“If you know the enemy and know yourself, you need not fear the result of a hundred battles.”
I believe this advice, famously attributed to Sun Tzu, about how to win on the battlefield still rings true today. Like many, I’ve also looked to The Art of War with the intention of applying military strategy to business. It takes military precision to transform from an early stage startup to the high-growth new kid on the block that’s battling it out with big-business players.
It’s a thrilling time when your first partnership opportunity with big business presents itself. It means that you’ve finally been noticed — either as a competitive threat or a potential acquisition target. But there’s a fine line to walk when you poke that bear.
This is why it’s critical to enter any enterprise-level partnership with eyes wide open. Because while every business has self-serving motives, you will only know what yours are.
Throughout my time as an entrepreneur, I’ve observed a few key dynamics every startup should be aware of before dealing with corporations — the opportunities to jump on and land mines to watch out for to avoid an untimely demise on the battlefield.
1. Corporations are looking to innovate.
This is why I’ve observed there are more and more corporate ventures, accelerator programs and internal incubator labs. These programs offer startups a lot of value: mentorship, connection to a large customer base, potential capital, regulatory support and access to technologies and scientific expertise that would otherwise be unavailable.
Of course, there are also risks to be aware of. Aside from giving up an equity stake in your company, there’s also the risk that this corporate program could lead you to the graveyard. Sometimes this is because of a preemptive strike to end competition, but more often than not, it’s simply a result of inaction. From my perspective, corporations are not often known for being early adopters of new technologies. Their approach is often, “If it’s not broke, don’t fix it,” whereas most startups take the opposite path of, “If it’s not broke, break it!”
If the corporation has made an investment in your product but is slow to adopt internally or bring it to market, it can kill your chances for success. Potential users or customers will question the value, which will have a domino effect even after the partner relationship ends.
With this in mind, I believe there are two choices in this scenario: Either leave the deal on the table to avoid landing in the “kill zone,” or accept the partnership and prove to decision-makers your idea will shake up the market.
2. Startups move quick and corporate does not.
Beyond being slow to adopt technology, the bigger the company, the more red tape there is. Nearly every decision must pass through multiple layers of stakeholders before it can be executed. It’s important to know that every process — from product deployment to marketing campaigns — will have a much slower pace than any startup operation. Be sure to ask about process standards and build timelines to match (and it never hurts to build in extra time on the back end).
There is a benefit to having a rigid organizational structure: Startups are notorious for moving too fast and skipping over major operational processes, such as tracking business metrics, quality assurance testing, risk management strategies and a solid human resources strategy.
HR is an afterthought for far too many founders (until there’s a crisis). They often see structured HR and recruiting practices as culture-killers that slow innovation. But strong HR practices help actually develop and retain employees. As you grow and nab these partnership wins, you can’t afford to lose top talent.
3. Pilot projects help mitigate risk.
I’ve seen that many corporate heads are averse to change and risk by design, but they also know that stagnation is the enemy. Workflows and software solutions must continuously be re-evaluated for efficiency drags. By conducting an innovation pilot with a startup for a relatively small investment of time and money, the corporation has everything to gain and little to lose.
Pilot programs typically run through a small, controlled test group of existing customers, with agreed-upon KPIs closely measured for success. As author and MIT research fellow Michael Schrage wrote in Harvard Business Review, pilot tests are designed to deliver clear results about the business value of a product. Consider a “minimum viable pilot” to determine its “innovation attribute.”
For startups, pilot projects might lead to a long-term client relationship or even an acquisition, but there is a cost analysis to consider. Getting a large customer to pilot the product is only the first step. Converting it into a paying customer is the real challenge. There are different approaches to take — from offering the initial pilot for free for a limited time to charging upfront with a refund or discount options available.
My advice is to charge the market rate for your product and not make too many concessions. You want to convey confidence in the value your product offers, and negotiating below your weight does not benefit you in the end. If the enterprise is truly forward-thinking and open to innovation, I believe it will agree to a fair price (and just might become your most important customer).
Establishing a meaningful relationship or even an initial connection with a legacy player can be one of the most exciting yet challenging stages of growth for a young startup. But once it’s made, the partnership will ideally be a win-win. Before moving forward with an initiative, however, be sure that you have an actionable plan that includes well-defined objectives and time parameters.
Although it might seem like there’s a lot more cycle-spinning than is typical for a startup, it’s important to keep in mind that corporations are increasingly battling to align themselves with promising and innovative startups so they keep their own blades sharp.