(Editor’s note: Steve Fredrick is a general partner with Grotech Ventures and a founder of StartUpHire.com. He submitted this story to VentureBeat.)
No business goes it alone – and one of the tried and true methods for accelerating business growth is to partner with more established companies.
Partnering may take the form of a reseller agreement, an OEM agreement, a co-sell/cross-sell arrangement, a joint venture, a co-development initiative, and many other relationships. The general idea behind each is the same: Partnering allows a young company to build traction more rapidly by leveraging the resources and expertise of others for joint gain.
If you’re thinking about structuring a strategic partnership, there are a number of commonalities worth keeping in mind:
Jump at every chance to leverage an established brand for your business – It takes decades to build brand recognition and nothing gives you instant credibility like having the endorsement of well regarded partners. Seek out well-known companies to boost both your stature and the awareness of your company.
Work hard to make it non-exclusive – If the relationship works, you want the opportunity to structure similar deals with other leaders in the space. You might negotiate for time limited exclusivity (say 12 months). If the partner will not agree, then consider performance-based exclusivity (exclusivity is maintained so long as the partner exceeds mutually agreed upon sales projections). Bottom line — make sure the deal doesn’t lock you in to a non-performing partner while preventing you from working with others.
Protect your IP – Typically, anything you conceive with a partner during a business relationship becomes IP for both entities. Sometimes, though, that can compromise your existing IP in the process. Consult an IP specialist to ensure you don’t inadvertently give away the store.
Avoid a one-sided indemnity provision – This is often the section of a legal agreement that legal teams at large companies push hardest on. A young company may feel it has little leverage in response to the larger organization’s demands, but a good partnership respects the rights of both parties. Enter the agreement the same way you want to work with the partner – as equals.
Remember that people make partnerships work, not legal documents – The best route to success is a strong working relationship and good team chemistry. If possible, offer to place one of your employees with the partner for the duration of the relationship. There is no better way to stay informed and to nudge things forward.
Otherwise, maintain constant communications and work to build trust at multiple levels within the partner organization. Large companies routinely reorganize, and your champion today may be gone tomorrow. To ensure continuity, build a web of working relationships at all levels in both organizations. The relationship will often be more important to you (in terms of its bottom line impact on your business) than it will be for your large company partner so the responsibility rests with you to make it work.
Try, try and try again – Effective partnerships take time and work to put in place. You will most likely need to pursue many ‘corporate development’ initiatives to bring a good one to closure. Learn from each attempt to help you find a partner that provides true strategic advantage.
Be bold – Hey, you never know until you ask. Large companies are dependent on the innovation and agility of fast-growing small businesses, which is why they enter in to these arrangements. They benefit from these relationships as much as you do, so look for ways to continually grow and expand the partnership.
In the end, it is not uncommon for a business relationship to eventually lead to an acquisition offer, since a close working relationship is a great way to ‘date’ before making a commitment. Always keep this potential end goal in mind. If the relationship makes money and accelerates growth for both parties, lots of possibilities emerge.