The Partnership Trap
Early in the life of your B2B tech startup, you may experience “The Turnaround”. This is not in reference to restructuring situations that mature companies sometime experience in order to revive flagging fortunes. Rather it is the point where what you thought was a sales process turns into a conversation about becoming partners*.
To the startup founder, this always looks like a positive development. The typical thinking is that here is this big firm that sees value in our solution and can actively help us out. We can leverage their sales network, their marketing prowess, and their brand name to lend credibility and accelerate sales. What could be better than that?
I tell you what could be better, buying your solution and wiring funds to your bank account. You see, you just got the turnaround, so instead of the potential for much needed cash in the near term, or got a fleeting promise of business sometime down the road dependent on people and processes that are completely out of your control. This is the partnership trap. Instead of a commitment, you got the ultimate non-commitment. It is the worst than that however, because it means you are led to go all-in on a “deal” that often has no teeth in it.
You might protest that these deals can be real and highly valuable. You are right that in some cases an actual partnership can evolve. However, those are rare instances, usually driven by strategic decisions from executive management that necessitate the implementation of some stop-gap initiative. Integrating a startup’s solution can often be the most cost-effective and quicker option over in-house builds or extensive customization of existing solutions. The problem however is that you are rarely privy to the urgency and have no access to the actual decision makers.
What is more often the case with partnerships is that they offer an elaborate show. You go through many of the hoops to negotiate and ink a deal as you would with a straight up sale. You try to navigate the organization to create visibility for your solution. You attend tons of meeting, do tons of internal selling, go through plenty of dog-and-pony shows, and create all sorts of presentations and documents to convince folks of the value of your product. All this would be fine if it resulted in a sale, but this is to simply get people interested in pushing your product through their channels or integrating your product into theirs. Problem is that you are not their priority, and in fact, you probably have zero visibility into what exactly is driving overall sales, marketing, and development efforts. Even if there are sweeteners to push your offerings, how does it compare to other parts of one’s compensation plan? You have no idea.
It can get even worse than mere foot dragging however. I have heard of plenty of bad faith incidents that caused all sorts of damage to the startups trapped in these so-called partnerships. One company neglected to fix bugs in their software that caused major data inconsistencies in customer’s data when downloaded into the startup’s product causing the startup to pull this integration even though it was a critical part of their solution. Another company had created incentives to push a startup’s products through their sales group, only to have their head of sales change the comp plan soon after to remove the incentives. The startup never caught on till months passed having been lied to about the reasons for so little sales activity. Even worse things have happened including IP theft, revenue skimming, collaborating with competitors, lawsuits, stealing employees, etc. If you were a larger, better capitalized company, you could fight back, but as an early stage startup you simply have no recourse to protect yourself.
Bad things happen in outright sales as well. You can have bad customers that operate in the most unsavory ways to manipulate your startup. However this happens far less when a customer has invested in your product with their money. It goes deeper than a purely financial transaction, it is a person or group of people that are staking their own careers and professional reputations taking a risk on your startup. There is skin in the game at a personal level. When there is little to no skin in the game, it allows for all sorts of behaviors that undermine relationships and unleash predatory inclinations. When there is a lack of accountability, it becomes a no-holds barred free for all.
Do not get yourself trapped by the turnaround. If you find yourself getting drawn into the possibility, bring back the conversation to a sales conversation and the value of your solution to their specific needs. Partnerships can be a secondary option, but only after a sale happens. If they still insist on the partnership, it is time to either find another route to getting a deal or to abandon the deal. If you still think that a partnership in lieu of a deal is worth pursuing, then you need to cover your bases, something that I will cover next week.
* The exception is for certain business models where partnerships are essential, particularly with API oriented solutions.
9 Notes/ Hide
- ingersollnik liked this
- flyfishingpodcast liked this
- lzorzella reblogged this from marksbirch
- alternate1985 reblogged this from marksbirch
- seanrrwilkins liked this
- lilyb reblogged this from marksbirch and added:
“When there is a lack of accountability, it becomes a no-holds barred free for all.” A life lesson, whatever the topic.
- alternate1985 liked this
- sweway reblogged this from marksbirch
- sweway liked this
- marksbirch posted this