Partnerships can offer huge opportunities for growth for both startups and corporations. Startups can use corporate partners to scale in a number of ways, from customer acquisition to margin improvement. Corporates can utilize startup partnerships to stay at the front of the pack and often look towards them to help drive a more “innovative” corporate culture. However, startup-corporate partnerships need to be handled with care, as they can leave both founders and their corporate counterparts disappointed if not properly executed.
Recently, I “Zoomed” with one of our German Accelerator mentors, Patrick Guerra, Angel Investor, Entrepreneur, and Venture Development Adjunct Professor.
We discussed some of the challenges that startups face in developing these early partnerships and the different tools startups can use to recognize potential partnership opportunities. Patrick shared a practical framework from Strategic Alliances: The Role of Partnering in Scaling and Sustainability, originally created by Tyzoon Tyebjee, that Patrick and Dr. Albert Bruno continue to use today in the development of their venture development programs at Santa Clara University and elsewhere.
Although founders will be familiar with some components, the “Strategic Alliances” framework does a great job of synthesizing these different solutions into an easy formula for early-stage partnership success.
One of the most valuable take-aways from the Strategic Alliances framework, is the focus on ‘strategy driving partnerships’. I have learned over the last years that a great partnership starts before the first meeting. Customer conversations are vital to the development of any product. They should happen early and often. Customer and partnership conversations often happen in parallel and one can lead to the other, but they are not the same.
Before partnership conversations occur, you need to do some extra homework. Prior to taking the first meeting with a potential partner, it is important to have “your own house in order”. This is advice I have given to both startups and corporate innovators. Startup leaders should consider their partnership strategy prior to seeking out these types of meetings. Defining strategic fit and getting a consensus on criteria for working with corporations, allows founders to accomplish more with their time, better target which corporations to talk to, and have more productive conversations.
Defining and evaluating strategic fit should extend beyond consistency with long term goals, and include considerations around cultural fit and values. Strategic Alliances has startups ask questions like, what values are we looking for in a partner? Do we have similar data privacy views? Do our revenue streams align? Remember, a direct-to-consumer startup whose mission is to provide health food products in the most sustainable way possible to consumers might be a better strategic and cultural fit for Wholefoods (American multinational supermarket chain selling organic products free from hydrogenated fats and artificial colors, flavors, and preservatives) than Walmart. So, why invest time and energy in partnership conversations with Walmart?
Beyond these questions, the Strategic Alliances framework includes four practical tools or “perspectives” for startups to understand their capability gaps, and by extension when a partnership might make the most sense.
Growth, or Strategy, Vectors consider capability gaps along two vertices, growth needs in the realms of product and market. The most common strategic driver for startup partnerships is the need for growth within the current market with their existing product. This includes partnerships that ramp up market growth, customer acquisition and retention, customer development, or margin improvement.
Beyond supporting growth in existing markets and products, partnerships can open up new geographies or market segments. Alternatively, startups can take a new product approach to partnerships and benefit from product line filling and extensions as well as new service businesses. For startups, partnerships that don’t fit into one of these quadrants should be seriously reconsidered.
The value proposition is one of the most common formulas for success that startups are given and there are countless variations for how to best communicate this to the customer. However, its popularity exists for a reason. It is a deceptively simple tool that allows startups to understand their offering from the customer’s perspective.
Of all of the startups that I have the opportunity to work with, not fully understanding the customers’ perspective is one of the most common pitfalls I see. By taking the time to write out a value proposition statement, startups have a different window into their capability gap. Are you really doing all of this? Could a partnership help strengthen your value proposition?
|For ______________[target customer group]
Who ______________[statement of need, move or use application]
______________[name of product] is a ______________[product category]
Which offers ______________[statement of key customer benefit].
Unlike ______________[main competitive alternative]
Our product has ______________[statement of differentiation]
Be sure to validate this value proposition work through customer discovery. The best advice I have: talk to your customers early and often. Or as Partick puts it:, the market segment is discovered, not segmented by you.
The Whole Product Solution, often abbreviated to Whole Product, is a concept that has truly been tried and tested over the past 20+ years. Essentially, this solution asks startups to look at the problem they are solving for their customers and add any complementary components, products, or services to their core product to ensure that they fulfill the customers complete reason for buying the solution. Offering customers the most compelling full solution eliminates any competition.
For example, an e-bike may be the core product, while the whole product includes the charger, wheels, and pedals. Without these additional components, the product isn’t useful and doesn’t offer a full solution for the customer.
Most startups begin with an MVP to gather customer feedback. That makes a lot of sense and I generally encourage startups to let customer discovery drive product roadmaps. However, to grow and beat competition, looking at the core product the startup has and seeking partnership to create a whole product can force you to ask yourself: what additional product or service elements do I need to fulfil customers’ motivation for buying? If I make the best electric bikes and chargers, but don’t know the first thing about tires, a partnership could be the solution.
Patrick comments, “We want to encourage startups to stay focused on their MVP and target market, but recognize that they have to offer a whole product solution or they will limit their adoption. For example, Tonal, the new web enable exercise platform includes delivery and installation costs in your home because it is so heavy and must be installed properly on the wall or it will break your plaster and be a huge dissatisfaction. Clearly an installation partner in different geographies is preferable to hiring those resources and having them be idle a large part of the time.”
Popularized by Michael Porter in the 1980s, the basic concept of ‘the Value Chain’ structures all of the activities performed that deliver a valuable product or service to the customer. As a product is developed, it passes through multiple processes, each one adding some value – those processes make up the value chain. You can examine a value chain from the perspective of your company’s activities or from a larger industry perspective, looking at both upstream and downstream activities as a part of a larger value system. By honestly identifying and examining all of the activities that come together to create value for your customer, you can better understand competitive advantages and weaknesses and improve processes to reduce cost or increase profit. Keep in mind that value often comes from your ability to reliably execute on your value proposition, rather than the technology itself.
Startups can utilize this analysis to 1) better understand and control their own processes and 2) seek out strategic partnerships within their value system to share efficiencies or strengthen weaknesses. This could include anything from sharing invitations and guest lists to networking events, to gaining access to shipping or sales channel resources.
Now that we know the tools and processes to recognize startup-corporate partnerships, the next step is knowing some challenges and solutions to be aware of when entering a strategic partnership. Keep an eye out for an upcoming blog article with Patrick Guerra and learnings from the Strategic Alliances Framework around the Challenges and Solutions in Startup-Corporate Partnerships.
Keshia Theobald-van Gent is the Director of Silicon Valley Programs at German Accelerator. She has experience as the Director of Strategic Partnerships at GSVlabs, where she connected the world’s largest companies to the global startup community, accelerated new products, and generated real ROI through digital innovation. In addition, she is the founder of Dialog to Learn, a Silicon Valley-based EdTech nonprofit. She holds an M.A. from Rijksuniversiteit Groningen and has work experience in the US, Asia, and Europe.