In the last few months I have been working diligently trying to establish a number of strategic alliances for a new platform we are about to announce publicly. Given the nature of our product, we have been trying to nurture a group of strategic partnerships with highly diverse types of companies such as technology providers, large system integrators, boutique consultancies, cloud infrastructure providers, etc. Even though we have been fairly successful during the process, I’ve realized that I didn’t really know too much about the process of establishing successful strategic alliances and I definitely underestimated its complexity.
Particularly if you are trying to establish strategic alliances with large companies that can complement your product or service, you should expect a really complex process and a fairly large one. When you are establishing a strategic alliance with a partner you are basically requesting help to expand onto a specific area or direction in a way that can be also beneficial to the other party which, conceptually, is never an easy thing to do.
Most inexperienced entrepreneurs (count me in that group) make the mistake of thinking than having a solid product or service is sufficient to establish long-term alliances. This couldn’t be further from the truth, just like any other type of business relationships, strategic alliances are much more about the people and business dynamics of the parties involved than about the specific products or services. There is no basic training or book that can fully prepare you for building meaningful partnerships in your startup. However, based on my experience, I think I can point to a few tips that might help:
- Remember, it’s about the people: Establishing solid strategic alliances is a process highly dependent on the people on both sides of the table even more than the target product or services. Even though you are partnering with a company and not the individuals, the people involved are the ones who can either build that partnership into a fruitful business relationship or a painful one.
- Establish credibility: Particularly if you are the small player in the room, establishing a solid credibility is key to the success of a strategic alliance. As much as you believe in your product or service, when establishing a partnership, you are asking a bigger and more established player to rely on your product for an important part of its business. Not establishing a transparent and solid credibility, would only show a level of arrogance and ignorance about the dynamic of business relationships that could ruin the whole process
- How does your partner win?: A key lesson I learned from reading Warren Buffett is that a deal is only great if both parties win. As simple as that sounds, startups quite often tend to propose partnership models that are mostly beneficial to them and let the other party to figure out their side of the equation. As a startup CEO, make sure you take the time to understand the dynamics of your partner’s business and propose models that can be equally beneficial to all parties involved.
- Understand your partner’s motivation: A killer product or service is certainly a good starting point to attract the attention of potential partners but it’s rarely sufficient to get them to establish a solid partnership with your startup. At every step of the game, it’s important to understand that the same product or service can trigger a number of different partnership models completely driven by different motivations. Understanding the factors that are driving and motivating your partner is essential in order to establish meaningful strategic alliances.
- Be open to alternative business models: When discussing a strategic alliance or partnership, try to remain very open to alternative business model that might, sometime, result very different from your original intent. Particularly when dealing with larger organizations, it is important to understand, even if they operate in the same space, different companies might like to experiment with different partnership models related to your product or service. Using the experience and resources of larger organizations to your advantage is one of the best outcomes that your startup can obtain from a strategic partnership.
- Think long term, don’t be greedy: Establishing strategic partnerships is too painful of a process to focus on short term goals. When negotiating terms, try to think about how you would like the relationship with your business partner to evolve in the next few years and try to use that picture as the main compass to create a solid strategic relationship.
As a startup CEO, you have to set your own foundation to create meaningful strategic alliances. When studying about this topic, I didn’t come across any good analogies that can help to explain the process you go through to establish a good business partnership with a bigger player. Building strategic partnerships is really not like dating and certainly not like getting married unless you like to marry multiple people at once. Establishing a solid alliance with your partners is just like that: building a mutually beneficial business relationship between two parties. It can be a really painful process but also a really fruitful one.