Startups and Partnering

Editor’s note: Investor and entrepreneur David Gardner is founder of Cofounders Capital in Cary and is a regular contributor to WRAL TechWire.

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All of our early stage software companies have to start out by directly selling their solutions to early adopters but as soon as they have some referenceable customers we try to get them to start thinking about finding potential partners, integrations and reseller opportunities. ? Direct sales are important for many reasons but as far as dramatic growth is concerned, it is trench warfare.? The right partnership, managed well, can catapult a young startup forward in ways that would take many years to achieve organically.

Business Development Requires a Dedicated Focus

Direct sales is rather straightforward. ? You train a team to carry a message, present value propositions, overcome objections and close deals.? Business Development requires a more sophisticated approach and champion who can find synergies between your company and potential partners and develop a custom business plan to ensure that both companies achieve their desired results. ? These relationships can include everything from a simple referral or reseller agreement to complex technology integrations so involved that? one product cannot be sold well without the other. ? Whereas a typical B2B SaaS sales cycle is one to six months, a business partnership or reseller arrangement can require 12-18 months from start to revenue generation.? That's a massive investment for a startup but often the exact right use of their limited cash because a deal with the right partner can be company-making. ? Beyond credibility and revenue acceleration, we have also often found that our portfolio companies receive a strategic investment from or even get acquired by a company with which they first had a successful partnership.?

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Choosing the Right Partner

A mistake I often see startups make is negotiating deals and integrations with the wrong partners.? They are so eager to do deals that they partner with any small company that is willing while each is thinking the other is the silver bullet that will make them successful.? Getting the go-to-market right and negotiating these deals can be very labor and time intensive so you only want to go down this path with partners that present very large opportunities. ? After mapping a space, we try to identify potential partners that 1) have a large and overlapping customer base or 2) has a sizable sales force we can utilize or 3) has a complementary technology that opens up a larger or more addressable market for our offering.? A big part of successful partnering is in knowing who not to spend time trying to partner with.???

Negotiating a Partnership?

The best way to position a partnership negotiation is by first fully understanding the goals of your partner and articulating how you can help that partner achieve these goals. ? Don't underestimate your value just because your customer base and revenue are minute by comparison. ? Your value prop might be the exact one your partner needs to start checking a box on RFPs that when left unchecked is allowing their competitors to take tens of millions of dollars of its existing and new business.

These negotiations go faster if you start by laying out a framework for the discussions. ? I like to draw a revenue share continuum showing “light referral” arrangement at one end and “full partnership” at the other. ? Referrals are worth maybe a 5% finder’s fee.? If a potential partner wants 30% or more of the sale, I’d expect its sales people to carry a meaningful quota on our product,? handle implementations, dedicate a budget for marketing and to handle first line tech support.? If a potential partner does not want to do all of that then start moving the other direction on the continuum of revenue share.?

Key Factors?

There are a couple of important factors you should always keep in mind.? The golden rule in negotiating a partnership is, “he who controls sales compensation controls the sales people”. ? Try to get a reseller partner to agree to let you spiff or otherwise compensate its sales people directly and make notifications to them regarding such special compensations, team competitions and recognition.? Sales people push what is foremost in their minds and what makes them the most money so negotiate hard to get direct access to any partner’s sales force.???

Finally, remind yourself everyday that most partnerships fail and they fail because they are not managed appropriately.? They require constant management once a deal is signed.? Someone has to be assigned and compensated to manage the relationship, do sales training,? retraining, joint marketing and general partnership motivation and problem solving.????????

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Conclusion

Startups often undervalue partnership. ? They also underestimate the commitment it takes to find them, negotiate them and manage them effectively but they are worth the effort.? The right partnership, managed correctly with a well negotiated agreement governing the relationship can be transformative to a startup in ways founders can’t even imagine. ?