What Now?

Alternate Routes

BY Chris Sandlund | June 1, 2001|

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Be warned: Some companies may consider you too small. Rather than force the issue, try an end run, suggests Rymer. Many firms have long-standing outsourcing agreements with various companies. When you can't crack the main account, think about becoming a subcontractor for one of those established partners. That way you'll have someone to act as an agent between you and the large corporation.

This multitiered partnering system works down the food chain, too. Although alliances between entrepreneurs have been around for ages, the economy is much more diverse than before. Thousands of companies in business today didn't even exist five years ago. Plus, millions of laid-off executives have become free agents rather than return to the corporate fold. Each of these players represents a potential partner down the line.

"Opportunities to grow by partnering with smaller companies are different, but just as compelling," says Rice. The main benefit of smaller alliances is motivation. Both you and your partner will likely move much quicker than a big company.

Spinelli has invested in one example of a company using this approach. TenCorp, a Needham, Massachusetts, computer networking firm, is expanding beyond New England by partnering with smaller tech firms-many with about $1 million in annual sales.

Because TenCorp targets mainly schools and small businesses, it needs the expertise of local computer specialists who know the local players. TenCorp provides its partners with discounts on equipment and expertise in various technologies. "They've reached down in the food chain rather than up, but it gives them dramatically bigger growth," Spinelli says.

So how is this different from a 1930s wholesaler doing business with small grocery stores in a region? Today, technology plays as important a role in these partnerships as it does with bigger firms. TenCorp has developed an extranet that allows its partners to tie directly into its systems to check product deliveries and scheduling.

MARRIAGES THAT LAST

Day-to-day strategies of alliances are changing. Here are some guidelines to help you set up your partnerships and make sure they run smoothly:

1. Reward positive outcomes: The most important person in ensuring a good partnership is your business development specialist. "That person has to be rewarded when the deal works out," says Denise Brosseau, CEO and co-founder of the Forum for Women Entrepreneurs. If that person is you, then you must make sure the deal works financially rather than just doing it for the sake of making a deal.

2. Tap universities: Indiana University, Bloomington's Elizabeth Gatewood suggests partnering with universities. Like corporations, schools are keen to commercialize their research. Many operate offices that license technology to businesses. "That way," she says, "the entrepreneur avoids the high fixed cost of R&D."

3. Negotiate carefully: "The biggest challenge for small companies is valuation," says Upstream Consulting's John Rymer. "The prices suck." Recognize that you'll probably have to give up more of your company than you'd like to land an equity deal, but don't resign yourself to the first offer.

4. Avoid ethical quandaries: William Weisberg, counsel in the Tysons Corners, Virginia, office of international law firm Reed Smith LLP, cautions against giving equity to corporate executives at a potential partner. Although well-intentioned, such actions put your would-be partner in a conflict of interest with fiduciary responsibilities to his or her employer. That won't win much long-term business.

This article was originally published in the June 2001 print edition of Entrepreneur with the headline: What Now?.

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