Yesterday, mobile payment processing startup Square dropped a bomb on its competitors by announcing a partnership with Starbucks http://news.cnet.com/8301-1023_3-57488803-93/square-starbucks-aim-to-give-mobile-payments-a-jolt/. The initial phase of this partnership will enable Square to process credit and debit payments in 7000 Starbucks stores. Additionally Starbucks will be adding $25M to Square’s new monster funding round.
Pretty sweet deal for Square huh?
Well, while learning about the details of the partnership, I was surprised to learn that it was Starbucks who approached Square and not the other way around (http://pandodaily.com/2012/08/08/starbucks-approached-square-after-rejecting-every-other-mobile-payment-player/). Apparently, Starbucks had been approached by every other payment provider in the last few months and, not being completely satisfied with those technologies, they decided to evaluate Square which started the conversations towards the partnership.
For Square’s competitors, this has to feel like a punch in the stomach. Square literally benefitted from their efforts trying to land a strategic alliance with Starbucks. This is a classic example of how a failed attempt to establish a partnership can open the door to your competitors.
In the software world, establishing a successful partnership is always a combination of having a solid business model and a compelling technical solution that benefits both parties. Missing any of these two elements can have very different outcomes.
Approaching a potential partner with a great technology solution but a poor business model can completely shut the doors for all your competitors as your partner could assume that there are no viable business models in the space. However, if your partnership model is really compelling but the technology is not as good as your competitors the partnership attempt might backfire and create new opportunities for your competitors with a better technical value proposition.
As a startup CEO, when working on strategic alliances try to evaluate all possible outcomes of including the possibility that you might create new opportunities for your competitors. Similarly, stay aware of the partnerships and strategic alliances your competitors are trying to establish. Their failures could end up creating immediate opportunities for you.