Business Development Deals with Large Companies (Big Co)

By Hunter Craig

Business development deals, especially ones with Big Co, can create incredible value for a startup, but these partnerships are often complex and difficult to achieve.  Obstacles can loom larger for lean startups – while minimum viable products (MVPs) can enable quicker and more cost-effective product-market-fit, their “light” nature frequently generates weaker currency at the Big Co bargaining table.  Incorporate “high value” information into the equation, and a lean startup likely faces the steepest road to acquiring a Big Co deal.

Big Co frequently has multiple tools to create enormous value for new ventures.  These organizations have large customer bases, vast repositories of information, and extensive networks.  They operate with enviable infrastructures, resources, and credibility.  In short, Big Co is at the top of most entrepreneurs’ introduction lists for good reason.

Yet these dialogues feel impossible to harvest, let alone start.  Why?  Let me count the ways.  First, Big Co is busy with its day job.  Second, its sources of decision-making power are difficult to identify and then engage.  Third, it hoards its resources.  And finally, it is risk-averse.  Together, these elements make Big Co an inefficient and frugal partner, even for other large companies.

For startups, and particularly lean ventures, the prospect of a Big Co collaboration is bleaker.  New enterprises are inherently high risk and Big Co communication is challenging, with the typical young entrepreneur lacking the necessary clout and network to develop impactful conversations.  Lean companies face additional challenges.  Due to their emphasis on simple and low-cost prototypes, these enterprises often carry greater uncertainty to the bargaining table.  The lean venture’s desire to move fast and iterate quickly only further disgruntles Big Co, complicating the conversation.

Take a lean startup pursuing “high-value” ground, and one likely sees the rockiest of all paths.  High-value ground can involve core functions, proprietary programs, customer data, and/or future competitive turf – essentially any elements that involves material up/downside.  In LTV, we discussed just such a case with Plastiq.  The company aims to work with large incumbents, principally credit card companies and merchant acquirers, to enable individual consumers to make large purchases (i.e. car purchases, rent payment, college tuition) via credit card.  As the case detailed and management team elaborated in class, convincing stakeholders to trust Plastiq with processing of millions of dollars in payments is no small feat.

Last summer, I worked for Outbox, a startup facing similar lean and high-value challenges.  The company’s service involves intercepting and digitizing a user’s postal mail, making it available on Outbox’s online platform.  The company has a broad group of large partners with whom to work, including retailers, billers, direct mailers, and the United States Postal Service (USPS).  While Outbox would appear to create substantial benefits for these constituents – such as cost reductions for the USPS, more effective advertising for retailers and higher payment rates for billers – many of these organizations have moved slowly in aligning themselves with the company.  Consistent with the issues outlined above, product iteration, resource investment, information control, and contractual obligations are often cited as key concerns.

So how does a lean startup navigate such straits?  Plastiq leveraged its investor’s network to gain an introduction to Mastercard’s CEO.  Outbox worked its Silicon Valley relationships to speak with the digital arms of numerous internet and retail companies.  These steps might seem small, but frequently, once one Big Co domino falls, the others are much more inclined to follow suit.  Credibility and trust with Big Co is absolutely critical for a startup, especially a lighter-weight lean venture, and while there are many tools available, relationships often emerge as the golden ticket. 


Comments

Popular posts from this blog

Quiz Time 129

TCS IT Wiz 2013 Bhubaneswar Prelims

The 5 hour start-up: BrownBagBrain