Pick Great Partners. Today No One Succeeds by Themselves.
Next to having great parents, choosing smart partners and making the right deals at the right times (and stages) in a company’s development are the most important external variables in the success of new businesses. Because, in the hyper-competitive and global market we live in, no one has the team, the resources and the reach to succeed by themselves. In these complex times, well-constructed partnerships, carefully-structured joint ventures, and timely endorsements and other kinds of supportive commitments are critical components in helping a start-up build its brand, credibility, momentum and customer base.
But too many young companies these days are falling into the trap of thinking that constant deal making is preferable to actually doing the hard work and the daily blocking-and-tackling of building their businesses. Doing deals for the sake of the deals or because it’s exciting and different or because you’re bored is one of the biggest time sinks and wastes of resources imaginable. And worse, it can create the false impression of real progress and growth when, in fact, all that’s really going on is an excited and hyperactive chain of eager start-ups servicing each other with VC funny money and/or by burning through their scarce growth capital to do so. It’s a little bit of dot.com déjà vu and my sense is that it’s especially rampant in the area of social media “consulting” firms.
A quick credibility test that helps sort this stuff out is to simply check out a company’s customer list and, if the average age of most of the business’s customers is roughly 3 to 6 months older than the age of the company itself (if that) or, if half the “customers” are incubator/accelerator suite mates or other companies directed and/or controlled by common parties and investors, then you’re looking at this year’s edition of “smoke and mirrors”. Steer clear of these guys.
But don’t stop looking or thinking about what kinds of deals and partners make sense for your business which mainly depends on where you’re at and where you want to go.
And keep in mind that your own time is scarce, expensive and valuable – you can’t chase every rabbit or dance at every dance – have a few clear objectives; know where your business presently is; and know where you’re headed. These basic filters will help you identify the realistic prospects and the wastes of time. I’ve always used 3 buckets to describe any business and to help me answer these questions.
A. Early - the business is emerging - deal objectives are:
i. Help to build and expand the customer base
ii. Prove the underlying technology
B. Ongoing - the business is developing – deal objectives are:
i. Manage and deepen relationships to “own” your customers
ii. Control and expand your platform
iii. Promote and encourage product and service expansion
C. Late - the business is maturing - deal objectives are:
i. Expand and integrate third-party offerings and services
ii. Win with scale
iii. Attack or eliminate competitors and potential new entrants
Having done more deals in more businesses than I can even count, I’ve got a few simple rules that have saved me tons of money, helped me dodge more than a few bullets, and added a few years to my life. Take ‘em for what they’re worth, but don’t forget them.
(1) Never deal with the monkey when the organ grinder is in the room. If the guy who can say “yes” and/or sign the check isn’t part of the discussion, you’re wasting your time. Too many little monkeys and paper pushers can say “no”, but only the real decision makers can green light a deal.
(2) When you settle for less than you deserve, you get less than you settled for. By and large, deals don’t get better or sweeter over time. It’s critical to make the complete deal BEFORE you sign the final documents. If you don’t like something about the deal at the outset or you’re uncomfortable with the people or the process, it’s only going to get worse with the passage of time. Ugly babies rarely become movie stars.
(3) The easier the deal is to get done, the harder it will be to implement. Keep in mind that most of the value of a deal is realized or lost during the post-signing implementation phase of the deal. And don’t confuse silence or good manners with acceptance or agreement. It’s better to bag the deal than to bury fundamental issues or differences and leave them to blow up later. Only the lawyers and their litigators benefit from leaving critical questions unanswered.
(4) Short term deals make much more sense for start-ups. Long duration deals are very seductive and very dangerous – too easy to enter and very hard to escape. Always leave yourself an exit plan and an “out” clause even if it’s expensive. It’s better to be soaked at a later date than to be stuck in a bad deal for what can seem like a lifetime to a start-up.
(5) Don’t chase a deal that takes too long to get done. Be prepared to walk away. Necessity never makes for a good deal. It’s like being at the bus station. There’s always another bus (just like there’s always another deal) coming down the road in any direction you’re interested in heading. And don’t kill the messenger if a deal doesn’t get done - think of these as mini-R&D projects – you want your people to keep looking and keep bringing opportunities to you. Don’t chop their heads off if a deal blows up – it may be the best result for all concerned.
(6) Do small deals on a regular and recurring basis – go for singles, not home runs. Small, quick, additive/incremental deals that don’t burn up critical management time or resources and that reach a “go” or “no go” point quickly are the way to proceed.
Endorsements are a great example of small but very effective deals which can make a huge difference to the prospects of a young company. Very few people truly appreciate the value of endorsements until they don’t have them and their competition does. This is especially true in brand-centric markets.
When I was just starting my computer game development company and wanted to create some educational games as well as movie games, I decided early on that some crucial product differentiation was going to be essential. I went after the Where’s Waldo name because I thought it crossed over between entertainment and education and that for children’s education games – Waldo was a very meaningful icon for the parents who were the real buyers.
[ibimage==19518==Original==none==self==null]
And, I even got to say that I actually did know where Waldo was.
PP: “You Get What You Work for, Not What You Wish for”
