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7 Reasons Smart Startups Establish 'Coopetition'

7 Reasons Smart Startups Establish 'Coopetition'
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As a startup advisor, when I suggest cooperating with competitors, most entrepreneurs initially think I'm crazy or suggesting something illegal. But trust me, I’m not talking about anything sinister here, just a concept known in smart business circles as "coopetition," recognized as one of the best and fastest ways to grow a company. And growth is the lifeblood of every startup.

For example, think of all the specialized social-media sites that allow the use of your Facebook or Twitter credentials, instead of forcing a new one. That’s a win-win-win deal, since the ease-of-use attracts more people to the new site, it enhances the Facebook brand, and it simplifies the customer interaction. At least two competitors had to cooperate to make that happen.

Related: 10 Ways Competition Can Improve Your Business

As you will see, this example highlights only one of several ways that coopetition can supplement or even supersede all your efforts to accelerate organic growth, meaning growth from within. Here are the other reasons to use this strategy:

1. It reduces common costs and customer learning curves.

Similar startups, with competing products, almost always have overlapping areas, which cost money to develop and annoy customers with a new learning curve. If these elements are not your core competency or “secret sauce,” why not negotiate a sharing partnership?

2. Complementary advantages can expand both markets.

Every smart startup starts with a focus on a unique advantage, such as owning a distribution channel. A competitor may have complementary strengths. A strategic partnership, sharing common gains, should be a growth opportunity by expanding the market for both.

3. There's an opportunity for follow-on sales to existing customers.

Every business brings a set of existing customers who are great candidates for additional sales from a partner-competitor. That’s the reason why many ecommerce sites feature a house brand, but have partner relationships with logical competitors to attract and cross-sell customers.

4. It can create new solutions through integration of competitor features.

In many cases, two competitors are fighting a third one, and both are losing. With a strategic partnership, they can combine their product strengths with minimal cost and time, rather than each funding new development. Both then capitalize on new strengths and bundling for growth.

Related: Do You Know Who Your Best Friends Are in Business?

5. It can establish architecture and industry-interface standards.

Products in the same industry need to talk to each other and share data to facilitate faster customer adoption and faster growth for all players. Competitors can agree on common interfaces without exposing or jeopardizing their intellectual property or customer relationships.

6. It leads to referral agreements and affiliate marketing.

These are simple cooperation agreements, but many entrepreneurs are too proud or busy to consider them as a growth opportunity. Why not improve your customer satisfaction by referring customers you can’t satisfy to someone who can? If they so the same, you both win, along with the customer.

7. Coopetition relationships lead to positive investments and buy outs.

These days, most large companies, such as IBM and Merck, rarely develop new products internally. They invest in complementary startups, through internal venture funds and partnerships, and plan to acquire the best as they show the right traction. Be visible and be proactive.

If you are contemplating a win-lose relationship, hoping to put your competitor at a disadvantage, don’t do it. It's very risky, costs you a lot of time and money and generally backfires, since most competitors are not desperate or stupid. In every case, make sure your intellectual property is protected up front with a two-way non-disclosure agreement. Be cautious, but not paranoid.

Smart entrepreneurs realize that sometimes they have to fight that natural instinct to consider competitors as the enemy. If you keep your customer’s best interest as your first priority, you will know when it’s time to think outside the box. That thinking, including coopetition, will pay big dividends for your own startup's growth, as well as customer relationships.

Related: 5 Reasons You Need to Work With Your Competitors