So you did it! You took the leap of faith and you are now tangoing with the 800-pound gorilla I mentioned in my last blog post. Good for you… or did I mean good luck to you!!?
But in all seriousness, I do strongly believe that one of the most effective ways for a small company to experience rapid growth is by aligning itself with a larger company. The key is to secure a partnership agreement that is mutually beneficial (details of which are covered in my previous blog).
There will be challenges along the way but the end result can prove to be very worthwhile if the relationship is managed properly. In order to manage the relationship for success, I recommend that it is necessary to pay close attention to the following points:
- Culture fit – The single most significant cause of failure in the relationship between small and large organizations is the mismatch and collision of the two cultures. You must define and communicate your expectations upfront to determine if you mutually share your values prior to jumping into the relationship.
- Exclusivity – This is a very delicate subject during the negotiations and must be avoided almost under all circumstances as it could lead to major difficulties down the road for the small company. This could become a show stopper for other companies intending to work with the small company as it wishes to expand and may put a drag on its ability to attract additional investment.
- Revenue split – The allocation of the revenue has the potential to become a point of contention. Revenue should be allocated according to the level of effort required by each party. However, it could be appropriate that an additional percentage of the revenue would be allocated to the large company for its market credibility.
- Timing – When is 1 dollar worth more than 1 dollar? For a small company, the answer is when you are securing a partnership agreement prior to key events such as a fundraising round.
- Champions – The most critical element to ensure the success of the partnership is the assignment by each company of a dedicated individual with decision-making authority to lead the relationship internally.
- Regular Communication – You must have a written and signed partnership agreement with a set of expectations and obligations that are spelled out in a quantified fashion. In addition to written monthly reports depicting progress, it is important that weekly and even daily communications between the two champions be maintained.
- Don’t do it at all costs – Sir Richard Branson, the founder of the Virgin groups of companies, with over 400 companies, coined the phrase: “Business opportunities are like buses, there is always another one coming”.
- “All or nothing” versus “incremental” – It is to the interest of both parties to take a long-term view of the partnership and not try to make it one-sided. I recall visiting the European headquarters of a multi-national company and after a series of morning meetings, we had only 30 minutes to eat lunch. Our European hosts declared that they need at least one hour to eat lunch and decided to skip lunch altogether. Setting aside differences in food etiquette, I would have preferred to eat some food rather than go hungry for the remainder of the afternoon. In another situation, our entire sales team, except one individual, focused only on the big deals and ignored the smaller orders. Unlike their counterparts, this individual used to seek the smaller orders to augment the larger orders, maintaining accurately, that ten (10) $1K deals will equal $10K. This allowed him to consistently meet, and exceed, the monthly quota expectations – clearly demonstrating how successful the incremental principle works.
- Point of no return (PNR) – The term, “PNR” is used by pilots to identify the exact point during a flight at which, due to fuel consumption, a plane is not able to return to the original airfield from which it took off. A small company that tries to meet all the demands established by the larger company may cause it to overextend beyond its financial and personnel resource capacity. The smaller company must regularly evaluate all the demands before making commitments in order to avoid getting into any predicament that may take it outside the safe PNR range.
The agreement doesn’t have to be perfect, but rather should serve as a means to set the objectives of the company – regular, open communication is key. As the hockey coach told the media after a less than stellar performance in which his team still won the game “It was an ugly win, but I’ll take the 2 points”.