Most startups desperately crave a partnership with a big, strategic player that could offer them significant leverage and credibility. Just think about the giants in your particular industry. That’s who I’m talking about. But they are huge and you are tiny, so how do you secure a real partnership in which they actually utilize their size and influence to help you? Too many startups only think about the benefits they will get from such a partnership when the only way to get the partner to even lift a finger is to provide real value to THEM.
In a previous article I described a way to get a prospective strategic partner’s attention (see “Get the Strategic Alliance Partner to Come After You”). In this article I’ll describe how to leverage that initial momentum into a real partnership that produces real results. I’ve secured several such partnerships throughout my professional career and have identified three primary categories of the needed value creation I described. Let’s dive into each of them further to see what your secret ingredient(s) could be.
Types of Strategic Partnerships
The term is a fairly broad term that is used to describe a formal relationship with a company that has the potential to provide significant benefit to your company. I find that strategic partnerships typically fit into one of the following categories:
- Joint marketing
- Product resale or distribution
- Technology license
- Technology integration
- Joint venture
When your product is sold and implemented are there any other categories of products that commonly get implemented at the same time? Maybe this happens because of some technical prerequisite for your product or maybe because of some technical integration or open API you have that allows other products to be deployed in conjunction with yours. When this happens, you provide revenue leverage for one or more companies that could be strategic partners.
The bigger the company, the bigger the revenue numbers need to be in order to catch their attention. In other words, Google and Facebook aren’t going to be motivated by an opportunity to generate an additional $2M of revenue in a year, even though that might be 10 times more revenue than your own company is currently generating.
I worked for a company that required fast data networks in order to operate their solution. Most customers spent 5-10 times as much on network infrastructure upgrades as they did on our solution. We captured real purchase information and used it to get interest and help from sales reps at the leading provider of network infrastructure. After all, they were the ones directly benefitting every time we completed a sale.
One thing led to another and after several months, we had a full-blown strategic partnership. Our products were installed in that partner’s executive briefing centers and 200+ field labs around the world to allow for easy demonstration. The partner also had 2-3 slides in their standard sales briefing presentation that highlighted our solution. Magic happened and it was due to the revenue leverage we brought them each time our solution was sold.
Just because a company reaches billions in revenue doesn’t mean they don’t regularly face fierce competition. On the contrary. They are always under attack by competitors big and small. And remember the larger a company is the slower they are usually able to innovate (see related article titled “An Unfair Advantage All Startups Have Against Big Companies”). As a result, the big giants in any industry are always looking for ways to differentiate from the competition. Can you help them?
This strategy works fine with the industry leader in a given category but can be especially effective with the other players in the Top 5. That’s because these other companies are aggressively trying to become the market leader and that attitude is also what makes them more receptive to crazy ideas like a partnership with your risky startup.
Who does your prospective partner compete most aggressively against and who do they worry about the most? Who has recently started gaining market share against them and by chance is that company currently a “darling” of the industry (analysts and bloggers love them)? What do you offer that could help this prospective under-attack partner when they do battle? Do you have any proof that it has worked or that customers actually want it? Don’t be wishy washy in answering these last two questions because you will need specifics rather than theories to catch their attention.
I worked for a company that participated in the broad Unified Communications industry (integration of voice, video and data). A multi-billion dollar company that was generally regarded as #4 in the industry was under a lot of pressure from their CEO to innovate and differentiate in order to start taking share from the market leaders. We sold into some of their largest customer accounts and found ourselves getting requests by these customers to integrate the two solutions together in interesting ways.
We developed the idea further and somehow secured a meeting with the CEO. The total focus of our presentation was how our little company could provide a unique and strategic competitive advantage against ABC and XYZ (the two market leaders). The CEO understood and agreed with the significance of the opportunity but didn’t believe we could do what we said we could do from a technical perspective. So we challenged him. We asked if we could send two engineers to their HQ lab for two weeks and with available resources on their side to assist with completing the technical integration. We asked for time on his calendar exactly two weeks later to demonstrate the integrated solution and described exactly what functionality we would demonstrate. He accepted the challenge.
Why did we ask for two weeks? The answer is because we were almost certain we could get it done in 4-5 days but wanted an additional week to work out any possible bugs and to add a couple of extra goodies that weren’t on our commitment list. Under-promise and over-deliver was our key to securing a partnership. Sure enough we were done in about 5 days and word started to spread to select executives of the prospective partner, including the CEO. The CEO actually requested to move up the demonstration but we came up with some excuse to leave it at the two week mark so we could blow him away, which we did. An OEM partnership resulted and it generated more than $2M in revenue for our company in just the first year.
In an effort to innovate and differentiate, big companies regularly come up with new ideas and technologies – many of which are too early for mass adoption by the market. In fact, some are just dumb ideas that never should have been pursued in the first place. But big companies often get such narrow focus that they will still do massive product launches and marketing campaigns following these efforts and you can benefit hugely from it. You just need to become a proof point yourself or help the partner generate proof points.
What is your prospective strategic partner working on right now that fits this “proof point” category? At their annual customer/partner conferences and during analyst briefings they regularly talk about their strategy and key things they are working on. Use this information as a starting point to look for upcoming needed proof points. The more innovative or crazy their idea seems, the better. And if analysts and customers are expressing doubt or skepticism as to whether the prospective partner will accomplish their objective, it is even better because the company will desperately be looking for proof points to include with the launch.
Your mission is to be included as a proof point during the launch and your challenge will be to not get sucked into too much effort or distraction as a result. So be careful, especially if you also have big doubts about the success the prospective partner will have. But remember that what might be considered a total failure to your partner might generate huge success for you. For example, maybe only 5% of the partner’s customers decide to deploy the innovative technology but if they have 10,000 enterprise customers, just 5% of them could keep your little sales team extremely busy.
By the way, just getting introduced directly into the partner’s customer accounts is 90% of the value, whether the customer actually decides to implement the partner’s innovative new thing or not. You mainly just want an opportunity to sell your thing to these same customers.
An industry leader embedded a new technology into one of their products and touted it as a “next big thing”. But their first version was pretty crappy and they didn’t convince hardly any other vendors to exploit the technology because it was a little ahead of its time. A company I worked for saw an opportunity to provide multiple proof points by integrating with the technology and being included in the launch of the much-improved v2.0 version by the partner.
This partner was so big that they had overlay sales teams for each major product business unit. The sales team for the technology we integrated with got killed during the v1.0 launch. So we worked very closely with them to show how v2.0 joined together with our product was an awesome combination. The first few joint customer briefings went really well and we got some quick wins. Word immediately spread to the global overlay sales team members and suddenly we were swamped with requests for joint customer briefings with real decision makers (one big benefit of partnering with big giants is they can get you access directly to decision markers).
This strategy worked so well that we later became proof point partners for two other product divisions and related innovations within the same strategic partner.
Don’t Start with the Market Leader
Many startups intuitively go after the #1 or #2 leader in their targeted market for partnerships. I find that’s almost always a mistake, for the following reasons:
- A startup is very unlikely to move the needle for such a huge company, which means they’re much less likely to get excited
- These huge companies are extremely hard to navigate, just to find the right function or person to talk to
- If a partnership is verbally secured, these huge companies negotiate the most aggressive pricing and legal terms. So aggressive that they could easily do harm to the startup.
Rather than go after a market leader, I recommend initially setting your sights on a company further down the market share list. Referring to the two graphics immediately below, notice the companies that are sitting in the #10 market share spot for a few example industries. Those are still very, very large companies that can offer a startup huge leverage and huge credibility, as evidenced by the second graphic in the set.
In fact, it’s probably safe to assume that the companies sitting in the #15 or #20 spot are even better to start with. The further down the market share list, the more flexible, nimble, aggressive and creative the prospective partners will be. Executives at those companies go to sleep every night thinking about how to scratch and claw their way up the market share list.
The Benefits of Starting with a Letter of Intent (LOI)
Some founders go straight from verbal agreement to lawyers on both sides papering things up for signature. What a missed opportunity and added risk for misunderstandings. Remember, attorneys charge by the hour. So you want them to be as focused and efficient as possible. Listen to my 5 min podcast recording that explains the huge benefits of incorporating an LOI into the process.
Don’t be surprised if this value creation thought process causes you to identify multiple categories of value for the same prospective partner. For example, proof point value can sometimes also provide meaningful revenue leverage or competitive differentiation. When pitching to your prospective strategic partner, make sure to concentrate on the value you bring them rather than the other way around. Also, think on their scale, not yours (ie – $2M of revenue leverage won’t get their attention).