Entrepreneurs seem to have blinders on when looking at competitors. Generally, they are so focused on killing competitors that they fail to see the positive potential of a strategic partnership or some other type of collaborative relationship. Sometimes you have to put aside the emotion and the passion and just look at what is best for your business.
Strategic partnerships in this context can take the form of joint ventures, intellectual-property licensing, outsourcing agreements or even cooperative research. All of these offer the potential for a win-win relationship with a nominal competitor, rather than a win-lose deal, as long as both sides can remain humble and not try to dominate the relationship.
Always start with a formal proposal, limited in scope to a specific common objective or technology, for a limited amount of time, bounded by a two-way non-disclosure statement. With this agreement in place, there are a host of ways that both sides can win:
Share common technology. Every startup has a core competency that should not be shared. Beyond that, there may be a large percentage of common technology where they both need to minimize cost to gain share from the big dinosaurs who already have this advantage.
Expand the market for both. Typically, there are market opportunities that neither of your core competencies can win alone. A strategic evolution of your combined strengths may be able to open up a new segment that neither of you could do alone in the same timeframe or at the same cost.
Up-sell related products or cross endorsement. If your customers would benefit by having products from both companies, you might negotiate the opportunity to include the other’s product as an add-on. Where your competitor isn't really competing with your direct market, you can refer business to each other without anyone losing customers.
Benchmark your practices against a true peer. The best way to do this is to establish specific performance targets with incentive-based rewards for meeting and exceeding these targets. The information exchange from day-to-day interactions of engineers and marketers will drive you to enhance your own processes to be more competitive.
Expand core competency and solidify strengths. Both partners must not forget they are still competitors. By sharing and learning in non-competing areas, they can focus their limited resources on solidifying their core competencies and expanding their unique segment of the market. Let market response dictate a later split, merger or acquisition.
Learn from each other. No entrepreneur has all the insights they need, and none should be so arrogant as to assume they hold all the cards. Of course, it’s important to start with a bounded agreement that clearly lays out expectations and areas that are off-limits.
Think about the future. Once you have established your credibility and value, a strategic partnership may extend to a financial relationship. The other company may have the finances you need to invest in a business area they know, where you have the core competency. Longer term, when ready, it may be time for merger or acquisition.
While most entrepreneurs think of strategic partnerships as big company deals, it actually works better for small companies. In large corporate environments, competitor cultures may be so set that collaboration is difficult, while I find that small company peer competitors usually have no trouble at all getting along. The industry leader arrogance has not yet set in.
Even for small companies, it is critical that all employees be well-informed about what skills, technology and information can be shared with their partner and what is off-limits. This will offset the normal instinct to think of a competitor only as a threat. It is smarter to capitalize on the positive aspects of a competitive situation rather than killing each other so no one wins.