Did You Just Fail The Partnership Idiot Test?

Did You Just Fail The Partnership Idiot Test?

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A version of this article previously appeared on Forbes.

 

If your company has said “Yes” to any of the following requests, you have effectively failed the partnership idiot test.

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Exclusivity

The Ask: “We love what you are doing so much that we have to work with you exclusively.”

The Intent: “We want to lock you up so our competitors can’t have you. Once we do that, we’ll quickly lose interest in you.”

Exclusivity can kill a small company. Unfortunately, many big companies assume they can unfairly skew the market in their favor by precluding you from freely working with anyone you choose. Exclusivity excludes your startup from taking full advantage of future customer, partner and market opportunities. As such, exclusive relationships should (almost) always be avoided.

If you must enter into a relationship with exclusive elements, there are a variety of tactics you can deploy to minimize the detrimental impact on your company, as described HERE.

Free Pilots

The Ask: “We would love to work with you. Let’s start with a complimentary Pilot.”

The Intent: “We really have no idea if we want to work with you or not, but your engineers seem really smart and we like the idea of them working for us for free, while they educate us about your emerging market.”

A “Pilot” is big company code for a meandering, non-committal test drive of your solution. Most startups cannot afford the opportunity costs of projects that do not generate near-term revenue. Thus, if your company must expend significant resources to execute a Pilot, insist on being compensated.

Even paid Pilots are problematic, as they allow the potential customer to defer their purchase decision until the test is completed. Thus, if you are forced to offer Pilots, refer to them as the first phase of a multi-phased agreement, with the success of each phase clearly defined.

Once success is achieved, your relationship should automatically proceed to the subsequent phase. This approach reduces the friction commonly associated with converting a Pilot to a standard agreement.

Paying To Be Playing

The Ask: “All of our partners start in our Partner Program. The annual fee is $15,000. Sign here.”

The Intent: “Our Partner Program is our relationship morgue. If we were really interested in working with you, we’d be paying you, not the other way around.”

I only fell for this rookie move once, many years ago. Thanks Siebel, you taught me a valuable (and expensive) lesson.

If the first response from a potential partner is for your company to pay them a fee, run. Startups should only pursue relationships in which both parties are willing to invest the necessary time, energy and resources to maximize the value of the partnership.

When a big company tries to deflect you with this ploy, gently and politely determine if there is any possibility of establishing a meaningful relationship. If yes, craft a mutually beneficial agreement outside the constraints of their generic programs. If not, move on.

Note: you are most likely to elicit the “Partner Program” response when you attempt to enter an organization through their front door. Big companies typically erect institutional barriers to dissuade creatively-challenged startups. For those interested, I describe how wily entrepreneurs infiltrate big companies by avoiding the front door HERE.

App Ghetto

The Ask: “We would love to work with you. Please add your app to our marketplace.”

The Intent: “We could care less about working with you but we don’t think we can get $15,000 out of you.”

The App Ghetto is a miniature Partner Program. Without a proactive effort on the part of your partner, it is unlikely your app will be distinguished from the litany of other languishing apps.

One of the values of a partnership with a larger company is the intrinsic market validation. However, no one will be fooled if you proclaim you are “Partnered with SalesForce” just because you dropped a download into their app ghetto.

A good example of an app marketplace that drives meaningful results for startups is HubSpot’s Academy. I have seen this first-hand, as RingRevenue (a Rincon portfolio company), has established a mutually beneficial relationship with HubSpot. Because of HubSpot’s proactive efforts, RingRevenue’s inbound call tracking app has been widely adopted by HubSpot’s customers. As such, app marketplaces can work, but only when both parties put forth a meaningful effort.

Big companies are used to rending unreasonable compromises from their startup partners. Differentiate your company and earn your future partners’ respect, by declining all of such moronic requests. If a big company legitimately believes it will generate value by partnering with your startup, it will eventually agree to mutually beneficial terms, once you politely make it clear that you are no idiot.

Follow my startup-oriented Twitter feed here: @johngreathouse. I promise I will never Tweet about startup idiots or that killer burrito I just ate.

Image: Public domain, modified by John Greathouse

John Greathouse

John Greathouse is a Partner at Rincon Venture Partners, a venture capital firm investing in early stage, web-based businesses. Previously, John co-founded RevUpNet, a performance-based online marketing agency sold to Coull. During the prior twenty years, he held senior executive positions with several successful startups, spearheading transactions that generated more than $350 million of shareholder value, including an IPO and a multi-hundred-million-dollar acquisition.

John is a CPA and holds an M.B.A. from the Wharton School. He is a member of the University of California at Santa Barbara’s Faculty where he teaches several entrepreneurial courses.

Note: All of my advice in this blog is that of a layman. I am not a lawyer and I never played one on TV. You should always assess the veracity of any third-party advice that might have far-reaching implications (be it legal, accounting, personnel, tax or otherwise) with your trusted professional of choice.

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  • Darius Lahoutifard

    Great! All very valid points.
    I remember having been on the other side (large software company) receiving tons of requests for partnerships, and one of the easy ways to make money and reduce noise was to put in place the $15k partnership program and we knew those who subscribed were not the strongest and the smartest startups.

  • John Greathouse

    Darius,

    That is great validation of my perspective. It is great to hear someone who worked at a big company expose this filtering process. I am sure you just saved more than a few entrepreneurs $15k!

    Thanks for contributing.

  • Darius Lahoutifard

    My pleasure John.

  • thomasglee

    Too broad a brush. Every industry has differing needs. Exclusivity is needed in markets where there is a long sales cycle and where the rep is going to spend a LOT of time and money investing into developing the market for you in their territory.

    Paying to play…. Companies like Verizon REQUIRE your products be certified by outside labs. That’s a form of paying to play.

    The article has good intentions, but the author has a narrow market view.

  • John Greathouse

    Thomas,

    My market view is the vantage point of a startup. It appears yours is from that of a big company.

    Both are valid perspectives, just different. If a Rep makes an honest effort to develop a market, all is well. However, if they do not, the small company is screwed. My point is that small companies must by cynical, in order to survive.

    Thanks for commenting.

  • Lisa Wolff

    Your suggestions make sense for all companies, not just start ups. When I worked for a large company, I made a lot of money going into accounts where my competitor was offering a free pilot. I’d do a similar pilot with consulting fees for training and implementation, with obligation for full rollout if successful.

    I knew I won before the pilot started. Prospects would inevitably say, “but THEY are doing it free!” And I would reply, “yup, cuz they know what their product is worth.” When the buyer had skin in game, they always made a bigger effort to make it work. It was foolproof.

  • Tom Frangos

    It’s not clear why a startup would want to “partner” with a larger company, one that invariably wants to steal your eye teeth. If your idea, concept, execution, etc. is that good, why do you need them? If you need funding, get funded. If you need tech savvy, hire the right engineer(s), etc. The devil won’t rescue you. If the big boys want you they’ll buy the company outright.

  • Anne Zielinski

    Hi John,
    Your points ring true from my experience from both partnering, and running a partner program. Your post should be required reading for anyone considering partnering.

    One point I would add: it’s important to determine and get agreement on the goals for partnering and to monitor them over time, as they may change. For example, marketing and finance may have vastly differing ideas about how partnerships will provide value to an organization.

  • John Greathouse

    Anne – thanks for your kind words. Agreed re the alignment of goals, both internally and with your partners. Good point.

  • John Greathouse

    Tom – I agree that startups should stay away from any potential partner they do not trust. However, there are many benefits that can be derived by a startup via such partnerships.

    In addition to validation, the most common benefit is access to the big company’s customers.

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