Blog: Strategic Partners a Quicker Way to Success
Strategic partners form an alliance to increase the probability of meeting strategic goals. It is possible that each partner can maintain their legal independence; however, the closer the working relationship(s), the higher the probability of success. Obviously, each partner should believe there is a better chance of success with the partnership, because it can take many forms, including marketing, sales, and/or product development.
For start-ups, I believe it’s wise to consider a strategic partnership from the beginning. I can say that in all my years of experience, many of the start-ups have gained from partnerships rather than going it alone. Of course, this is not the normal attitude or mindset for the entrepreneur with a dream and a vision. I’m pretty certain that I’ve lost several friends who had passionate ideas until I told them that what they really had was an opportunity rather than a business. I recommended they find a partner. Their usual response was, “I’ll go find someone who will tell me what I want to hear.”
Anyone can form and build a company, but it’s not a business until the founder and investors start to get their investment in time and dollars back.
As part of an angel investment group, it’s not unusual that several investments have passed the 10-year mark. Some are still going, with the original founder in charge, but there is no return on the investment for the outside investors.
In a recent article in a financial newspaper, it stated that 4 out of 5 investments fail, meaning that the investors never got a return on their investment. All “failures” do not collapse, as some just manage to survive for the management team.
When a new contact asks for my advice, my first question is “Is their product or service just an opportunity or if it’s capable of building a potential business that will attract investors?” The potential of the strategic partnership is that it can grow faster with lower financial risk, put less strain on the founder and their family, and offer a chance for faster financial rewards.
It’s important to consider that a marketing partner, with numerous contacts and a sales channel already in place, can start the customer validation process sooner and with much greater activity.
Established partners are seeking increased sales revenue and a wider selection of products. The established partner may be capable of adding technical and management potential as part of the start-up team. And with the ever-increasing regulations and litigation culture, by having a big brother, the start-up can have experience that would otherwise need to be built up from scratch. A partnership is an alternative to an entrepreneur’s plan for growth. Marketing/sales are not the only potential partner(s). A start-up with a product can also find a manufacturing company as a partner.
In recent years, the virtual company has come into its own. I am aware of companies now where most of the requirements— from product development to marketing and accounting—are outsourced. I know of two companies – one that basically just has the CEO and founder as an employee of the company, while the second has the CEO and the head of marketing as its only employees.
As a director, I have watched a company grow, from a start-up (with outside strategic partners) and then over time as the company grew, the company started taking over those services themselves. The key to finding a successful partner is to be sure that: the strategic goals are similar, the cultures are compatible, the staffs complement each other, and the agreement includes all of the necessary basic assumptions before turning over to the attorneys for further fine-tuning.
The investment community and large companies are looking for new products and innovation—and the technology that goes with it.
There are several forms of alliances with big companies, including providing the design, manufacturing rights, or even a royalty agreement. I have seen several companies in the health care industry develop their product with government grants and then, at just the right moment, sell the rights to that product to a big medical company and then be partners.
Starting with a strategic partner may help an entrepreneur to be successful faster—with less financial risk and stress—but the entrepreneur partner in sharing may also sacrifice the potential of higher rewards, but it might take a much longer time on their own. However, with that experience and success the entrepreneur may want to do it again.