Fifteen years ago, the expansion model of a US start-up was fairly linear – the first three years were dedicated to building the business domestically, year four generally saw European expansion, and by year five the nascent company was starting to explore the Asian markets.
The emergence of the web as a viable commerce vehicle, however, brought about a paradigm shift in the startup world that obliterated that model and forced entrepreneurs to change their plans. Rather than ignoring the global marketplace, today’s smart start-ups need to think with an international perspective from the first day and work quickly to expand their footprint, and the surest path to becoming an international company is partnering large, multinational corporations.
But getting the benefits of partnering multinationals is nearly as hard as getting the relationship started in the first place. Here is the Allegis Capital how-to guide from 15 years of our portfolio companies doing exactly that – partnering for success.
Navigating hurdles
A successful pairing takes plenty of foresight and planning. A start-up will need to find the company that best suits its philosophy, and determine the best time to strike up a relationship and how best to take advantage of it – and navigate the hierarchy of that company – once the deal is completed.
Triangulate
Larger organisations tend to have an overlap in reporting and also to have management shuffles with relative frequency. Rather than maintaining a single point of contact, therefore, it is important to develop several relationships in the organisation as this allows small business owners to have multiple allies to help accomplish a specific goal.
Taking the initiative
It is also important for a start-up to be strong in its opinion and occasionally break down walls with dogged persistence. The prime imperative in a start-up is results. In a large corporation, process can trump results. And the ugly truth is, for the big corporation, a partnership with a start-up is unlikely to be its biggest priority, but it certainly will be for the entrepreneur. Therefore, it is the start-up’s duty to drive the process and take on the onus and burden of extracting results. This means follow-up emails and checking in to ensure work is being done.
Know your value
While it is easy to be overwhelmed by the reach, and numbers, of a big business partner, do not underestimate the value an early-stage company can bring to the table. A start-up’s service or product attracts a corporate strategic partnership because it gives the larger company something to differentiate itself from its competition. Be very clear about what that quality is. The partnership will work better when entrepreneurs recognise their company’s value in the arrangement.
Be patient
Partnerships with big businesses are like kitchen renovations. As long as you might think it is going to take to get something done, it ends up taking two to three times longer. Big business is inherently slow. Its list of priorities is absurdly long and it thinks in financial terms that are inconceivable for small, early-stage companies.
Picking partners
It might be tempting quickly to embrace a business with deep pockets or one that operates in a closely aligned industry but sometimes the least likely candidate proves to be the best choice. Just as opposites attract in the dating world, so too can companies that (on the surface, at least) seem to have little in common if both sides respect the other’s culture and qualities.
When Allegis portfolio company Symplified, a cloud services company, was first approached by traditional software company Quest Software in 2007 to be a strategic partner, Eric Olden, chief executive of Symplified, was sceptical. But something about that initial conversation felt right and in his due diligence Olden learned how Quest encouraged start-up partners and acquisitions to maintain their entrepreneurial spirit.
Ultimately, although their approaches to the software industry itself was radically different, the promise of continued autonomy and the ability to utilise the resources of a multinational corporation overcame any worries Olden had and the partnership has been a fruitful one.
Shedding the domestic blinkers
A narrow focus can prevent start-ups from realising their potential and often they forget to consider overseas multinationals or find it easier to search for a strategic partner. Having one or more corporate allies in another country can help a start-up quickly gain an international presence at a much lower cost.
Don’t rush
While some entrepreneurs believe securing as many relationships as possible is a fast road to economic triumph, that sort of shotgun approach typically backfires. Partnerships are long-term investments.
Timing is everything
As important as it is to pick the right partners, it is just as crucial to pick them at the right time and especially if they are interested in establishing an equity relationship with the start-up. Doug Donzelli, chief executive of Allegis portfolio company Apprion, says while the lure of additional capital is always strong, it is important not to sign that sort of deal too early. Instead, start-ups should wait until they have a solid product and have gained some market acceptance. This not only strengthens their bargaining position, it helps them focus better on which partners are best suited to help them grow. Apprion, which delivers wireless application networks and services for the process manufacturing industry, did just that when it struck equity relationships with oil major Chevron and phone maker Motorola Solutions to cement relations with a leading customer and one of the major vendors.
The ultimate focus group
Chevron and Motorola Solutions’ names open plenty of doors to other clients and relations, but the benefits of the partnerships run much deeper for Apprion, including their marketing experience, technical expertise and suggestions about new and existing products. Utilised correctly, multinational corporation partners are the most valuable focus group an entrepreneur could have. That is critical. A start-up backed by a big company might get an opportunity to pitch a client it otherwise would not, but ultimately that client will make its decision based solely on what the start-up offers and whether it meets its needs. Having a solid reference from a peer really helps.
Choppy waters
Tying your fortunes to a big corporation comes with risks. A small shift in strategy from a multinational can have a significant impact on a start-up and there is little, if any, warning about those changes. The start-up has to change course quickly or risk of being left out. But while a start-up may have to pivot along the way, it has to stay focused on its objective.
The non-strategic route
The start-up also needs to understand its partner. Some companies are passive partners while others are much more active, willing to do far more than open doors. Active partners are preferable for start-ups looking to leverage the strengths of those companies. But they are not necessarily essential, as Allegis portfolio company IMVU, a social game website, found when it received an investment from US-based electronics retailer Best Buy’s green-field fund, a non-strategic investment platform for start-ups. IMVU had previously formed a retail relationship with a different division of Best Buy before the latter’s equity investment in the start-up. While the retailer has a seat on IMVU’s board, it has not made any introductions but instead offers insight on technology as well as a retail perspective on relevant trends.
No free lunch
Strategic partnerships are a lot of work. Building momentum and ensuring follow-through from both parties takes dedicated resources, but start-ups could see their growth accelerate while their capital requirements shrink.
Allegis portfolio companies IMVU, Axcient, Apprion and Symplified will be speaking at the IBF Corporate Venturing and Innovation Partnering conference in the US on February 16-18. Ackerman is chairman of the IBF conference’s advisory board and Global Corporate Venturing is a media partner in the event. Visit: www.ibfconferences.com/13thannual-corporate-venturing-innovation-partnering.html