Benefits and Roadblocks of Corporate Partnering for Startups

Opinion

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constantly drive the process and take on the onus and burden of extracting results. If the startup fails to do this, it’s quite possible the corporate partner may become distracted with other activities and the relationship will be unable to move forward and generate benefits for either side.

An example of persistence: when Axcient was getting equipment financing, it was proactive in reaching out and asking what, specifically, was necessary for approval. From there, it put together the required models, expectations reports, financing and equipment requirements and anticipated what the finance department wanted to see. Persistence paid off: the financing was completed.

Know Your Value—It’s easy to get overwhelmed by the reach (and numbers) of a big business partner, don’t underestimate the amount of value that you can bring to the table as an early-stage company. The partnership will work better when entrepreneurs recognize their company’s value in the arrangement.

If a startup’s service or product is unique enough to attract a corporate strategic partner, it’s because it gives that larger company something to differentiate itself from its competition. Be very clear about what that value is. Axcient, for example, lets HP differentiate itself from its competitor—arming HP with a Cloud-based solution.

Be Patient—Partnerships with big businesses are like kitchen renovations. However long you think it’s going to take to get something done, it ends up taking two to three times longer.

For entrepreneurs, this can be maddening, but this is where a little perspective is essential. Big business is inherently slow. Their list of priorities is absurdly long. They think in financial terms that are inconceivable for small, early stage companies—with revenues in the billions. If startup owners are able to keep that in mind, it will help save their sanity—not to mention the partnership.

Picking Partners

Finding the perfect strategic partner isn’t an easy task. While it might be tempting to quickly embrace a business with deep pockets or one that operates in a closely aligned industry, that’s not always the right move.

It is, in fact, sometimes the least likely candidate that 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 very little in common. Eric Olden, CEO of Allegis Capital portfolio company Symplified, discovered this first-hand five years ago.

Symplified, a cloud services company, today counts Quest Software, a traditional software company, as a strategic partner—something that might confuse some business observers, given how radically different the two firms approach the computer industry

It’s a partnership that even Olden was skeptical about when he was first approached by Quest in 2007. But something about that initial conversation felt right, so he began to do his homework on the company. Quest, he learned, encouraged startup partners to maintain their entrepreneurial spirit, rather than trying to make them conform to its big business style. That extended to acquisitions, too—and many of the employees of startups it had purchased had opted to stay with Quest (including two people Olden knew personally).

Ultimately, the promise of continued autonomy and the ability to utilize the resources of a multi-national corporation overcame any worries about the two companies’ different focuses—and the partnership has been a fruitful one.

Many entrepreneurs might not have been open to working with a big business that takes such a different approach to their industry. But the blinders that come with that sort of narrow focus can prevent startups from realizing their potential.

Similarly, startup owners often forget to consider overseas multinationals in their search for a strategic partner. Identifying an ideal international company might be more difficult than … Next Page »

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Bob Ackerman Jr. Ackerman is the founder and a managing director of Allegis Capital, an early-stage Silicon Valley venture capital firm that invests heavily in cybersecurity. Follow @allegiscapital

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