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Things to keep in mind while planning alliances with established players

Organic growth isn’t a strategy that is embraced wholeheartedly by most early stage companies. The first plan by most companies is to attempt to take a crack at the market, prove, grow and maybe even flip within a decade.

Organic growth means at least a couple more decades—which might explain the hesitation and unattractiveness of that route. While both roadmaps have their share of pros and cons to consider, no matter what route you take, one step which you cannot ignore would be to partner with the existing players to expand your customer reach. Here are some things to consider while putting that down on your roadmap.

Vijay Anand

Get your timing right
While most of the world is quite thrilled about the telecom boom in India, there is also a horror story that is rarely told. While the customers demand cheaper prices and operators do everything in their power to cut down overheads; the casualty in most cases has been the vendors who provide the infrastructure, applications and software to these giants. Almost a year ago, there were more than fifty startups that one could identify – one with potential to grow into bigger companies. Today none of them exist.

The moral of the story is not to avoid the bigger players (aka the incumbents), but to know the right timing when to approach them. If you go to them with a product that has not seen the light of the day, and you ask them to tap into their customer base to pilot your product, there are very high chances that they will take advantage of the situation. At that stage, the move by the bigger player is also justified since they are taking a risk by exposing their customers to an unproven product. Remember the reason why you are doing this tie-up: to expand your market reach – in effect, start with a proven set of subscribers before you go there.

Pick and choose the right partner
While you might not like the idea of organic growth but in the process of building a company, you would have to make that choice. While every small company in the world dreams of partnering with the industry leaders, the bitter truth is that the bigger players get spoilt with choices. That said, you also do not want the tables turned by partnering with another startup which might need you more than you need them. The key to a good partnership is to have mutual benefit and better the experience that is already being offered to the customer base of both the companies. Take your time to identify who these players are—in some cases it might not be the biggest, but the second biggest who will take on your deal and put the right resources behind it.

Every recommendation counts
Remember, the goal here is to build credibility and ramp up the kind of customers you have, and eventually get to the point where you can pick and choose whom you want to partner with. Strategy plays a major role when you get to that state, but getting there means planning it from day one. If you are one of those companies who have a strong value product, there will be plenty of folks who will praise you for what you are building. But all of those words vaporize when you have to put together a value proposal for the partners that you are targeting and to show them that you have a happy customer base. Get all those recommendations in writing, and also request if you can share their testimonials in your marketing brochures. Every drop adds up.

Keep an eye on the revenue stream
What would you guess would be the second biggest reason why companies die (the first being lack of revenue)? The answer would be: the inability to scale up and meet the demands. You get the market excited about what you have, and do a bad job at delivering it; or you ask your partner to find someone who can execute your plan and deliver it according to your quality standards. Part of the reason why companies fail to deliver is because they get stretched pretty badly on their financial side. You start cutting corners here and there, and it starts to show and you don’t have the brand to cushion your delivery. Whatever the deal you make with any partner, the rule is simple: cover base costs. You can work on zero margin profitability, but not without anything. One majorly underestimated fact by most early stage companies is that growth comes with a significant cost. While getting funded to improve your infrastructure is one way of doing it (and a bad route at that), the best way is to prove the value to your partner and to get them to cover at least your working costs for what you are delivering them.

Ensure you play it fair
The one reason why I would suggest even working with a zero margin deal with bigger players is you can leverage them to win other paying customers. Having it on your portfolio that you do have a scalable system and a product that really delivers on its promises is possibly the golden quadrant of this game. If that is the game plan, ensure that you get the appropriate permissions from these companies if you are to cut them a deal by lowering your margins. There have been moments when I have seen representatives of bigger companies see some of their logos flashed by smaller companies as potential clients and the conversation goes on a very different tangent post that. Don’t let it get to that. Needless to say, get it all down on your agreement, so that if their legal department does get confused and sends you a notice, you have an answer in hand.

All this is nothing but a high level thought on what all you need to cover. The work however starts from the day you position your product in the market, the terms you use to describe your product so that it is complementary rather than competitive (too many companies over-promise), the clear-cut negotiations, and how you handle this entire strategy. It takes the work of an amazing board, the right advisors, and a stellar team to pull off a deal. But it’s the logical next step once you’ve proven that your product has a market and can scale to a larger audience without incurring all the channel costs. Think about it, every little detail of it, most of it has to be aligned months before you even bring up that topic and sit down for that first meeting.

Vijay Anand is an entrepreneur who has experience starting and building various technology startups, starting at the young age of 16. He is currently the Incubation Manager at RTBI, an incubator in IIT Madras that focuses on building rural-focused businesses. He is also the founder of Proto.in, India’s premier technology showcase event and is involved in various initiatives that are shaping up the emerging entrepreneurial scene in India. He blogs as The Startup Guy at www.vijayanand.name and tweets regularly at www.twitter.com/vijayanands.

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