Growth Strategies

Why high-growth entrepreneurs are partnering with like-minded start-ups?

Why high-growth entrepreneurs are partnering with like-minded start-ups?
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How can a start-up fuel its hunger for growing swiftly? Usual ways are either you achieve a significant scale with enough money to afford an acquisition or spend profusely on marketing or improve week-by-week along with constant innovation and roadmap, counting every penny.

But all that still involves constant investment. Of late, a handful of hi-growth start-ups have got onto adopting a cheaper and faster way to accelerate their growth by partnering with like-minded start-ups, where both have an overlapping customer base. Essentially, such tie-ups boil down to having increased user base, reduced expenditure on acquiring customers, which means lesser marketing required and a great word of mouth.

Joining Forces

When InMobi, a mobile advertising platform, tied-up with e-wallet player Paytm and e-tailer Amazon India last month, it was to leverage through each other’s strength. Through InMobi’s newly launched mobile product discovery platform Miip, Amazon and Paytm get their products discovered to consumers online, whereas InMobi gets access for its Miip platform. Paytm moreover also gets more number of users using its wallet for transactions through InMobi’s network.

“Amazon needs more of their products to be discovered which means discovery-led e-commerce. Cumulatively, people spend less than two hours per month on e-commerce sites and around 200 hours per month on mobile Internet. We believe that intent driven e-commerce will probably be around 30 per cent while 70 per cent will be from people discovering products they never knew they wanted or existed. For Paytm, it means more users using its wallet for transactions,” says Abhay Singhal, Co-founder and Chief Revenue Officer, InMobi.

“We are able to reach out to large number of mobile users that come on InMobi network. Usually, we are able to sell things on mobile when user comes to our app. Now with Miip, the user won’t require opening Paytm app. For example, if a user is using some app that is integrated with Inmobi as revenue making partner, then on that app, Paytm’s product can be seen by user that he can buy,” says Vijay Shekhar Sharma, Founder and CEO, Paytm.

In April this year, restaurant search and discovery platform Zomato tied-up with car-hailing app Uber to offer a seamless riding experience for users searching restaurants to dine out. Similarly, in March this year, mobile wallet service firm MobiKwik partnered with Payback that offers loyalty programmes, and in June it tied up with cashback and discount coupon early-stage start-ups GoPaisa and Pennyful.

“There is a strong overlap from both Zomato and Uber’s point of view when you look at the use case of going out to restaurant/nightlife venues in the city. The tie-up along with some of the offline campaigns, which we collaborate on, helps us get more eye balls; so in terms of increasing our customer base and brand recall, it’s been incredible. Also from a brand point of view, both Zomato and Uber have largely similar approaches to market execution and this partnership strengthens it further,” says Pankaj Chaddah, Co-founder, Zomato.

“InMobi will charge a percentage of revenue that can be as low as 1 per cent or as high as 10 per cent from merchants selling through our platform, depending upon the categories of items. Paytm sells two million products a day, and if we are able to sell extra one million products using InMobi’s Miip platform, it will be an additional 50 per cent growth,” says Sharma.

No Real Revenue Motive

Most of such tie-ups involve a revenue sharing model; however it is not the prime motive and that’s what differentiates such partnerships from a typical client-vendor or a service provider relationship. “Commercial model is typically worked

out but it is usually not directly linked to the  revenue. It is linked to growing the brand and user base together which indirectly results in higher revenue. If it is directly linked to revenue, then it becomes a client-vendor  relationship,” says Bipin Preet Singh, Founder CEO & Director, MobiKwik.

While MobiKwik’s users will get Payback’s loyalty points on transactions, which they can redeemed on MobiKwik and use them to buy products from more than 50k merchants associated with MobiKwik, Payback users too can redeem their points for different services leveraging MobiKwik’s wallets. “In such partnerships, both parties engage with each other with a common technology roadmap, whereas in a typical client-vendor relationship, someone gives you money and you execute the work on his/her behalf,” says Singhal.

Moreover, with better growth through such tie-ups, competition is of less worry. “Such integrations among start-ups help leapfrogging competition and keep pace with consumer demands. Various sectors are being significantly disrupted by tech start-ups, and as a brand if you can identify a gap in the market and find the right partner, then half the battle is won,” says Chaddah.

Global Best Practice

Partnerships like these, however aren’t new globally. Tie-ups like Yelp- OpenTable, Uber-Spotify, and Facebook-Spotify are fairly common. As Indian start-up ecosystem is growing rapidly, these tie-ups are gaining a lot of attention. “With the ecosystem evolving, such tie-ups are natural to happen. As long as these start-ups allow for a natural cross-selling capability and a wider user experience that complements or supplements what they are doing presently, it is a complete win-win equation. This is a natural way to expand,” says Deepak Natraj, Managing Director, Aarin Capital.

Aarin Capital is a US and India-based stage-agnostic fund founded by TV Mohandas Pai, Former Director, Infosys, and Ranjan Pai, CEO, Manipal Group. The fund invested in home furnishing start-up Homelane, which has tied up with News Corp-backed real estate platform PropTiger.

But does that hints of a possible future acquisition particularly in early-stage of business? “Acquisition doesn’t make sense because such tie-ups don’t involve lots of core reasons for the other company to execute. For example, marketing support from a start-up may make sense for forming a partnerships but not the only reason for acquisition,” says Sharma. Nonetheless if that contributes significantly to user base, then acquisition seems logical. “The company should be of significant scale and making significant difference to our business. If we continue to see that there is increased business and user benefit from GoPaisa and Pennyful, then an acquisition can’t be ruled out,” says Singh.

Word of Caution

Poor partnerships drain resources, time and effort, while some even end up with conflicts. Although such tie-ups are a growth multiplier, there is a word of caution. “Sometimes companies end up choosing the wrong partner or falter in the integration/execution that can result in a bad user experience,” says Chaddah. Similarly, Natraj says, “You need to have a clear understanding of your growth metrics and addressable market in the future. Make sure that you will only be complementary to each other and not going to compete later.

The biggest risk will be you may fail to derive as much value as the other start-up can. So be sure of how to get your share of growth. If one company wants to move out midway, it should be allowed to do so because one cannot incentivise the other to stay together as this may start cannibalising the overall growth.”  While there is only so much customers a start-up can get growing organically, such partnerships in the ecosystem is gradually becoming the new normal in customer acquisition. “As start-ups vie for their share of user base such non-conventional ways to get customers will come up and if these partnerships work, more start-ups will jump into it in future,” concludes Natraj.

Edition: October 2016

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