Strategic partnerships can be a powerful way to grow your venture capital-backed startup, but they also come with risks and challenges. How can you make sure that you can exit the partnership smoothly and successfully when the time comes? In this article, you will learn some tips and best practices to plan, execute, and communicate your exit strategy.
Before you enter a strategic partnership, you should have a clear idea of what you want to achieve from it, and how it aligns with your long-term vision. Your goals could be to access new markets, customers, or technologies, to leverage your partner's brand or network, or to test a new product or service. You should also define the success metrics and milestones that will help you measure your progress and performance. Having a shared understanding of your goals with your partner will make it easier to negotiate the terms and duration of the partnership, and to decide when and how to end it.
Consider the end at the start - what does a successful exit actually look like, what is the time frame and will those you are getting in the boat with be rowing as hard as you are? Take time at the start to consider that and it will save a lot of issues later on.
Have a clearly defined exit strategy before entering into the partnership. Business can perform good or bad, you need to be prepared for all possibilities. Incorporate the exit strategy into the transaction documents. At the beginning everyone is excited about a new partnership, yet memories get blurred in time. Be transparent about the progress of the partnership. Small issues can become bigger problems without transparency and constant communication. Exit is sometimes the beginning not the end, as it shows a certain level of maturity in the business cycle. Treat your partners accordingly.
To ensure a successful exit from a venture capital strategic partnership, it's essential to have clear exit criteria defined from the start. This includes setting specific goals and milestones that, once achieved, signal the right time to exit. Regularly reviewing the partnership's performance against these benchmarks is crucial. Open communication between partners about expectations and the evolving market landscape helps in anticipating changes and preparing for a smooth transition. Additionally, involving legal and financial advisors early in the process can aid in navigating the complexities of exiting such partnerships, ensuring all parties' interests are protected and the exit is as seamless as possible.
Make sure you have a written partnership agreement to begin with. Lots of people create partnerships on a handshake, which is great as long as you're all still friends. But relationships change, and when large amounts of money are involved, partners start to view their original partners (and their contributions) differently. What seemed like a 50/50 deal in the beginning maybe doesn't seem like that at the end, based on the amount of work and/or money each partner is contributing to make the partnership a success. A written partnership agreement should allow for periodic renegotiations or even buyouts if tensions rise. Statistically, up to 70% of partnerships fail, so not having a written agreement is a lawsuit waiting to happen.
A successful exit from a strategic partnership can be achieved only when all the stakeholders exit with a win-win situation. From the perspective of a venture capital investor, a successful exit occurs when founders/promoters gain financially as well as strategically from an investor exit scenario because they will continue to run the business. For example, if an investor is exiting by secondary sale to another private equity investor, he/she needs to make sure that the new investor is bringing the desired synergies and strategic contribution to the venture and not disturbing the existing harmony in the organization.
Your partnership contract should include clauses that specify the conditions and procedures for terminating the partnership. These could be based on mutual agreement, expiration of a fixed term, achievement of certain objectives, breach of obligations, or change of circumstances. You should review your contract regularly and make sure that you comply with all the obligations and expectations. You should also be aware of any exit fees, penalties, or restrictions that might apply if you want to end the partnership early or unilaterally. If possible, try to negotiate favorable terms that give you flexibility and control over your exit.
Don’t look for loopholes to take advantage of the partnership but find a way forward benefiting each party or at least not damaging
I helped a company enter a partnership with a global battery manufacturer, including detailed termination clauses in their contract, covering various scenarios for an orderly exit. The firm and the battery manufacturer agreed to annual reviews of the contract to ensure ongoing compliance and adapt to any technological or market changes. During negotiations, I emphasized terms allowing flexible exit options, ensuring the firm retained control over their strategic direction. Negotiating for exit terms that account for potential future changes in the company’s strategy or market conditions can provide critical strategic advantages.
My experience has taught me the importance of 'what-if' scenarios. I discuss these openly with my partner, addressing potential shifts in market trends or corporate strategies. This approach not only ensures we're prepared for change but also fosters a deeper level of trust and transparency in our partnership. By proactively addressing these contingencies, we pave the way for a partnership that is robust, yet flexible enough to evolve or conclude as needed.
Collect as much dirt as you can on your partner, on the down low over time. Then you put it in the draw and you then have leverage in case it all goes south. Leverage over personal sleaze is especially useful.
Get a lawyer you trust. Reviewing your partnership contract, esp. those by big corporates, I can guarantee the 1st proposal sucks and might come with toxic terms. You don't want to sign a "Exclusive agreement"; you don't want to take all the risks when things go south; and 100 more, that a good founder and an experienced lawyer can tell you. You can't DIY.
Communication is key to maintaining a healthy and productive partnership, especially when it comes to exiting. You should keep your partner informed of your intentions and plans, and listen to their feedback and concerns. You should also communicate clearly and transparently with your internal and external stakeholders, such as your employees, customers, investors, and suppliers. You should explain the reasons and benefits of exiting the partnership, and how it will affect them. You should also address any potential issues or risks that might arise from the exit, and how you will mitigate them.
The major issue in business is a lack of communication. Whether it is internally, within a (digital) transformation or change process, when you would like to give up on partnerships or employees or even within your product or services communication. Always remember: Communication is always what gets through, not what you intended to say. It helps a lot to even define the goals of an exit strategy in order not to loose focus. And remember: an end with horror is always better than horror without end.
When i advise a company on a strategic partnership, i ensure that i communicate the exit strategy clearly to all stakeholders, ensuring minimal disruption and maintaining trust. I helped provide detailed explanations on why exiting the partnership was beneficial for its strategic focus, easing concerns among stakeholders. It’s beneficial to also discuss how such changes align with the company's broader strategic goals. Then i developed potential risks, such as disruption in service, and mitigated them by ensuring a transition period with the partner. Discussing contingency plans for unforeseen risks is crucial.
You should maintain Open Communication: Keep open and honest communication channels throughout the partnership, even when discussing potential exits. Transparency and empathy will help manage any emotional reactions and facilitate a mutually agreeable resolution.
In my experience, having milestones that are clearly communicated and openly discussed is the difference between a smooth exit or complete turmoil. If everyone knows the roadmap, goals and those predetermined entry and exit points, each partnership should be successful in their own way.
Be empathetic. Simulate the downside on day 1. These are critical in communication. You want a Partner when things go south, not a accuser. Be empathetic.
Exiting a strategic partnership can be a complex and delicate process, involving legal, financial, operational, and relational aspects. You should plan and execute the transition carefully and professionally, with respect and gratitude for your partner. You should also ensure that you have the resources and capabilities to sustain your business independently, or to find alternative partners if needed. You should transfer or terminate any assets, liabilities, contracts, or licenses that are related to the partnership, and resolve any outstanding disputes or obligations. You should also maintain a positive and cordial relationship with your partner, and explore opportunities for future collaboration or referrals.
Intelligent exits are key to a smooth transition for both parties in an ending strategic partnership. Uncertainty often arises from concerns about resource allocation or future strategies. To address this, clear communication and a joint exit plan can be established, outlining each party's responsibilities and timelines. Process complexities, like the transfer of shared data or assets, can be streamlined by agreeing on a detailed procedure and assigning a task force to oversee the execution. By proactively managing these aspects, both parties can ensure a seamless and mutually beneficial conclusion to the partnership.
It is one of the most challenging phase of exit process : Plan for a Smooth Transition The idea is to develop a detailed plan for transferring assets, technology, and customer relationships in a way that doesn't disrupt operations or cause undue hardship for either party.
If you think of your career at a long horizon, you will make decisions very differently. The world is smaller than you think. Burning the bridge is probably the most stupid thing you could do to your career. Manage the transition, professionally. You have a long career in front of you.
In my experience, i have always stressed executing the transition by developing a detailed plan, which included acknowledging the mutual benefits gained from the partnership and expressing gratitude towards the partner. Prior to the exit, I assessed and bolstered the internal resources and capabilities to ensure business continuity, and also identified potential alternative partners. When transferring relevant assets and contract, consider the legal implications and potential financial impacts of such transfers and terminations. Stress the long-term strategic benefits of preserving amicable business relationships beyond the immediate partnership.
An exit from a strategic partnership should be amicable, with careful thought about a smooth transition. It can be a gradual process with a defined timeline and clear delineation of responsibilities agreed upfront. Communications to external stakeholders and internal staff should also be precise and aligned.
Exiting a strategic partnership can be a valuable learning opportunity for your startup. You should evaluate the outcomes and impacts of the partnership, and identify the strengths and weaknesses of your performance. You should also solicit feedback from your partner and other stakeholders, and analyze the lessons and insights that you can apply to your future partnerships. You should celebrate your achievements and recognize your contributions, and acknowledge the challenges and failures that you faced. You should also update your strategy and goals, and adjust your business model and value proposition accordingly.
Most strategic partnerships don't produce the expected returns at the time of inception. Therefore, the most important part of a partnership is to bake in a smooth exit of a partner without creating angst and destroying franchise value.
My learnings from experience of executing 100+ strategic partnerships - Emphasize that each partnership, whether successful or not, offers critical insights into market dynamics, operational efficiency, and business strategy. Encourage a structured approach for feedback collection, like surveys or interviews, to ensure comprehensive and constructive feedback. It's important to foster a culture that values transparency and learning from both successes and failures. Stress the importance of aligning the updated strategy with evolving market trends and customer needs.
I made many wrong choices but I always try to identify my mistakes as I know I am the only one I can change.... Do not expect too much from the others and trust your feelings and first impression which in most situation is true.
You should develop a contingency plan in case the partnership does not work out as planned. This could include a buyout clause, a non-compete agreement, or other provisions that protect your interests. Try to reflect on the partnership's successes and failures to identify areas for improvement in future collaborations. Use the experience to enhance your decision-making process and negotiation strategies.
Define the goal, and measure it constantly. It's OK to fail, as long as you learn. "Success is not final, failure is not fatal: It is the courage to continue that counts." – Winston Churchill
Well, in my humble opinion, strategic partnerships are kind of like a relationship. To exist, it becomes crucially recommendable that the brake of it be done with respect, understanding of the other party’s position, while lessening the friction of the departure. In life relationships are built and could be dismantled. For that verity, it becomes essential that an ethical demeanour prevails while paving a path for reciprocal benefits. One ought to strive from a win-win scenario and lessen or mitigate the potential risks involved in an exist. Finally, I am reminded that what counts most in this life is the reputation one leaves behind. Integrity, justice and empathy become cornerstones in the way we handle our partnerships in life.
Ensure that your internal team and concerned functions are aware of the decision and are prepared for any changes that may result from ending the partnership with regards to day-to-day operations.
Know that understanding something is not the same as agreeing to something. Understand where the other party is coming from. Seek to experience how walking in their shoes makes them feel. If all legal precepts are met, help disengagement feel as good as possible. Look for ways to create smiles.
In my experience, if the basic balance within any strategic partnership is not equal, i.e., equal financial exposure, equal economic exposure, equal market position exposure, equal political exposure etc., it's likely that all of those legal documents will at some stage be put to the test. In a marriage of true equals you will experience challenges and even conflict. However, in most cases, there will always be a natural tendency to find the status quo again, as it would be equally damaging to both parties to allow disagreements to escalate to disengagement.
Entering into a strategic partnership is the easy bit of the process. Both parties will have their own motivations as to the underlying objectives of the partnership, regardless of what may be captured in any commercial agreement. Whilst both parties share the initial enthusiasm a partnership arrangement brings, ensuring objective performance and time-based milestones are built into the agreement are critical to ensure continued short term focus on the desired commercial outcomes. They also enable an exit if not performing to expectations. These milestones must be communicated to all stakeholders and in external releases to shareholders. It is against these milestones that the success or otherwise of the partnership will be judged.