The tech start-up community knows how hard it is to raise VC funding, particularly with 1st-time start-up CEO's. I'm a big proponent of 1st-time start-up CEO's, and they usually discover pretty quickly that few VC's will take the risk in investing in them. The "no" will be shrouded in other phrases, like "too early" or "not enough traction". But many times it really boils down to, "This is your 1st venture, and you have to prove yourself before I will take that risk."
So many start-ups must figure out how to work with players in their value chain. You are "David", and I would argue that you CAN do a deal with "Goliath". This post is to help you think about strategizing and executing that process.
There are five clear steps you can follow to successfully partner with a Goliath:
1. Develop a clear picture of your VALUE CHAIN.
2. Focus on the analogy of a JIGSAW puzzle.
3. INTELLIGENCE is paramount.
4. Create Customized VALUE PROPOSITIONS.
5. Create OPTIONS for yourself.
Value Chain. Everyone starts their journeys and adventures with a road map. No different with your start-up. Who you are selling to, who are your customer's customer, and who are your suppliers, are all part of the roadmap. The segments and the companies need to be written down, preferably in a war room or collaboration virtual space for all to see and interact with. "Your market space" is a constantly moving/evolving organism and needs to be tracked in realtime. You need to know who the top "gangs" are, and the companies that make them up. Not only does it take significant to complete, but a good chunk of every executive's time should be spent on updating this proprietary roadmap.
Jigsaw Puzzle pieces. Many of us like a good jigsaw puzzle, particularly us analytical types. The analogy of jigsaw puzzle pieces is a great way to think about partnering with bigger players. Being an innovator, you the start-up usually has a piece that should fit into your customers' puzzles. The problem with jumping over 2nd teir players to the top tier, 800-lb. gorrillas - true "Goliaths" - is that they usually look for major chunks of puzzle pieces, not just one piece (i.e. mid-size company acquisitions). That's why it's tough to get their attention. That's why it more logical and natural to go to the 2nd teir players, closer to you in the chain.
This jigsaw analogy is a good way to think about "getting traction" - how easily, and with how many, does your puzzle piece drop into other players in your value chain? Corrollary: "Getting traction" in the sentence above can be replaced with "EXIT options" - something investors take particular notice of.
Intelligence. "Information" regarding the companies in your value chain is the critical component you must figure out how to get to advance your start-up. Most critical are the partner companies' weaknesses - missing puzzle pieces that companies needs. Companies rearely share share any of their weaknesses publically, so you can't expect to make a few phone calls and have executives spill their guts on this topic. Professional networking is the way to get this information - requesting introductions to key executives by trusted colleagues. The 'trusted' part gets you credibility so you may be able to get a secret need or two out of the conversation. This is the blocking and tackling work that is not easy and takes a long time. Hey, if it was easy everybody would do it.
Value Propositions. Let's review ... you are an early stage, (relatively) unproven company with a new "anti-gravity machine" and you need cash. You must create customized compelling value proposition for your partners up the value chain, or clearly showing how easily your puzzle piece fits into their puzzle. It's amazing how few founders and entreprenurs understand this, believing that the features of their A-G Machine will sell themselves. It's usually a lot of work for companies to integrate puzzle pieces. And we all know how those larger companies hate to do work if they can help it. So guess who has to do that work? Or, have a super-compelling proposition for them to take on the work.
Options. There's an old adage ... Doing a deal with one partner is the same as "no deal". Your partner will figure this out quickly in negotiations. If they don't have to make a move, why would they? It's better to just "monitor", and continue on their own "build it" options. (Or "check" if you're a poker fan.) Creating options for yourself is critical to closing a deal. This is all about creating scarcity - a negotiating tactic that pays to learn to master. Someone will get the puzzle piece and others will not.
Examples abound in every segment, but that will be another post. To summarize, you (David) can absolutely take down a Goliath. It's just 'work". :-) I hope this post leaves you with a few take-aways you can apply immediately to close some deals and better develop your partnerships. Email me if you'd like me to dive into more details on any particular tactics:
o Is your VALUE CHAIN clear to you - and the critical 5-8 companies to target?
o Do you know how to drop in your PUZZLE PIECE smoothly?
o Are you sufficiently networking for sources of critical INTELLIGENCE?
o Have you crafted and customized a VALUE PROPOSITION for each partner?
o Do you have OPTIONS? Are negotiating with more than one partner?