Many young technology companies dream about establishing partnerships with larger companies as a way to help them increase their market coverage, increase sales volume and lower sales costs. For example, most early stage companies want strategic partnerships with the large cloud players: how do I get Amazon, Microsoft or Google to partner with me and promote my technology?
While this aspiration certainly has merit, these partnerships will not be successful until the young technology company figures out how to successfully package and sell their products and create a repeatable sales process. In partnerships with larger companies, it is all about what you can do for them, not what they can do for you; and you can’t easily answer that question without a repeatable sales process.
Moreover, it is very difficult for a young technology company to impact sales or brand growth by partnering with other small/early-stage companies. There are two primary reasons for this: 1) both small companies have very limited market awareness or sales coverage, so the growth factor each brings to the partnership is small; and 2) both companies are likely in the formative stages of their individual Go-to-Market strategies, so trying to create an integrated GTM strategy across two strategies that are in flux is almost impossible.
Why Explore Strategic Partnerships at all?
At AccelG2M, we encourage our CEO clients to continually assess if there are any potential strategic partnerships they could pursue to give them an “unfair advantage” while the company is creating or refining its own Go-to-Market strategies. The “unfair advantage” may come in several forms including: 1) significantly heightened market awareness by being “validated” by the strategic partner; 2) attractive revenue transfer from the strategic partner; or 3) a potential near-term or long-term M&A opportunity.
For some early-stage companies, their technology / technical experience may be highly valued by a potential strategic partner. For example, larger technology companies eyeing a new and hot space often need to decide if they want to build, partner or buy their way into a dominant position in the new market. In this case, the strategic partner is not valuing the startup for their sales or marketing momentum; they’re valuing the startup’s technology and expertise for one of two reasons: 1) create a competitive advantage for them in the market; or 2) address a competitive disadvantage in the market.
Success Criteria for a Strategic Partnership
Wanting to establish a strategic partnership is different from actually being able to establish a strategic partnership. The following are key criteria to keep in mind when engaging with strategic partners.
Criteria #1: Increasing Market Opportunity
The potential strategic partner will need to clearly see how your technology will help them 1) gain a competitive advantage or 2) mitigate a competitive disadvantage. Therefore, the discussion with the partner is not about what your technology does, but instead what your technology can enable them to do– it is really all about them, and not about you at this point. Put another way, the partner wants to know: what is the product market fit of your technology paired with their products/solutions and why is that impactful to the market and their customers? For example, can your technology help Amazon or Microsoft increase market share for one of their existing offerings vs. how much can the partner make selling your technology. This is simple math – a 5% increase in market share in a large number (their current product) is worth far more than the margin they make selling $25m worth of your technology.
Criteria #2: Improving Technical Differentiation
On a related note, it will be important for you to help the partner understand the “art of the possible”that your technology can enable when integrated deeply with their technology. This requires you and your team to articulate the differentiated value propositions of the combined technology. The focus here needs to be on what the combination of your technology and their technology will enable for their business, i.e. the “art of the possible” of the combined technologies.
Criteria #3: Establishing Executive Relationships
Strategic partnerships are formed at high levels in companies and by strategic executives. Therefore, the CEO of an early-stage start up must be actively involved in strategic partnership discussions. It will send a message that the company is serious about exploring a strategic partnership. Additionally, it is critical that the CEO work to establish the initial dialog with the highest level relevant strategic executive at the strategic partner. This “top down” approach will generate the highest likelihood of capitalizing on the biggest market opportunities and unlocking the “art of the possible” value propositions. A CEO to CEO discussion is most valuable to both companies at this stage.
Criteria #4: Delivering Strategic Value for Both Sides
The strategic partnership needs to be strategic to both companies. The CEO must be comfortable with what the strategic partnership does for the company. Does it help significantly increase brand and market awareness? Does it generate a compelling revenue stream? Does it lock out a competitor from doing something similar with the partner? If there is no compelling value for the company, then the partnership will not be considered strategic.
If everything aligns, a strategic partnership will be mutually beneficial to both companies. For the CEO’s company, the benefits may be an “unfair advantage in the market” relative to the company’s competitors as well as additional runway for the CEO to build a successful Go-to-Market strategy.