Drop Everything and Call Your Competitor — Expecting the Unexpected With Strategic Alliances

Posted by | November 06, 2013 | business, management, startups, strategy | No Comments

Change Puts Us On a Collision Course

It was 2004 and my company was in the tech doldrums of the early 21st century.

In these pre-iPhone, pre-Web2.0 days things seemed ok on the surface, but I had a sinking feeling that our company needed to change quickly in order to grow. Conditions were stable, our Enterprise software was not yet threatened by SaaS or PaaS, customers were still buying software licenses the old fashioned way, and multi-core CPUs were bringing us a steady stream of upgrades and new licenses. But the stirrings of change were in the air and I knew that I had to act or we would die the sad death of a commoditized niche product with no taste of the future.

Sure enough, it wasn’t long before we were facing increased competition and commoditization pressures in our core product market, and the future was simply not going to look much like the past. We needed ways to differentiate, open new markets, and grow revenue fast with our existing offerings.

One market strategy came out above all others: developing Strategic Alliances.

Strategic Alliances

By teaming up with other companies that we felt were complimentary to our offerings in some way, we were able to increase market and mind-share, pursue new category niches, leverage cutting edge technology and create PR opportunities aplenty.

Over the years, our partnerships came with some challenges, setbacks, and risks of their own, but ultimately it was a partnership with a customer that led to the acquisition of our company in 2012.

The advantages to the right strategic alliance are many — especially for capital efficient bootstrap startups that are looking to scale growth without scaling expenses.

All strategic alliances can deliver the following benefits to your company:

  • Break into new markets by selling into the partner’s customer base
  • Gaining valuable insight and market intelligence from an ‘alien’ perspective — the experience, connections, technology, and advice of an outside company with some stake in your success cannot be underestimated.

Partnering with Potential Competitors

Partnering with a potential competitor has the additional benefits:

  • Partnering with a potential competitor
    This gives you multiple benefits. It can allow you to influence them to not directly compete.  It can be mutually beneficial to partner with a company doing something similar to you, allowing each company to differentiate between each other and provide complementary offerings resulting in a big win-win.The fact is that two companies can tackle a bigger market or defeat a larger 3rd competitor by  teaming up and splitting the workload and costs of growth.  This takes a direct competitor out of the game (for now) and allows the two companies to grow faster and offer more to a larger customer base thus resulting in revenue greater than the sum of the parts (hopefully.)

    A popular example of this type of Co-Opetition could be seen with the original Google Maps app on the iPhone. Google had something Apple wanted to provide its customers, and Google wanted to get its presence in the hand of all those iPhone users.  A classic win-win. When Apple may have prematurely pulled the plug on this cooperative approach — before their own offering was as good as Google’s — there was a backlash from the very customers that the partnership had helped win over.Just another reason that if you don’t know (and manage) your competition, you are missing out on a big opportunity to grow as well as lower your risk by minimizing or controlling a company that could develop into your biggest competitor left to its own devices.

  • Leveraging a partner’s successful brand
    Maybe you haven’t built a cloud-based version of your product yet, or your offerings lack mindshare in the scientific market. Either way, your partner’s success in these areas can become yours. By piggybacking and packaging your offering so that it is a natural fit for these users, your products can see whole new fields of opportunity open that were unavailable before.

Co-Opetition Can Become Competition

Sure you can built your own version of your partner’s product, or you can go it alone, but then your partner will be a foe, and your time to market penetration will many times longer as you try to break into a new market — at which point your company could be bankrupted from the effort.As in the Google Maps/iOS debacle, we can see how it is possible to gain a toehold in a market by coopetition and then ultimately replicate and displace your partner’s product. This is risky and can backfire.  But some markets can only have one winner, and the co-opetition phase is a part of a longer-term competitive strategy which morphs into outright competition.I guess we shall see if Apple decides to build a search engine next 🙂

Some additional observations on strategic alliances

  • Customer partners can be very beneficial — bigger or expanding companies that already use your product and have a stake in its success.
  • Customer partners will have a bias towards getting discounts on your product and other concessions, so there might be additional revenue offsets when cutting strategic deals with customers.
  • Integration partners may add unexpected demands on your product development plans, so there can be significant costs as well.
  • There must be trust (if warranted!) between the companies as you can see the exposure to a partner puts your company at risk as well.

In a subsequent posting, I will lay out the dark side of partnerships in more detail — the risks are great when the barbarians are at the gate.

About John McMahon

John is a serial entrepreneur and full-stack developer. John is currently CEO of Starter Inc. a mobile and web development company, and is the founder of Humor Me Inc. maker of the Chukles consumer mobile humor app. John also currently serves as the CTO for MatanzasGroup, a Global Pharma Consulting Firm. John founded Extentech in 1998, growing it into a leading Web 2.0 spreadsheet tools vendor. In 2012, John sold his 100% stake of Extentech to Infoteria Corporation -- a publicly listed Japanese company. John has recognized expertise in startups, mobile and web development, open source, and cloud computing. John has been a contributor to Accounting World and has been interviewed and featured in stories on PandoDaily and Forbes.com.

Leave a Reply

%d bloggers like this: