In my role as a strategic partnership developer, I rely on many of the techniques that I use for a successful merger and acquisition (M&A). I look for a win-win opportunity for both companies. More often than not, it is a larger company that partners with a smaller company startup for a variety of reasons.
Read the reasons that large companies find value in a strategic partnership with a startup
- Invite innovation into the larger company. Startups are known for being bastions of innovation and creativity, which can sometimes be mired down in a large company with all of their process. Innovation can spark big movements forward and bringing this energy into a larger company has tremendous value.
- Develop new products. Startups can develop prototypes and products much faster than large companies. Many large companies want to either extend their current product line or create new products with faster R&D. A strategic partnership will enable the larger company to move faster with new products, designed and developed by a more nimble partner.
- Create distribution channels. Often, a larger company has existing distribution channels that can be utilized to sell the startups products. This is one of the easiest and fastest methods to start working together and has equal benefits for both partners.
- Gain knowledge of industry trends. Startups are on the leading front of industry trends and this knowledge can be quite valuable to a larger company. They can learn about how startups in their industry view the future and use this information in their annual strategic planning.
- Build a relationship for future acquisition. There is a reason that I offer both M&A and strategic partnership development services. It is because they go hand-in-hand. Quite often, a strategic partnership allows the larger company to evaluate whether they want to acquire the partner in the next 12-18 months. There is an added benefit of working together to assess cultural compatibility as well as product and strategic fit. One of the biggest reasons that acquisitions fail is the cultural incompatibility, which is alleviated with this approach. It offers great risk reduction to the acquiring company.
- Leapfrog competition. If a large company finds out that their competitors are planning to offer a certain product or service and they have not developed a solution yet, they can use a strategic partnership with a startup to immediately have a state-of-the-art capability.
- Create a new revenue stream. Many startups, especially software companies, utilize a SaaS business model or ARR. A large company may not have this business model within their product lines, which provides great predictability into future income and profitability. This can be a great reason to bring a partner into a more traditional business.
- Access new insights. Many software startups will provide cutting edge data analytics that can be used by a larger company to understand how customers are using their products, how they can improve them or sell more parts. The access to new data analytics can propel many strategic decisions for the large company for current and future success.
- Develop new services. A large company may have the resources to develop service offerings around a product that are not feasible for a startup. Either by cross-training current resources or investing in new areas of expertise, the large company may create a new service offering. Human resources are one of the most expensive business costs, and startups are always constrained for resources. A partnership in this area is mutually beneficial.
- Gain insight and have influence over the startup’s product roadmap. Money talks! By investing in a collaboration with a startup, a large company can have greater insight into their long-term product roadmap and influence their plans to coincide with their customer base and strategy.
- Build versus Buy. It is more costly for R&D in a large company than partnering or acquiring a small company. The build versus buy decision is prevalent in many strategic partnerships and acquisition strategies. If the cost of R&D is a driving factor, a strategic partnership approach may be more beneficial. Those R&D costs can then be re-directed to strategic projects.
Strategic partnerships are long-term relationships that can provide mutual benefits to both parties. They should be carefully considered for the reasons noted above. For the startup, their long term plans can be guided, developed and influenced by the partner. Conversely, the large company will also be influenced by the innovation, speed and new insights that the startup brings. The strategic partnership can also set the stage for a successful acquisition in the future. It’s a successful method to reduce risk in an acquisition while building financial success for both parties.
I have a unique perspective in designing strategic partnerships because of my varied roles with startup and large corporation collaborations. First, I am from the tech world and I was the co-founder of a startup who worked with many large corporations on collaborations with my company. As a small startup, we did successful partnerships with many large corporations that funded our product development. Secondly, my company also provided a software platform for large corporations to select projects and investments that aligned with their strategy and drove the execution of the work. We provided consultation services and helped them make data-driven decisions about the investments.
After exiting my company, I transitioned into M&A and worked with both Silicon valley startups and venture-funded high growth companies to be acquired, and also worked with Silicon Valley private equity firms and large corporations with buy-side M&A. The work I do now is to find the right match to bring innovation to corporations and make acquisition transactions in alignment with their strategy.
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