"Corporation" is a dirty word to many startup founders. Entrepreneurs run away from big business on purpose, and those whose companies eventually develop into larger corporations risk earning the label of "sellout."
Startups want to stay true to their vision; they don’t want to be influenced by the corporate world and run the risk of diluting their own cultures. They flee from any connection. Big mistake.
It’s understandable: Startups and corporations speak different languages, run at different speeds, and serve different purposes in our economy. Startups constantly disrupt, invent new technology, and develop new business models. Established corporations are more likely to move slowly with innovation to protect their financial security.
Like different generations, the two sides misunderstand each other. Corporations are seen as old, bureaucratic, and risk-averse. Startups are disruptive, irresponsible, and inexperienced. Neither usually sees the good in the other.
Corporate Benefits to Startup Culture
Still, despite the generational difference, there are plenty of reasons for startups to partner with corporations.
Credibility: With all the startups popping up around the country—and many of them failing—a corporate partnership is a huge boost to credibility. When one established corporation jumps aboard, it can help customers and other potential partners take the startup more seriously.
Distribution: Startups usually have limited distribution outlets. By using corporate distribution channels, they can increase their reach and get to market faster. This will test their product or service on a large scale to prove its worthiness. Having that proof of scalability is pure gold. It also doesn’t hurt that distribution should equal revenue, which is always good.
PR and Branding: Corporate partners can also help "wet-behind-the-ears" startups with public relations and branding. Companies that have been around for a long time have been through most PR tragedies and triumphs. They can help new companies avoid pitfalls and get through the inevitable sticky situation. The right partnership will also increase brand recognition for a startup that would have little reach without that help.
These benefits can be far-reaching. Modus Create, for example, serves enterprises by helping them adopt emerging tech solutions, like HTML5, for the web as well as mobile apps. It initially started out with two partnerships and, in less than two years, leveraged the success of its original partners to grow to over 25. These strategic partnerships continue to grow the business; it’s now regularly approached by firms wanting to partner, including platform as a service (PaaS) firms.
Another startup, TRX Systems, benefitted from increased distribution when Motorola Solutions first made an investment in the startup and then announced they were making its NEON Indoor Location solution available to users. This helped the smaller company deliver a total solution to the market, as well as increase sales.
Really, though, the ultimate benefit to partnering with corporations boils down to two words: exit strategy.
Not every founder is looking to sell, of course. But if you are, cultivating a corporate partnership is a great way to start. Building a relationship with a corporation that respects the startup’s value proposition—and receives benefit from it—is a great way to plan a future acquisition, especially for serial entrepreneurs.
For the startup looking for a corporate partner, there are several places to find them.
Tech conferences and fairs are good places to network within a given vertical. Startups can stage demonstrations to show off to potential corporate partners. While it’s possible to network and make deals at these events, they can often be costly and possibly yield no real return.
Corporations are also starting to see the value of relationships with startups and are beginning to pitch entrepreneurs on their needs or problems. The startup then serves as a type of corporate accelerator, building a business around the company’s specific needs.
Some companies are starting to launch their own accelerator programs, geared toward startups innovating in the large company’s industry vertical. While it is still too early to evaluate their success, these programs can offer great resources and exposure on behalf of the large company. Entrepreneurs should be careful to not choose a partner that will limit their ability to work with other companies within an industry.
Once a startup finds a potential partner, there are a few things founders should look for before making the final deal. At minimum, both companies should share common values and have a concrete reason to build a business relationship.
Additionally, founders should do their research. They need to talk to former or current partners of the corporation to hear firsthand what the partnership will be like. It’s important that the risk of the corporation copying the product or service and competing with the startup is low. Trust is essential for these types of relationships.
Too often, startups jump in with any well-known partner. They hear an established name and want to be a part of that company’s success. There needs to be an ongoing conversation to determine whether the relationship will truly benefit both parties.
And don’t forget: This should really be an open marriage. Founders can—and should—cultivate other relationships to build a viable business.
Don’t let a supposed generational gap get between you and a great relationship. Startups and corporations can both learn from each other—whether it is becoming more lean and agile or learning to run a more profitable, stable startup. Forming a great relationship can only lead to a better, more innovative company.
—Michael Goldstein is the founder of Exhilarator, a startup accelerator that helps consumer Internet startups get traction and funding. He is a serial entrepreneur with 15 years of experience focused on e-commerce, online content, and subscription businesses. Michael’s passion is for growing startups, and he has been involved with multiple startup businesses as an advisor and mentor. He is also the founder of SwitchPitch. Connect with Michael on Google+.
[Image: Flickr user Nick Kean]