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."
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.