In the early days, you are desperate for validation. If a big company calls you and says they want to partner, it feels like you have won the lottery. You issue a press release. You put their logo on your website. Then, six months later, you realize you have generated zero dollars from the deal. This is the trap of the “logo partnership.”
A true Strategic Partnership is a relationship between two commercial enterprises, usually formalized by one or more business contracts, where the resources of both are leveraged to achieve a goal neither could easily achieve alone.
For a startup, partnerships are a high leverage growth tool, but they are also a distraction machine. You must be ruthless in evaluating whether a partnership is strategic or just cosmetic.
The Equation of Value
#A strategic partnership must solve the equation: 1 + 1 = 3.
This means the combined offering must be more valuable than the sum of its parts. This usually happens through one of three mechanisms:
- Distribution: Partner A has a product but no customers. Partner B has customers but needs a product. (e.g., Spotify partnering with Uber so you can play your music in the car.)
- Integration: Partner A and Partner B integrate their software to solve a more complex workflow for the user. (e.g., Slack integrating with Google Drive.)
- Brand Association: A lesser known brand partners with a luxury brand to borrow prestige. (e.g., A new sneaker company collaborating with a famous artist.)
If you cannot clearly articulate which mechanism drives the value, the partnership will fail.
The David and Goliath Problem
#Startups often try to partner with massive corporations. This is dangerous.
For you, this partnership is the most important thing in the world. For the big company, it is a rounding error. They will move slowly. Their legal team will bury you in paperwork. Their champion might leave the company mid-deal.
If you partner with a giant, you risk becoming a “consultancy” for them rather than a product company. You might build custom features just to please them, which ruins your roadmap. Ensure you have leverage before you sign.
Incentives Matter More Than Contracts
#The contract is less important than the incentives.
Why does the partner’s sales team care about your product? Are they getting a commission for selling it? If they are not paid to sell it, they will not sell it, no matter what the VP of Partnerships promised you.
You have to align the economic incentives all the way down to the individual contributor level. If the partnership does not help the partner hit their quarterly bonus, it is dead on arrival.
Crawl, Walk, Run
#Do not sign a five year exclusive deal on day one. Start small.
Do a pilot. Co-market a webinar. Build a simple integration. Test the relationship. If the small experiment works, then you can invest the legal fees to formalize a larger agreement. Treat partnerships like product development: iterate your way to success.