In this Dec. 9, 2015 photo provided by San Jose Public Art, is artwork in process of installation in an underpass beneath Highway 87 in San Jose, Calif. (San Jose Public Art via AP)
By Victor Belfor
I live and work in the Silicon Valley. It’s an intense pressure cooker. The credo here is “Go Big or Go Home” (which deserves a closer look in itself – but that’s another article…). The intensity is incredible. If you have a good idea and a strong team, it’s not hard to raise your first round of funding. But it comes with strings attached. Investors want to see rapid growth. VCs look for that coveted exponential “hockey stick”. I’ve been in board meetings where reports of 2X growth were met not with a generous pat on the back but with a question “why not 3X” or “what would it take to grow 10X”. And that’s how it should be. Startup investing (and Startup founding) is a risky business and investors are looking for outsized rewards.
And yet, trying to grow too fast is one of the greatest threats to Startup survival. VCs do not give you money to put in a market money fund. The money is there to spend. The now famous startup failure study illustrates it clearly. Not growing fast enough means your are not getting more funding and you run out of cash. Or you grow your team and invest massively in marketing and distribution and… you run out of cash. Stuck between the hammer and the anvil, savvy Startup founders look for ways to grow efficiently.
This is when many turn to Business Development, Partnership, Strategic Alliances…in other words to people like me. I’ve been running Partnership departments for Tech Startups for 15 years. From the point of view of the startup, the premise is usually simple. A BigCo (think Oracle, Microsoft. Verizon, SAP) has been trying to innovate in our space and we have the perfect product. If only we could harness the power of their channel and if only they could harness the power of our innovative technology…
It sounds logical. It sounds easy. It sounds like a match made in heaven. The BigCo gets the new innovative product, the Startup gets a powerful distribution channel and everyone is happy. In real life, however, a partnership between a multi-billion dollar multi-national and a fledgeling start up is less like a perfect match and a more like a shotgun wedding between a swineherd and a Rockefeller.
All the pressure is on the Startup. The Startup wants to report on the partnership at the next shareholders meeting. The Startup wants the bump in bookings in the next quarter. The Startup wants the “hockey stick”. We know what’s in it for us. Or at least we think we do… But what’s in it for them? What does the BigCo want? A marriage like this cannot work without a complete alignment of goals and expectations. If things work, it can be beautiful but if they do not, it is much more disastrous to the Startup than it is to the BigCo.
Partnerships should be approached through this lense. So let’s apply this this relationship test to a newly minted Partnership. Many things need to come into alignment:
- Is there Love?
Is there someone in a senior position at the BigCo who is truly excited about what you do? Are they willing to advocate for you to their executives and other stakeholders? Or is their approach more like “we were told to look at innovation in our space and to integrate with emerging leaders, but there will be no preferential treatment and we’ll be Partner agnostic”? Are you even talking to the right people? Are you talking to the groom or to a matchmaker?
Quick tip: If your main point of contact is their business development organization, your chances of success drop dramatically. Business development organizations are primarily takers. Their goal is to sell more of BigCo’s products, not to help you sell yours. You should be talking to a core business unit like Product or Sales.
- Do you share Core Values?
Do they look at the market the same way you do? Do they understand their limitations and understand the value you bring to the table? If all they want to do is show the market that they are “innovative” by partnering with the hottest trend du jour and you want to change the world, it will not work. If the core value proposition of their product is enterprise-grade powerful software and yours is elegant and simple UI, it will not work. For example, I don’t think that a partnership between Oracle and Slack is a good idea.
- Do you share Vision for the Future…?
…and even more importantly are they simply paying it lip service or are there concrete visible steps being made? Are they actively migrating customers to the Cloud, for example? Are their sales people incented to sell the new generation of products? Partnerships with big companies are long term propositions and take 2-3 years before they start firing on all cylinders. Long term approach and shared vision are critical.
- And speaking of time…do both parties have Reasonable Expectations?
Do you believe that the new Partnership will generate revenue in the first 3-6 months (which is highly uncommon, unless of course, they pay upfront)? Is there a timeline for integration? Who is going to do the work? Do you agree on your respective roles? Do you have clear goals for the next 3, 6 and 12 months?
Quick tip: Whatever you agree on, do not count on the BigCo to just take your product to market. It is highly unusual when this happens without a massive amount of hand holding from your side. Make sure that proper resources are allocated to Sales Enablement, Co-marketing and Product.
- Do you have the same attitude about Money?
Do they have a budget earmarked to market your product? Do they have compensation (or ideally quota retirement) for their sales people? Or do they expect all of this to come from you?
Quick tip: The magical trifecta of business development is:
- Skin in the game. You want them to prepay or at least to make a minimum commitment.
- They need to have a clearly defined Marketing Budget for your product.
- Sales Team compensation. Ideally, you want Quota Retirement. But at the very least, commissions.
- What about the other Key Stakeholders?
Much like in a marriage, the extended family matters. Your internal champion must have enough clout and foresight to involve all the appropriate internal stakeholders. The head of Product might love your product but without diplomacy and politics may not be able to secure support of Sales, Marketing, Finance, IT, etc.
- Relationship Monitoring / Conflict Resolution
Like any long-term relationship, Strategic Alliances will go through some tough times. You have to put in place a mechanism for monitoring and resolving conflicts as well as fine tuning goals. My suggestion is to have weekly or bi-weekly tactical meetings
focused on pipeline review and marketing activities. Executive level meetings should be held quarterly with focus on progress towards agreed goals and strategic initiatives. In addition to these cadenced meetings, it is critical to have escalation paths to all Key Stakeholders. You need to know exactly whom to call if the integration breaks, if there’s a sales channel conflict, if there’s a security breach or if your marketing department misused the Partner’s logo.
About half the marriages end in divorce. Often in an ugly one. Statistics are much worse in Partnerships. Only about a third end up generating real value. They can also be very destructive. More akin to indentured servitude than a marriage, Startups can end up sacrificing their strategy, their roadmap, their very identity.
And yet…when I joined RingCentral, we generated no bookings from Strategic Alliances. Now, Partnerships with AT&T, British Telecom and Telus account for a significant percentage of this public company’s revenues. At OpenSesame, Partnerships with some of the largest Human Capital Management companies in the world (SAP SuccessFactors, Saba, Oracle, Infor) provide rocket fuel for our explosive growth. Well executed partnerships can not only drive revenues but also lead to an acquisition.
Like in any serious relationship, both risks and rewards can be great. And which way it turns out depends on thoughtful and deliberate execution.