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When Should Startups Pursue Partnerships?

Many early stage founders go after big partnerships as they appear to be a silver bullet for growth, through increasing distribution and revenue. Even when partnerships do happen, they rarely work out well for the startup as they absorb so much time. However, here are some situations where a partnership can be great for your startup.

Lead Generation

Distribution for lead generation is one of the most common needs for early stage startups and the prospect of a large partnership introducing you to their customer base is understandably attractive.

Don’t
Don’t pursue partnerships if the company’s customer base doesn’t closely match your customer profile. Even if the partnership is high profile and generates PR, you may not acquire many customers given the untargeted audience.

Do
Focus on partnerships where the customer base needs your product. Their customers are an engaged and captive audience, that would ordinarily be too expensive for you to reach. For example, call center provider Talkdesk’s early growth strategy involved deep integration with Salesforce. Given most people need support after a sale is closed, the partnership helped Salesforce’s customers solve a problem and Talkdesk grew rapidly, eventually being funded by Salesforce Ventures.

Sales

Beyond leads, if a large partner can do the hard work of selling your product; you could see a huge increase in growth due to their scale.

Don’t
Don’t expect the average salesperson at your partner company to know how to sell your product or who needs it most. If salespeople don’t understand your product and aren’t incentivized to sell it, they simply won’t. Twilio once secured a partnership with AT&T for the telecom giant to resell their API products — it launched to much fanfare but never became significant because the AT&T reps had more incentive to sell AT&T products instead. Now both companies offer competing products for developers.

Do
Make sure you’ll get time to train the salesforce of your partner and ensure they understand the expected profile of customers who might be interested. Plan to collect feedback and iterate on the sales process, to keep the team engaged. Most importantly, be generous with your early incentives to encourage prioritization of your product and perseverance through the inevitable problems post-launch.

Revenue

In a perfect world, the large partner would simply pay you to provide your product to their customers. However, licensing (and similar) deals are rarely simple for startups.

Don’t
Don’t assume providing your product to a large partner is the same as for your current customer base, as expectations for customer support and service availability can be suffocating. Be careful what you promise when signing the partner deal — don’t be too generous on pricing or offer support you do not have bandwidth to provide. Many founders are tempted to accept bad terms, in order to get a partnership with a prestigious logo.

Do
Given the significant time investment these deals take to close (between ~6–24 months), make sure your agreement will last at least one year. The contract should be mutually beneficial for both sides — your partner gets access to your (great) product and pays you a fair price. Even though you may have to provide a discount initially, there’s no need to extend the offer beyond the first year.

For most early stage startups, pursuing partnerships is a bad idea. However, if you’re careful to only pursue partnerships that match your product and company needs — you can find a transformational opportunity.

If you’re a B2B company at the seed stage looking for help, you can reach me at ash@ashrust.com.

Thanks to Kaego Rust and David Smooke for their help on this article.
Photo by
Aarón Blanco Tejedor

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