Doing Business Development Deals with Big Corporations

By Dileepan Siva

CEO of Plastiq, Eliot Buchanan, touched upon a key issue for some startups - doing business development deals with big corporations. Plastiq's solution enabled consumers to pay for large-ticket transactions where credit card payments were previously not available. In its early days, Plastiq struggled with how to go to market and signing merchants at scale. The startup could sell through merchant acquirers or go directly to merchants—scale could be achieved more rapidly through acquirers, particularly important for a business with low barriers to entry and well-entrenched players.

This situation is not uncommon for many startups. Securing partnerships takes time, resources and is not easy by any means. But there are specific situations where challenges are more significant and where the lean startup in particular faces special difficulties.

Early-stage searching for fit

Some startups seek out business development deals prior to achieving product/market fit. Why would the core team even think about a deal prior to achieving fit? Well, the product itself may not be able to 'go to market' without first striking a partnership with a big corporation - think of Plastiq and the deals that it likely had to arrange with the credit card associations upfront.

Another situation is when early-stage startups need to test whether distribution deals with established firms can drive growth - the product can be sold without the deal but having the partnership would likely drive growth even faster, e.g. Dropbox testing deals with PC security software firms. Since pivoting the product or business model is a key tenet of lean startups, founding teams need to carefully consider whether to pursue these deals.

Are we talking about Amazon or AT&T?

Another situation where startups face challenges in doing business development deals is with specific kinds of big corporations. Is the corporation an innovative early adopter in a fast-moving sector like retail or an entrenched laggard in a slow-moving one like telecom? Plastiq was playing in one of the oldest industries around - payments and specifically credit. Going up against Visa and MasterCard is not exactly easy but it is also true that even in entrenched industries - the right introductions from investors, advisors and others can make all the difference.

Lean startups that highly prize just good enough product prototypes and technical know-how need to be particularly cognizant of the market and industry they are targeting - the more 'old world' it is, the more the founders will have to rely on intangibles like networks and hype and not just their pitch around partnership value add.

Partnerships that demand investment

Sometimes big corporations may demand an equity stake in the startup in order to close the business development deal. While this investment may make sense in the mid or later stages of a startup's growth, in the early stages this proves problematic. It not only has the potential to deter further investment but also inhibit the growth of the startup itself. The big company may use the partnership to squash a potential competitive threat or acquire the technology without regard to the founding team.

The latter scenario is arguably the case with Twitter's recent acquisition of Blue Fin Labs - a social media analytics company that relies almost exclusively on the company's data. While Blue Fin Labs is at the early-stage, Salesforce's partnership and investment in Box and Starbucks' in Square were both at the mid to late stage (Series D) and have propelled both companies growth upward. If at all possible, lean startups should hold off on partnership deals that require equity investments from big companies especially earlier on until they hit are about to hit the growth stage.