Let's say you're an inventor who has developed an intriguing new software product. You're interested in a relationship with a large Fortune 2000 corporation, where you handle all the product development and they handle all the manufacturing, marketing and distribution. You'll have two questions: (1) how do you find the right corporate partner? and (2) how do you structure the relationship to avoid getting cheated?
Okay, one at a time. How do you find the right corporate partner? Sarah Gerdes, author of the new book Navigating the Partnership Maze: Creating Alliances That Work, says that most entrepreneurs go about it the wrong way: "They call 15 companies, hoping that two will call back, and then get overwhelmed when 12 of the 15 call back asking for a meeting," says Gerdes. Instead, Gerdes says that small companies should take the time to look for the Fortune 2000 corporations whose goals and objectives match their own. Gerdes, the founder of Business Marketing Group in Maple Valley, Washington, a consulting firm specializing in partner development, has developed a step-by-step program, AllianceMapping, described in her book, by which small companies of any size can match their key attributes with those of potential Fortune 2000 partners and narrow the search to those who will really be interested in partnering with them.
Once a partner has been identified, how do you go about making the contact? Gerdes, bucking some conventional wisdom, says it's a mistake to go directly to the prospective partner's CEO: "A CEO's job is to delegate to a person who will make a decision, so 'going to the top' often means you'll tick off everyone in the food chain. In many large companies, someone with a 'manager' title is responsible for up to hundreds of millions of budget dollars. You should take the time to find the right manager for your product or service, and go to that person first."
Once you've sold a Fortune 2000 corporation on your product or service, how should you structure the relationship? Partnering arrangements between big and little companies almost always take one of three forms:
- The "independent contractor" or "consulting" model: You develop the product or service for the big company as a consultant, license the finished product to them, and are paid a fee (usually a royalty on sales of the product or service) in return;
- The "joint venture" model: Really a partnership, to which each company contributes (the little company contributing technology and "know how," the big company contributing money and labor), and from which each company takes a percentage of the net revenue (total sales less cost of goods sold) from sales of the product or service; and
- The "investment" model: The big company buys a percentage of the small company's stock in exchange for a contribution of money and services which helps the small company develop the product or service to the point where it can be marketed and sold by the big company.
When structuring any partnering arrangement with a big company, your agreement should clearly state the following: who is contributing what to the partnership, who will be managing the partnership (for example, a board of directors to which you will elect X members and the big company will elect Y members), who will get what percentage of the profits from the partnership, and who will get the partnership assets once the arrangement is dissolved or terminated.
No matter how the relationship is put together, it's important to remember that eternal vigilance is the price of any "partnering" arrangement with a large company. Gerdes points out that most large corporations reorganize every six months on average--that means you'll be constantly having to adjust to new people and continually proving your project's worth to the organization. In the words of the late comedienne Jackie "Moms" Mabley, "the Lion may lay down with the Lamb, but the Lamb ain't gonna get much sleep."
Cliff Ennico is host of the PBS television series MoneyHunt and a leading expert on managing growing companies. His advice for small businesses regularly appears on the "Protecting Your Business" channel on the Small Business Television Network at www.sbtv.com.