis is on the long-term relationship, and the fit with the larger corporation's strategic direction.
Leverage Your Assets
The first step in the process is to determine exactly what you need from your potential partner. Typical relationships revolve around marketing and product development agreements. If you are strong in product development and need help getting your products to the market, then your best bet is a partnership with an established company that is a market leader. If you are a small company with a strong technical team, you may be able to obtain funding for research and development in an area of interest to the larger company, outside of its own particular area.
If you have an enabling technology, you may want to form a strategic relationship with companies in each applicable industry, instead of trying to develop and market a specific product for each industry on your own. In this case, you can receive funding from several sources and you can develop your enabling technology on a much broader basis.
Prepare a "Hit List"
I am often asked the following question by start-ups: "Can you introduce me to such and such company? I want them for a strategic partner." My answer is always the same: have you thought about why they would make an excellent partner, or are you after them because they have deep pockets? Before contacting a potential partner, you must first prepare a hit list of all potential partners that not only are interested in what you are doing, but also are in the best position to help you achieve your goals. The biggest or richest company is not always the best partner.
In going through the list, you must ask yourself: "Which companies have determined that my technology is of strategic interest to them?" Past Enable columns can help you become an expert on each potential partner and to learn about their wants and needs in great detail (See also: Edgar, Company Sleuth and Inside 3com's Head).
Find A Champion
As you meet with potential partners, you must try to find a champion, a company executive that understands the strategic logic for working with you and who is willing to facilitate the partnership with you despite the jobsworth factor. The jobsworth factor is the primary deal killer in potential strategic partnerships and it simply means, "is my job worth trying to sell idea of the partnership to the CEO of the company?" Getting the right champion on your side is crucial. Likewise, getting the wrong champion will probably kill any chance of closing a deal and will waste a lot of your time. In short, do your homework and determine potential champions before hand.
Making The Relationship Last
The following are tips to ensure that your strategic partnership will be successful:
- Communicate openly and frequently with each other.
- Avoid surprises and head off problems early.
- Strive to exceed each others' expectations.
- Be flexible.
- Perform to plan.
- Focus on results not excuses.
While strategic partnerships can be highly advantageous, be aware that for you it may be strategic, but for the large corporation it may only be tactical.
Published by Israel's Business Arena on December 21, 1999.