Those of us active in the technology industry understand how valuable the "ecosystem" between mature companies and startups can be. Mature companies benefit by gaining access to innovative new products well before their competitors. In return, startups secure early customers to prove market adoption, which is critical to their ability to attract investors and much-needed capital.
The model works for service firms as well. A real-life example is our startup's relationship with a well-known law firm. It selects high-growth-potential, early stage companies and provides counsel to help us avoid costly mistakes that could impact future growth and valuation. It also introduces us to potential investors who are often its clients. In return, should our startup become the next Instagram, the law firm will have locked in a huge and very loyal client. At a minimum, it is helping its current clients by providing a steady stream of new investment opportunities that have already been pre-vetted.
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So why haven't more agencies and brand marketers joined this ecosystem? Perhaps it is because traditionally there's so much value placed on hitting immediate profit goals that there's little room to invest in the future. However, I'd rather believe it is simply a matter of confusion about how to find the right startup to partner with. So in an effort to foster more participation in our ecosystem, I offer these five guidelines for how an established brand can build a mutually beneficial partnership with a technology startup.
You are investing, so act like a VC
Venture capitalists are famous for making a decision about whether to invest in a company within the first few minutes of a pitch. They expect entrepreneurs to tell and sell their opportunities in no more than 10 slides.
As an early partner, you are an investor -- even if cash does not exchange hands -- because you'll be investing valuable time and brand equity. As such, put yourselves in the VC seat and evaluate the opportunity the same way they would.
First, make sure you are dealing with the top brass. If the partnership is really important to the startup, the CEO is not going to be so busy that he or she can't make the time to attend the meeting. Then ask the executive to explain the pain point the startup is addressing and who its target customer(s) are. Most important, why is the company's product or approach better than what is out there already? If the executive says there's nothing out there like the company's product, then that person is either a true genius (because no one else in the world could figure out a similar solution) or the pain point and market opportunity is not strong enough to warrant a new product.
If executives can't explain all of this in plain English -- in fewer than 10 slides -- then they would never get past the first meeting with a professional investor, which should tell you something.
Let the startup do what it does best -- problem solving
The beauty of working with a startup is that entrepreneurs think outside the box. The reason they start their companies is that they are passionate about finding a way to solve a specific consumer or business pain point. They dream about how to build a better mouse trap.
Take advantage of entrepreneurs' unique problem-solving skills. Outline a specific business challenge for your brand or client and ask them how they would solve it leveraging their teams and technologies. Be sure to keep an open mind and don't be trapped by your preconceived ideas about how this should work. Listen to what they say and ask for details about execution if it sounds too good to be true. Even if you don't end up with a partnership, you'll reap the reward of some great new thinking.
Be realistic about resource requirements
The greatest risk for a partnership is not that the startups' technology won't work; that's been tested and vetted in more ways than you can possibly imagine. Rather, the greatest risk comes when there's too much drain on the startup's resources.
Startups have everything to prove, so they will do what it takes to make your partnership successful. And for today's "bootstrap" startup, any unexpected burning of dollars and hours can be fatal. Established companies have to remember this and approach the project with reasonable expectations and accept the limitations.
A startup will not be able to customize its product for you, nor should it. The very reason you chose the startup is because your company believes it has created a better mousetrap.
Use tomorrow's metrics to make today's decision
While I use the term "partnership" throughout this article, let me be clear: Any relationship between an established company and a startup is a test. The implication is that if metrics of success are not completely aligned with business goals, the test will be set up to fail.
The best way to determine if a partnership with a startup will make sense is to go through the exercise to define respective business goals and corresponding metrics of success first. For example, if a startup offers new ad serving technology, it might need to prove to investors that agencies want the product because it decreases campaign management time. As an agency, your business goal is to find new ways to cut costs and increase profit margins without compromising service. Therefore, the partnership is well aligned.
By comparison, if that same startup's goal is to use your test as a case study in a widely circulated white paper, and your clients would be angry to learn you increased your profit margins by testing new technology on their campaigns...well, you get the picture.
Leave the lawyers at the home office
I would never promote forming a partnership of any kind without some written form of agreement and outline of deliverables. However, if corporate counsel gets in the middle, you might as well consider the opportunity dead on arrival.
A good corporate counsel might ask for ownership rights to some portion of the technology, or to maintain some level of exclusivity. Both have serious repercussions if the startup will be seeking future capital, so don't even bother asking. Furthermore, burning money on legal fees means the startup has less capital for product development, which helps no one. And I can guarantee you that a corporate counsel's goals are directly opposed to the startup's goals, since each wants maximum protection with minimum strings attached. Thus, the legal fees can quickly escalate. So leave the high-powered attorneys at the home office. Cover your bases, but don't turn this into a major legal negotiation.
Armed with these five simple guidelines, I hope established agencies and brands will consider joining the tech startup ecosystem. With an improving economy, increased investing, and a low cost of entry, new tech startups emerge every day. If you don't believe me, then just check out BetaBait, a daily email newsletter that announces startups actively seeking beta testers. This is a great resource for finding the right startup because you know they have a "real product" but have not yet cranked up the marketing since they are still in beta -- the perfect time to form a partnership.
If you find a startup that sounds interesting, reach out to the founder and start a conversation. You'll be amazed at what you can learn about the marketplace and new trends in technology in just a 10 minute (or slide) conversation. And you just might find the "next big thing" before your competitor does.
Karen Macumber is the CEO of Lifeables.
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