What I learned closing a Corporate / Startup partnership within 4 weeks.
I am currently building a new business model for a blue-chip corporate client. The business is exciting but lies in parts outside of their area of expertise, including a rather complex fulfilment element, which my client has no intrinsic interest in getting involved into. From the beginning it became clear that for the project to fly, we would need to find a partner to take care of it.
The natural approach was to start “closer to home”. We reached out to their established business partners, also big companies by themselves, in order to know if they were willing to join the project. Their initial reaction was positive and supportive, but getting two elephants to dance is not an easy undertaking. It didn’t take long to understand that if we wanted to execute fast and quickly gain insights into the new business model, we would need to find a nimbler partner. That’s when we turned our attention to startups.
Below, I would like to share with you 5 key insights gathered during the 4 weeks needed to go from first contact to signed Corporate / Startup partnership deal.
Lesson N°1: Identifying the right startup
First and foremost, when shortlisting potential partners, don’t think about their vertical or value proposition! This is the first thing that comes up our mind, but in most cases it artificially limits the choices. You should be rather looking at which startup has the core capability you need. For example, if you are looking for a partner with fulfilment logistics knowhow, it doesn’t matter if they deliver the same type of products you are aiming to deliver. It is actually better if they don’t, so that once the corporate project start scaling it won’t pose a threat to your partner’s business. It sounds obvious now, but it took us a while to start thinking in capabilities instead of verticals or value propositions.
Targeting the startups at the right development stage is also crucial. You should avoid the very early stage startups, as they might be super motivated but lack the capabilities you need. On the opposite side of the spectrum, the Scale-ups are dynamic and have a very valuable skillset. From my experience at this phase they are normally super focused on scaling their working use cases instead of fishing for new opportunities. If you find a suitable scale-up, your first job is to get a sense of how fast a deal can happen. The sweet spot in my opinion are Startups around Series A. They are eager to make their first corporate deals to improve their track record. An interesting niche is also bootstrapped Startups. They are often in the lookout for opportunities to cross-finance their business and might be willing to give priority to a deal even if it is not within their planned trajectory.
Once you shortlisted the right startups to talk to, reach out to your network for warm introductions to the founders. As you are going for speed, avoid the detour over the BizDev guys and talk directly to the ones that can signalize quickly if they want or not to devote their mindshare to such a deal.
Lesson N°2: Understanding the upside for the startup
To manage expectations from the start, make clear to the startup founders that the talks have nothing to do with a potential acquisition offer. It looks like founders have been trained by VCs and the media to be always on the lookout for deep-pocket buyers.
As in any negotiation, your goal is to quickly find out the intrinsic motivation of your counterpart to join the talks. Is he or she just being polite to the person that made the introduction? Are they expecting this talks to converge into an acquisition offer? Are they bootstrapping or cross-financing ahead of a new round? Does this partnership leverage existing assets thus improving their cost structure? Will this look good at their investor deck? Will this bring paid insights into a potential secondary income source or pivot scenario?
The reasons can be many and multifaceted but understanding their position will help you evaluate their level of interest and commitment early on. Most importantly, it will also allow you to pitch the partnership at the right angle, fostering a truly win-win situation beyond the couple of Euros that might change hands… the basis of every successful partnership.
Lesson N°3: Bridging the corporate & startup fears
Both corporate and startups have reservations in making business with each other. The power unbalance is enormous. Their fears are different and understanding them will give you a great advantage in handling the deal.
From a corporate perspective startups are small, nimble but also fragile and less structured. They fear any reputation and brand image issues arising from the partnering: What if they can’t deliver on their promises? What if the quality is not the one expected? Should I trust my brand & part of the customer journey to these guys? These questions will be the elephant in the room during the negotiations. In some cases, the corporate managers will pretend this isn’t an issue to show how innovative and progressive they are, but before any ink can reach the paper I guarantee that this fear will surface.
As in many situations in life, it is the small partner the has the most to lose. Unless the startup founders are delusional, naïve or have done such deals quite a few times, they will dread being crushed by their contract partners if anything goes wrong. They have nightmares of an army of lawyers marching on their direction with piles and piles of documents. Being in a legal battle with a corporate giant can mean game-over for most startups, putting in jeopardy several years of hard fought progress.
This was a truly interesting insight from the whole process and it was my job to manage those feelings from both sides with a mixture of moderation, trust building and shaping short & understandable contracts to formalize their partnership. This is the moment that really pays out to have been in both sides of the table, thus being able to empathize with the founders and the managers equally. I would also recommend to keep the parties away from each other during the first interactions. That mean, you as a mediator will talk with the parties independently and bring them together only after the deal starts taking shape.
I need to spend some words on a critical topic mentioned above: contracts. Rule number one is to keep the corporate lawyers at arms length. Keep them informed that a deal is taking shape and kindly offer to draft something for them to look at before signing. They will be grateful for your help and you will have a chance to draft a contract with the right frame for the deal. Your goal now is to limit the scope to the maximum. You want to tightly define the timeframe, geography, activities and volume of the engagement to the strictly necessary to run the pilot. It should be clear that this contract is an exception in order to run a first trial together and will not automatically carry on forever or define the framework of any future contractual relationship between the parties. Lawyers can kill any deal, no matter how much the parties want it, so mediate heavily here.
Lesson N°4: Demystifying the startup inner workings for the corporate departments
So, you manage to get the parties interested in each other? Great! So now get ready to the hardest part: to sell the deal throughout the corporate organization.
On the corporate side you will be initially dealing with a quite progressive department, which in most of the cases have a stake on the digital transformation and innovation of the organization. Getting them on board is more a mater of finding the right startup for the project. They will give you the “go ahead” and probably a list of departments that need to be consulted in order for a final deal to go through. This will probably include Legal, Finance, Regulatory, Quality & Safety, Customer Support, PR & Communications, Supply Chain and the list goes on.
Once you have the list, divide it into three parts and tackle it in the following order:
1. Departments that need to approve the deal
2. Departments that shall be consulted and give input to the pilot
3. Departments that shall be informed of what is going on
Chances are that most of the people you are going to talk to never had a single meeting with a startup. They will either extrapolate their expectations from the corporate’s tier one suppliers or expect to encounter the “wild west” of the business world, based on what they hear about startups in the press. Either way, you need to get real: Get both parties together, ideally in a meeting or workshop at the startup’s office. Make sure to shape the expectations of the corporate members beforehand, so that they know what to expect. Once they meet in person and see that they are all clever people that just happen to work in a slightly different way, things will get smoother.
Lesson N°5: Mediate & gently push for the closing
Expect to get stuck a few times during the process. Often it is a corporate department that makes an unmanageable demand. Or it is the startup founder that gets cold feet and worry about spending too much energy outside their core business. Sometimes is the project sponsor that falls into the old “better safe then sorry” mode of thinking.
Don’t despair, the tendency to back off during the process is a natural reaction of dealing with a new situation. Empathy is your best friend here. Always remind them why we are doing this and what is the goal they are trying to achieve. Also talk about the aggressive timeline the project has and also the limitations on the project’s reach or scope… the “it is just a small test” catchphrase always helps.
Sometimes, specially at the corporate, people default to no action, since few people get fired for not doing something new. This is understandable. It is your job to gather the necessary C-Level support and design the project to have a “Limited Blast Radius”. That means that even if the worst case strikes, it shouldn’t cost neither the startup existence nor anyone’s job at the corporate. You need to recognise these situations and be more assertive with your business partners: no decision is also a decision! That’s when they need a gently push (sometimes a bit harder) to get the balls rolling.
Sounds like hard work and it sometimes really is. But don’t be put off by it or the prospect of spending months on such a process. I can testify that given the right conditions, a good match between startup & corporate intentions and the guidance of a mediator that can build trust at both camps the whole process can take less then one month to complete. Combining the nimbleness of a startup and the strength of a corporate is a beautiful thing, so go for it!