DId you ever read "Startup" by Jerry Kaplan? His company, GO, tangled with some really hefty gorillas (Microsoft, IBM, HP, State Farm) and got screwed by just about every one of them. It was painful to read at times. Legal contracts got discarded, verbal promises were rescinded, etc. The book certainly illustrates the dangers of creating a company that is dependent on one or two huge customers in order to stay afloat.
I've been through this (in key roles, so I should add, "that I know of") twice, once with Redmond and once with Tasman Drive.
Here are the things I learned:
- You can "affiliate" yourself with a 900lb gorilla though basic partner programs or product interop without exerting the effort to close a "strategic partnership".
- The effort involved in securing a strategic partnership, and the likelihood of success, can be comparable to closing 2 major customers.
- Even if you close it, the outcome is most likely going to be less meaningful than having even one customer.
- I saw one strategic partnership really drive sales. The dynamic was, the 900lb gorilla "annointed" our company, which was in an incredibly competitive space where 5-6 startups had traction and were building a market.
- Strategic partnerships can break strategy; management teams get acquisition on the brain, every decision (on your side and the gorilla's side) is seen through that prism.
- A very formal strategic partnership (say, a strategic round) can hurt your exit if it's seen as effectively giving first refusal to the partner. Yeah, you shouldn't think about exit, but if you're in an OEM discussion, the thought of exit is unavoidable; it is hard to close an OEM with a small company when acquisition in the future is off the table.
- The tightest relationships I've seen on the ground (sample size: 2, so grain of salt) were with regional account managers (who benefit both from pull-through sales and by facilitating anything with their customers, which deepens their relationship with them). And speaking as a product manager: I'd aim at Product Managers in my target partners if I was shooting for decision maker.
My take: not worth going after. Huge customer wins are infinitely more valuable. Think of partnership as something bought, not sold. If you rock, it's going to happen anyways.
Obvious caveat: what do I know?
Dharmesh says, "The road to a single 900-pound gorilla partnership company is paved with revenues and profits, but has a dead-end."
Amen! The operative word here is "dead-end". Sooner or later, it will end in an ugly way for the little guy not for the 900 pounder. I also concur completely with Thomas' insights.
After catching the "strategic partnership" wave twice and ending up stranded on the beach with a broken surf board both times, I would never go near a partnership with a major again regardless of the promised conditions or rewards. My philosophy is: avoid competing with them directly: stay off of their radar as long as possible; do not become dependent on them or their business.
I see Google as a case study in the corrupting influence of success and power. They have come to embody the moral transformation that occurs when companies become monopolistic behemoths.Their motto was "Do no evil". They were the anti-MS. Now look at them. They cooperate with the Chinese government in suppressing dissent; they seem to have a suspiciously disingenuous but profitable policy with regard to click fraud; they seem to be transforming into the enemy before our eyes. They started benevolently; they are now huge and have "professional" managers. Does their recent behavior indicate that they are likely to respect an agreement with a little guy?
It's much tougher and initially precarious financially to go it independently, but what you earn, though it be a pittance, is yours and no one can take it away from you.
I think your approach and foundation often leads to early success. One suggestion I make frequently to my clients presenting for investment is whenever possible when you have that first client, bring them to the presentation.
It's in both of your best interests that you survive and it's a great way to minimize investor skepticism (whether or not that skepticism is myopic).
In my experience working with start-ups, interestingly it gets a bit tricky when you do land that first partnership because the skill set required of the CEO usually changes noticeably. (most certainly after customer 3 or 4)
Being able to keep a dynamic AND focused approach is key. (And yes, that is a somewhat confusing statement that you often hear from a consultant like me!!)
Thanks for this article and valuable comments from readers. This is exactly what I have planned to start my new venture. I am planning to use company's brand name and products (Which I developed :) to start with. Eventually, replace company’s products with in-house developed products. Do you have any more suggestions on this approach?
Has the 800-pound gorilla gone the way of the rest of America and put on 100 pounds ?
Ernest, that was hilarious.