Businesses never remain static. With market changes, competitors entering and leaving, and new challenges arising, companies have to adapt. Establishing strategic partnerships with bigger companies is sometimes a wise move for accelerating growth and creating scale. Bigger firms can offer many attractive assets as strategic partners, distributors, or even clients – but there are common pitfalls too so smaller businesses need to go in with their eyes open. A partnership like this can really make (or break) your business so it’s worth it to be prepared!
Importance of Partnerships
Both small and large companies can gain many benefits from establishing strategic partnerships with each other. Forming the right strategic partnerships is very useful particularly because it can serve as a “mass referral system.” For example, your partner could send your way thousands of potential customers at the right time of the buying cycle. They can also help you generate more leads that convert to sales and expedite the sales cycle. It’s important, however, to find the right partner, determine whether they’re a good fit for your business, and take measures to protect your rights and intellectual property when you’re partnering with a larger, more established organisation.
Large businesses often lack the ability to be nimble because of their sheer size. By partnering with small but growing companies, they have the opportunity to reach out to new customers, access innovative products, and improve their success rates. Start-ups excel in detecting and unlocking untapped demand, but many of them are not great at scaling their proof of concept. Growing companies also have limited resources and the more progress they make, the greater the challenges they face because of their lack of resources and experience.
So, if big and small companies work together and collaborate instead of compete, they can improve their processes and attain more profits along the way. Many smaller companies have successfully partnered with bigger businesses. Sydney-based Shippit is one fine example. They partnered with Australia Post last year and, with big help from the partnership, began expanding their business and services. While companies can use strategic alliances to grow their businesses exponentially, partnerships do come with a few risks. It pays to be aware of these risks and take the necessary precautions to prevent problems down the line.
Assess Your Options
Large companies have more time and resources to look for partnership opportunities. As a start-up or smaller company, you may lack the time to engage in protracted conversations with larger enterprises – especially if they turn out to be the wrong partnerships. It can be quite distracting and prevent you from focussing on your core tasks.
Negotiation periods could last as long as 12 to 18 months and even beyond. As a small business, you need to ask yourself if you’re willing to invest in and commit to an extended negotiation period. Remember though, if you don’t reach out to bigger organisations to pursue partnership opportunities you could miss out on the chance to leverage the assets of a ‘well-endowed’ partner. You’ll miss the opportunity to possibly reduce costs, access new markets, share resources, staff, and even warehouses.
However, if you rush into things, you might be stuck in a partnership without a clear idea of what you can gain and each party’s obligations—this opens you up to being taken advantage of. Whether it’s with a smaller or bigger business, weigh up the pros and cons and think things through before exploring strategic alliances and deciding on a partner. There are also clever ways you can test the water more quickly and get results before ‘hopping into bed’.
Put Things in Writing
Many bigger companies are being encouraged to partner with smaller businesses to go for government tenders. Hoping to gain certain benefits (e.g. having access to a bigger customer base and new technologies) there is a rising trend of businesses going into these arrangements without knowing what they might get out of the whole agreement. They get very excited and put down key details about their intellectual property or IP as part of the tender without getting the terms and conditions of the partnership in writing. Large enterprises may use smaller companies to win government tenders but this sort of partnership may be of little to no use to smaller companies (or even damaging) if they are ill considered. Smaller businesses should, therefore, find out what they’re going to gain and do as part of the tender, get it in writing, and keep their IP confidential until they know that they’re really going to benefit from the tender in the way they wanted.
This point was highlighted in our recent Strategic Partnerships Expert Panel Webinar. Kate Carnell, the Australian Small Business and Family Enterprise Ombudsman, was one of our esteemed guests and, with the rising number of disputes involving smaller businesses being taken advantage of by bigger businesses, she stressed that smaller businesses should get everything in writing—especially terms involving intellectual property. This way, they’ll have something to hold on to in case a bigger partner does something that contradicts the agreement, fails to fulfil their obligation, or uses their IP without consent or beyond the bounds of the agreement.
Maintain Confidentiality and Build Trust
The webinar emphasised one key piece of advice: don’t give out your business plans or product ideas without knowing for sure if you’re going to receive your fair share of the cake. Non-disclosure agreements aren’t good enough in these scenarios. It’s equally important to build trust before signing the partnership contract. You shouldn’t have to be forced to reveal your details about your IP in the first few discussions with the bigger company (and vice-versa).
You could show them enough to tell them you have something they want. The moment they start asking for information that goes beyond the public domain or what you are comfortable to disclose, you have every right to request a confidentiality agreement and other sorts of protection. Doing so shows that you have good business etiquette and sense—a bigger company that is not out to take advantage of your business will respect this since they too realise that IP should be protected.
Always Be Prepared and Firm
Commercial lawyer, litigator, and Principal of Stacks Champion, Geoff Roberson was another panellist in the webinar. Agreeing to the merits of having a confidentiality agreement, he also stressed the importance of a smaller company being fully prepared. Enforcing partnership agreements with a bigger business can be risky especially if they’re looking out more for their own gains—this can be a ground for possible disputes and falling out. If they come up against a partner with deep pockets and long arms, the smaller business will be at a disadvantage.
As such, it’s imperative to be fully prepared first before entering a partnership with a bigger business. As discussed, practice confidentiality and put everything in writing. Be prepared in terms of fully understanding what you can give, each partner’s obligations, and what you want to gain. Of similar importance is being firm and not falling into compromise if you don’t want to—if a change in the terms of agreement is proposed, study it first and see if you’ll be short-changed. In a previous blog we also discussed several things you need to look out for before entering a partnership, from a lack in transparency to conflicting values.
In summary, for a strategic partnership with a bigger business to work, you need to have a good plan in writing. Make sure you outline what you and the other partner wants out of the partnership. Document it and get both sides to agree to it. Beware though that as a small business you might not have enough power to enforce what you have in writing. Big companies have the resources to hire legal firms to contest you so make sure you work out everything up front, establish trust, determine how your relationship is going to work, and document it all with special focus on protecting your IP and other rights under the law. Most importantly TRUST YOUR GUT!
If you want more key insights on how to successfully partner with a bigger business and other important partnership pointers, check out our free resources here.
Whether you need help identifying ideal partners or overcoming partnership obstacles you face, Partner2Grow has the knowledge, expertise, and tools to assist you in forming the right partnerships with businesses of all sizes. After all, size doesn’t always matter!