Find Your Partner

It Works Both Ways

As good as some of the news may be about the partnerships proliferating throughout the dot.com world, like most things, there's a dark side, too. "Partnerships can be an incredible opportunity, but for the relationship to work, you've got to work at it," says ComVersant's Datovech, who cautions that often big companies put up their money but are unprepared to offer the smaller company anything more. "They're looking to learn from you but often aren't prepared to put much else into the relationship," he says.

And that's just the beginning of the negatives. "If you're not careful, the big company will `gut' you," says Ed Roche, a vice president with The Concours Group, a research-based management consulting firm in Kingwood, Texas. "They learn how to make your products then dump you. There is often very little a small company can do to fight back." Your best defense? Always remember to step very lightly when choosing a partner.

Dartmouth's Anderson points out another trouble spot: "Almost by definition, you're taking the larger brand where it hasn't been before. That's a recipe for conflict."

Chew on that because it's at the paradoxical core of most small-big alliances. The big company wants the little partner for its creativity, its innovation and its ability to plunge into terrain previously unexplored by the big fellow. But once the deal is signed and sealed, the risk aversion that is at the core of virtually all mega-corporations kicks in--and, suddenly, the partner is counseling caution and slow forward motion.

Some problems are even created by the small business itself. "It's easy for small-business management to take its eyes off the ball," says Larry J. Lenhart, a principal of Northern California High Technology Practice at Deloitte & Touche in San Jose, California. Bluntly put: Once an infusion of cash from a large partner eases the pressure to perform, some small business owners just get lazy or--just as bad--suddenly adopt the methodical "big company" thinking of their partner and lose the hard-charging drive to succeed that every entrepreneur needs to prosper.

A chilling potential by-product: "Often the little company's best employees will quit," says Roche. Why? They were initially attracted to the fast pace of a small business, but as more bureaucracy takes root in the aftermath of a partnership, they might just bolt.

One last thought to keep you gnawing: "The big company may acquire effective control of the little company but not formally," says Roche, meaning a straightforward acquisition hasn't been done. Instead, by taking command of key functions--accounting, say, or by assuming multiple board seats--the big company simply grabs control. "Small companies usually don't have the expertise to negotiate a fair deal. You absolutely need a third-party to assist you."

That recommendation is seconded by Ken Burke, 33, founder and CEO of Petaluma, California-based Multimedia Live, an e-commerce tool developer that brought in publisher R. R. Donnelley & Sons Co. as a sizable partner last September. It took eight months to negotiate that deal, which left Burke still in full control of the company's ownership. But the key for him, says Burke, "[was] hiring really good lawyers. They found many things in the deal we had to get revised or deleted. You don't want to negotiate that sort of thing alone."

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This article was originally published in the February 2000 print edition of Entrepreneur with the headline: Find Your Partner.

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