Earlier this week, Fred Wilson visited class and brought with him a wealth of knowledge and experience. The discussion covered a range of topics, including partnering with large corporations. Fred commented, “I don’t like go-to-market strategies that rely on large partners to enter the market, [since] you don’t have much control.” I agree with Fred, but I wonder if there’s a way to reap the benefits—existing customers, established distribution channels, market experience, brand—while reducing the risk of partnering with a large corporation.
Unfortunately, I have had first-hand exposure to the downside associated with relying on large partners: my one entrepreneurial venture to date failed because of an overreliance on a large company. This was in 2008 when my uncle, a pilot for a major US airline, envisioned a web-based solution to a problem his airline faced. Given my technical background, my uncle recruited me to be his cofounder. We made solid progress working part-time over seven months. We had built a fully functional alpha version of the site that provided a technical proof of concept. The airline really liked the idea. They liked it so much that they decided to build it themselves. #startup #fail
My experience epitomizes Fred’s comment around lack of control. Not only did we rely on the airline for our go-to-market strategy, but our entire business model revolved around this billion dollar behemoth: they were our customer, technology and operations partner, means of market entry, and source of revenue. They were everything to us, but we were nothing to them.
Looking back, I’m thankful for the experience, but if I could do it again, I would have approached the business opportunity differently. The last two years of business school (including courses such as The Entrepreneurial Manager, Launching Technology Ventures, Entrepreneurial Finance, Founders’ Dilemmas, and Strategy) have completely altered my approach towards entrepreneurship. I now have the ability to conduct a meaningful postmortem to understand why my venture failed. (Perhaps I should have tested a few hypotheses upfront, rather than just code the entire site.)
There are a number of reasons why a startup should not partner with a large company: the larger partner has too much power, lacks agility, and has a limited appetite for risk. Despite these concerns, as well as my own negative experience, I still believe a partnership with a large company can provide great benefits (e.g. Groupon and Expedia; Foursquare and Condé Nast; Twitter and Apple). The key is to focus on the structure and timing of the partnership.
When working with the big guys, here are my recommendations for increasing your chances of success:
- Examine your model: if you look at the four quadrants of your business model and see “partnership with large company,” this is a red flag; either eliminate all references, or minimize your partnerships as much as possible
- Be lean: test your partnership hypotheses
- Focus within: achieve product/market fit, begin to scale, and build a self-sustaining business, before you engage an external partner
- Be unique: offer a product that your partner cannot quickly or inexpensively replicate
- Don’t get attached: view the partnership as a “nice to have” rather than a “must have”
