Barbarians at the Gate: Partnerships Can Include Competitors
2005 was the tech doldrums of the early 21st century.
In those pre-iPhone, pre-Web2.0 days we needed to change something quickly. Revenues were inching upwards, and we were stable, but the rumblings of change were at the door and I knew sooner or later we would be squeezed out of our market and die the slow painful death of a commoditized niche product with no future.
Facing increased competition and commoditization pressures in our core product market, we needed ways to differentiate and add revenue fast with our existing offerings.
One market strategy came out above all others: developing Strategic Partnerships.
As I covered in a previous post, the advantages to the right strategic partnership are many — especially for capital efficient bootstrap startups that are looking to scale growth without scaling expenses.
Most companies can identify at least one or two candidate strategic partners assuming they have a firm grasp on the competitive and opportunity landscape.
Much as an impedance mismatch in high school electronics can cause a smoking pile of plastic and metal, a number of mismatches between your company and your partners can cause failure and even potential business collapse.
- Size Mismatch: This is a common one and can be the source of the other mismatches. Let’s say your 10-person startup partners with a 100 person publicly funded company. The size difference means you will probably be committing a proportionally larger percentage of company resources towards the partnership. In other words, you have more eggs in this basket and it matters more. One risk of this mismatch is that the larger company will abandon or starve the relationship if their priorities change or if the project hits snags.
- Money Mismatch: Similar to the size mismatch, a money mismatch simply means you are at risk of spending more proportionally on the partnership than the other party. Maybe your benefit is also higher, more than justifying the mismatch. Just don’t be surprised if the expectation is that you bear the majority of costs. Beware of expensive marketing or development that your partner saddles you with.
- Expectations Mismatch: Sometimes you have high hopes on an initiative with a partner, or may even be ‘betting the farm’ on a successful joint venture or product launch. Don’t be surprised if this level of enthusiasm or commitment is not shared by your partner. They may be larger and have many such initiatives in play, or perhaps it is a way for them to hedge their bets, but is not a strategic move.
- Integrity Mismatch: Sometimes you enter into a partnership with the best intentions, only to find that you are being played. By entering into a partnership or project with a competitor, you are opening up to being the victim of a competitive tactic. Engaging a competitor in a time-consuming or expensive joint venture is an effective way to take their eyes off the prize or otherwise interfere with their ability to execute an inconvenient plan. Honor among thieves, don’t hate the player, hate the game.
Steps to Avoid a Partnership Meltdown
Avoiding these common mismatches is a lot like evaluating any relationship. One partner may want to get married while the other wants to start dating other people. Heartbreak is the flip side of true love. Successful relationships mean expectations are clear on both sides and there is an environment of trust and fairness.
Here are some questions to ask when considering a partnership with another company:
- Are the expectations aligned on both sides of the equation?
- Do you understand the motivations of your partner company to pursue the arrangement?
- What’s in it for the other side if you fail?
- Are the benefits of a successful partnership worth the costs and risks you are undertaking?
- And what is your plan for a graceful winding down if and when the partnership ends?
Getting clarity on these points and engaging in frank discussions with the partner company’s business development team will help you uncover the risks and rewards.