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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