Doing Business Development with Big Companies as a (Lean) Startup

By Melody Koh

The prevailing “lean startup methodology” popularized by Eric Ries over the past few years has greatly impacted how companies and products are built in the early stage. In the early days of a startup’s lifecycle, “proof of concept” and “product market fit” can often be achieved with a minimum viable product (“MVP”) that contains only the critical features required to prove key business hypotheses. However, to fuel the next level of growth, startups usually want to explore partnerships with large, established players in the ecosystem to 1) build out additional distribution/marketing channels (e.g. Square’s partnership with StarbucksFab’s partnership with Facebook), or 2) obtain access to critical technology, data, or IP (e.g. Simulmedia’s data partnership deals with TiVo,GetGlue’s partnerships with various media companies). 
These two realities often clash against each other, as large companies are generally neither willing nor able to work with smaller startups for the following reasons (and this is why Time Warner Investments, where I used to work as a VC, focused on investing in Series B or later-stage startups because they are more likely to successfully establish partnerships with the operating divisions):
  1. “Immature/half-baked” product. This is most relevant to those startups that are still in the “beta” phase or are just transitioning out of their MVPs. Fortune 500 companies are used to a “perfect” product built over a 24-month waterfall cycle, not a constantly-evolving product with ten releases every other day. 
  2. Lack of business or engineering resources to handle the deal. As the strategic VC arm of a large media company, we frequently connect our divisions (e.g. HBO, Turner, Warner Bros., Time Inc.) with those startups that we thought would provide interesting operating partnership potentials. Many times the feedback would be: “Yea they’re doing some interesting things, but they don’t have the resources to meet our (sometimes long) list of requirements.” on both business and technology fronts. 
  3. Unequal/one-sided value claiming. Naturally, large companies have more resources and much more to offer (on the surface). Without creative thinking and structuring, the relationship could easily be seen as one-sided as if the startup is claiming all the value created in the deal. 
  4. Reputation risk. Large companies take on significant reputation risks when inking a partnership deal with a less-established startup. In addition to the product risk discussed in #1 (e.g. reputation damaged by the startup’s crappy product), the mere risk of associating its established household name with a no-name startup that might go under tomorrow is scary for many. 
Given the above challenges, how should startups fight this uphill battle and secure the next strategic partnership to accelerate growth? Here are a few ideas:
  1. Share your product vision/high-level product roadmap with potential partners (without disclosing sensitive, proprietary information). Even though the current version of your product might be “minimal,” potential partners will get more comfortable if they can better understand your product roadmap and timeline for feature releases. 
  2. Show resource dedication without over-promising (and under-delivering). If a partnership is truly strategic and potentially transformational to your startup’s growth trajectory, don’t be afraid to commit resources and make it work. However, be mindful about over-committing – if you’re not yet at the stage where you have enough resources to make it work, focus on your core business.
  3. Be creative to structure mutually-beneficial deals.  To make your large corporate partners feel like they are getting something equally valuable out of a deal, focus on things a startup is uniquely positioned to bring to the table – e.g. PR benefits of “being innovative, cutting-edge,” exposure to a tech-savvy or younger demographic that they otherwise could not reach, etc. 
  4. Leverage “adults” of your startup to minimize reputational risks. Get your investors, Board, and Advisors to work! Having your brand-name VC investors to introduce you to large companies that their partners might be a Board member of brings instant credibility.  Introductions from industry veterans who sit on your Advisory Board serve similar functions. 
Ideas or thoughts? Would love to hear your perspective.

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