As discussed in Part 1, which I recommend you read first, actually getting acquired by a valley giant is tough and involves a combination of luck and preparation. For an acquisition to happen, someone, the acquisition sponsor, is going to have to really go to bat and put their neck on the line for you, unless you are Groupon in which case someone may be in trouble for not having already identified and approached their boss much earlier…
By partnering first, you make it much easier to gain sponsorship and support for your company and the risk for the person who is going to sponsor the acquisition is greatly reduced. Several people within the valley giant and (hopefully) across multiple functional groups will now know you, your company and what you can deliver. The risk for the sponsor is now greatly reduced as he/she does not need to sell as hard internally and has several other people who can back them up and attest to the quality of your company and your ability to deliver and execute.
As such, it goes without saying of course that during all of your contact with the valley giant and during the partnership you need to put your best foot forward and always over-deliver. Everything you do is being judged and observed and will be remembered when it comes time to enter into acquisition discussions.
How to get a partnership started
There are many different ways and motivations of partnering and I cannot profess to know them all. However, the first thing that you need to figure out is what you have to offer and what your partner is interested in at this point in time. It is really important to understand that despite having a huge business with multiple products, the valley giant will only be focusing on a couple of initiatives at any given time. In all likelihood, the objectives of the people that you are working with and the number of available resources they have at their disposal are linked to these initiatives. And it also goes without saying that the easiest way to partner or close a deal is to help someone accomplish their objectives.
Of course, you can always get a deal closed that is not tied to a valley giant’s strategic initiatives – their BD people are always looking for deals to close as this is how they are measured. But if your proposed partnership is not aligned with their current objectives and you it does not have the support of their product people it is going to be a lot tougher and a much longer close…
That said, how to partner? There are two aspects to this, first you have to know what the model for partnering is going to be, and second you need to then figure out how best to sell yourself to the valley giant. The lists below provides a list of the most common models for partnering and how to make it easy for a valley giant to partner with you – based on my 5 years experience working on partnering roles within these companies.
Potential partnering models:
- Product: You have engineered technology or built a product that is of high quality and hard for the valley giant to develop internally in the timeframe they require. They may need a component of your technology, your product available as an SDK or accessible as a web service to plug into theirs or they may need a white label version of your product to rebrand. There are a lot of these deals, but you generally do not know about them as the brand of the licensee is generally not visible in the products – you can sometimes see them mentioned in a EULA though.
- Distribution: This is about leveraging reach of a partner or valley giant to get your product and brand in front as many people as you can or vice versa. Your brand might appear with a “powered by” attribution, but the key objective is to get people to engage with your product and brand and leverage someone else’s reach to do so. When Google first launched for example, they powered AOL and Yahoo! search. Facebook enables people to distribute Facebook Connect and its “like” buttons as well.
- Sales: This, as it implies, is all about getting your product sold through others. It is of course the standard in the offline world with the chain of manufacturers, wholesalers and retailers, but also applies to the online world. The partnership structure is generally pretty straightforward but you need to find a fit within A valley giant’s current product implementation. The general model is that you are promoting or advertising your products through another company’s sales channels and pay for the promotion through a commission on sales.
- Marketing Promotion: Marketing promotion can be viewed as an agreement to promote each other’s brands without integrating products. Companies may do joint PR, activities or representation to build awareness of an industry or market. Normally there is a marketing component to most partnership models, but there are also stand alone marketing agreements with no products involved where the companies agree to promote each other’s brands – sometimes through barter of advertising inventory.
- Purchasing/licensing: This is perhaps the most basic form of partnering, but involves your selling or licensing content or a part of your product to the valley giant. For example, in Indonesia Kompas licenses content to appear in Yahoo! News, to do this Yahoo! has to establish a contractual relationship with Kompas, get to know people and work with Kompas. Other companies may provide technical consulting or infrastructure for certain products. In either case, if the product you are selling or licensing to the valley giant becomes core to their business the valley giant may need to acquire you.
Becoming a partner of choice
Once you have figured out on what basis you will be partnering, you then need to sell yourself as the partner of choice. Here is a list of 5 points to think about when building your position – if you can meet them all and the valley giant has an objective aligned with the model you are proposing, then your chances of establishing a partnership are quite good:
- You need to be one of the leaders in your vertical, ideally top 2: valley giant is partnering with you because they have decided that they don’t want to build a product in your vertical or because it is cheaper to partner than to build (think Yahoo! in Travel bookings, jobs and dating). No one at the valley giant wants to put their career on the line or at risk by recommending that they work with a small company or an up and coming but unproven technology (unless they are being told to by a senior exec). So you need to be known in your vertical and ideally top two.
- Good product and depth of content: The minimum requirement to play. Your product needs to be good, meet all of valley giant’s performance and security standards and you need to have enough depth of content to meet the needs of a diverse user base. In other words don’t be too specialized in a country or a niche – and if you are, make sure it is easy to expand your product to other countries. The valley giant has a global market and needs products that can cover a vertical and be rolled out across multiple markets and not just the niche you targeted to get your company off the ground (this is more important in emerging markets and less important in established markets like the US, China, Japan and Korea).
- Your infrastructure and code need to be able to scale and handle the volume: There was a story I was told once about Google having agreed to put a link to a charity off their homepage (a big charity like UNICEF). After having checked several times with the charity that they could handle the traffic coming from Google they launched the link. The charity’s servers were of course overloaded and their site went down shortly after the link went live. A valley giant’s monthly pageviews are measured in the billions, if they are sending you traffic you better be able to meet it as they have a low tolerance for downtime.
- You need to make it really easy: The valley giant will have very limited resources to invest in any given deal and will be looking to leverage its own product and implementation templates where ever possible. Which means, if there is any work to be done you will generally need to do it and pay for it yourself. Be prepared to do so and think ahead as to how to make this easy for the valley giant. Also, if you do work, make sure you can profit from the partnership (can be revenue or can be PR).
- You need to know your business and how to profit from the deal: The valley giant knows their core business really well and how to profit from a partnership, but knows very little about your business. Then it comes to a partnership, as far as they are concerned all they need to do is turn on the switch and money is being printed (or benefits roll in depending on the model). So they are not going to put a lot of thought into how to make the deal work for you or set it up to be successful for you. If the deal is not successful then the likely revenue shortfall is not going to be that significant to them, whereas for you the cost of meeting their requirements might represent a significant lost opportunity and lead to potential layoffs. So you had better understand how to make your business successful, as they won’t and they are not going to try to figure it out. Mmake sure that the deal is structured so that you will get what you need out of the deal. Once the deal is signed, it is going to be difficult to get any improvements to the terms without a business case for the valley giant…
Now that you have established a successful partnership, time to prepare to pitch your company for sale…. In part 3.