startups and partnerships may break my bones, but names will...

Anyway, back to regularly scheduled programming...

I haven't blogged on startup stuff in a long while (or about anything for that matter), but I was talking to a startup kid in South Park yesterday about this, then I saw Owen Thomas tweet about some panel on the topic yesterday, so I thought I'd throw down some key strokes on the topic.

Startups (and investors) often times weigh partnerships with a bigger companies much too heavily. 

"If I can only get a deal signed with company X, I'll get all the distribution I need."

"If I get company X pregnant, they'll have no choice but to buy me."

"We're going to get to critical mass with partnerships with x,y and z."

"We're going to launch a stand alone product, but monetize it with partnership distribution."

"We want company x to buy us so we're going to partner with their biggest competitor."

Wrong.

Here are the top 5 reasons why you shouldn't rely/bank on partnerships with incumbents:

1. They operate on a different timeline than you. You're probably trying to create value inflections on a weekly or monthly basis. They're on a quarterly basis, and there are a lot of other fish waiting in line to fry before your thing gets into that timeline. 

2. They operate on a different strategy than you. You are trying to carve out a niche to survive as a company and only have a few months cash runway to do it. They have key objectives to create larger value in an existing marketplace so that next quarter's numbers are better than the prior. 

3. They operate on a different volume than you. You have a beta user base of 50,000 and would be a feature in a tab in a hidden section of their site. They have gazillions of users on numerous pages, tabs, sections, etc. 

4. They view a deal with you as an experiment. They don't want to invest in building what you've already built, not because they can't, but because they don't want to take the time to make it a core part of their strategy just yet; so they'll test a thesis or idea out, using you more or less. 

5. They won't nurture nor iterate like you can. You might iterate a few times per day because you have an agile team, likely of folks that work the whole stack. They have different functional teams at all points in the stack, and they each have priorities of their own, so they simply can't see eye to eye with you on frequency, urgency, etc. 

 

This isn't to say that partnerships between startups and incumbents are useless, rather, you startup types should align your lenses with theirs and deduce an alignment of interests - and work from there as a basis. And don't bank a fund raise or an exit on it whatsoever. Look at it as a step along the way of proving out your thesis.  

 

Comments

[hedge fund compliance]

Wow that is a really good article. I'm sure in this day and age of startups, we will see lots of partnerships.

[stock ideas]

A friend of mine also says to get the legal stuff up front because everyone is on the "Honey Moon Stage" of a new biz. Just like every divorce, business's need the start up plan and closure of the business ahead of time.

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Making sure your legal dots and T's are crossed works best.

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Partnerships are always hard to manage because of too many implications.

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You should reconsider your options and opinions about this issue.

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I really liked your post describing various point so on partnerships. Too good work you have done.

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Very nice post.... I am very impressed by your writing..... YOu have cam up with the great idea.... hope to listen more from you soon. Thanks alot for sharing this with all of us..

[SvetlanaIsayeva]

This is a great post! This is at the very core of my day-to-day duties. Do you have any tips of how to create that "sense of urgency" within the timeline of a big company, given that both agreed partnership would be of a great mutual value?