06/14/2017 12:00:00 AM
Partnerships: A Growth Engine For Tech Startups
Partnerships can be a winning approach to grow your early stage startup, but designing and implementing partnerships can seem tricky from the outside. To build your future growth engine using partnerships in scalable, predictable and repeatable mechanism you need to consider the right framework, keep away from common traps and choose the perfect timing to conduct your partnerships.
Partnerships are the way of the future. Period.
We are starting to witness how the next generation of successful tech companies will use partnerships as a growth engine. We saw it first with Fawry, and Careem, both companies have leveraged an extensive network of partners and successfully exploited this growth engine opportunity to achieve scalable, predictable and repeatable traction. In the firm of the future, the Bain & Company team argued that, “Today, firms are defined by the assets they own and control. In the future, firms will be defined by the ecosystems- the assets and the partnerships- that they control”. Nowhere will this be more evident than in the tech space.
Many other international tech giants created win-win partnerships that maximized value across their ecosystems, resulted in a clear sustainability and defensibility by not only improving their products market share but also made it harder for other players to enter in their business space. A famous example of successful tech partnerships is the marriage between Google and Samsung, which goes beyond a software/hardware relationship; it encompasses revenue share, co-patent agreements and strategic collaborations that drive the future and security of mobile computing.
The questions we asked as we observed this trend of adopting partnerships as a growth engine for tech companies; is there a framework for early stage founders to use as a guide when designing partnerships? What are the traps founders face in partnerships? When is the right time to work to build these partnerships?
The framework, a structured way of designing partnerships:
Many startups struggle with their partnerships strategy and implementation; the main reason behind this is that they do not operate within a structured framework and often the partnerships dialogue between startups and external stakeholders is concealed in aura of fog and undisclosed incentives. Thus, this is not a strong healthy foundation for joint collaboration, in so, many topics are usually left unaddressed, which is more likely to lead to a painful divorce between the two players.
When tailoring a new partnership you need to ask yourself what is the purpose of this partnership. The answer to this question lies in how it can contribute to enhance and complement the experience of your customer. This add-on or contribution can be in relation to price, convenience, speed, performance or availability. A successful partnership should help integrate and create synergy between both business models that enables the creation of a new value that complements both business models and enhances the customer experience. A local example that elaborates this premise is Careem’s approach to partnerships with social events’ venues by being their “official carrier”. The ride hailing company helps events to have their attendees commute in in style. In return, the ride hailing company increases its brand equity and product traction especially since this is an opportunity for them to increase customer acquisition and retention. These events thus act as “accelerants” for the growth of Careem.
Any successful partnership should include the below building blocks:
- Desired Value: What is the value required from a partner?
- Value Offer: What value is proposed to the partner?
- Transfer Activities: How will the partners’ values will be integrated and made equally accessible?
- Created Value: The result of the value transfer between the two partners/business models.
Don’t let partnerships trap you:
At least some founders struggle with acquiring their early users, in so they consider having access over the audience and distribution touchpoints of bigger players through B2B2C partnerships. B2B2C partnerships is when a startup conducts direct sales deals with bigger players and/or integrates their product into other players’ products in a meaningful way, with the aim of getting access to qualified users who generate revenue whether through ads or through other types of transactions. Famous examples of B2B2C partnerships in the startups space is Udemy’s integration with TechCrunch to create CrunchU and Quora’s integration with Forbes as a content distribution channel.
B2B2C partnerships are attractive at the first glance, the charm of having access to a massive user-base with a hope that it will lead to a leap in your traction. Also, you want to place this partner’s logo in your decks and on your website, to get this immediate credibility in the market from working with a big partner. It all sounds like a great plan; but there are hidden traps you need be aware of while considering B2B2C partnerships, which may hinder your growth rather than boosting it:
- Lack of focus:
Partnerships can be a huge distraction. They almost always consume more resources than initially planned. Do not let pitching, negotiating and developing for partners distract you from focusing on your product development plans and satisfying your end-user. Be aware of the trap of dividing your attention between two “customers” and trying to please them both, your B2B2C partner and your end-user. Always try to balance your resources and efforts.
- Lack of speed:
Speed and high tempo growth are everything for early stage startups; conducting a partnership can have a negative impact early on if not managed properly. Any bigger player with a large user-base will always be slower in the partnership negotiation and execution than your startup. A bigger player will consider your startup as an experiment; it is less likely to affect their established business if things go wrong. On the other hand, this partnership is more likely to have bigger impact in terms of traction for your business. Don’t forget to work simultaneously on your tactical activities that serve your growth while working on closing your B2B2C partnership.
- Lack of diversity in growth levers:
In the early stages of your startup, if you are too reliant on one channel of traction in a form of partnership, if this partnership fails, the whole ship will sink. You need to have a healthy mix of traction channels, this diversification will help you hedge against the different risks which you’re validating your model.
The perfect timing to grow through partnerships:
You need three milestones to be achieved before you adopt partnerships as a growth engine. The first milestone is product/market fit; you are able to identify your perfect customer and you have a product that satisfies them. The second component is leverage; when you really have something to offer to help you better govern the relationship with your partner. The third and most important component is diversity in growth levers; having a diversity in traction channels will make your business not fully reliant on this partnership, in return, less at risk and more sustainable.
Partnerships can be a lucrative growth engine and future asset for your startup. The trick is adopt a structured approach when it comes to tailoring partnerships, avoiding common traps and choosing ideal timing to close partnerships. By working on a formula, partnerships can complement a scalable, predictable, repeatable growth for your startup.