Recently I wrote here about a deal I was involved in between a private technology company I had joined and a multi-national behemoth (I’ll call them Goliath), and some steps I took to get a deal that had gone off track, back on track.
In that post, I wrote “Certainly not everything about that deal went the way we planned”. This post will be about one important thing that I didn’t get right in the deal.
When two parties are working on some sort of partnership – a reseller relationship, an OEM agreement, whatever – both are seeking to reduce their risk. In this case – a white label/OEM deal – we wanted to make sure there were some minimums associated with each deal Goliath would sign on our joint service. We therefore spent a lot of time negotiating the minimums that Goliath would pay us each time they did a deal.
Our mistake was that, despite our attempts, we weren’t successful in establishing controls to make sure Goliath themselves would produce.
As it turned out, Goliath wasn’t able to sell much of anything, and since they didn’t owe us any overall minimums we – not they – felt the pain of their failure.
We probably didn’t fight hard enough because we let our optimism get the better of us. Why wouldn’t Goliath sell a bunch of deals for us? They were enormous. They were all over the world. We regularly saw their commercials when we watched TV at night. The fact that they would change the trajectory of our company was considered a given.
Except they didn’t.
There are many reasons for this – some of them having nothing to do with Goliath – but when a small company partners with a Goliath, they often make the following mistakes:
Dazzled by Fame. Small companies look at Goliath-type partners and salivate. Manifest destiny! The world will be our oyster! We’ll be awash in filthy lucre and an exponential valuation ramp! But big companies have Big Bureaucracy, Big Distractions, and Big Rivalries. Often it seems that their core business is doing a major internal reorganization, followed by stasis, followed by another reorganization. That’s usually not a recipe for success.
Dazzled by Financials. Small companies assume that since Goliath-type partners are multi-billion dollar entities, they will naturally have plenty of marketing or technical dollars to allocate to the partnership. As anyone who has gone from a nimble private company to a multi-national Goliath (as I have) learns, Goliaths are just as strapped for resources as you were back when you were private and underfunded.
Dazzled by Coverage. Small companies see the hundreds of product salespeople, client executives, subject matter experts, sales engineers, and field management and think that they are going to benefit from that big machine. But that big machine is coin-operated and can only be good at selling a few things in their bag. Getting them to notice – and care – about your product can be like pushing a rope. As Tip O’Neill once said, “All politics is local”. Small companies forget that, and usually can’t afford to put enough bodies on selling to Goliath’s sales organization. Also small companies usually don’t include that cost in their original financial models, so they underfund the partner management function, which in turn perpetuates the disappointing results.
Many of these relationships fail to produce the desired results for either party (something I’ve touched upon previously here and here). But in the end, they can be worth the effort because if the tough questions are asked and answered, and the deal is properly executed, with a little bit of luck a Goliath partnership can create magic.
But it’s best not to depend upon magic. Get Goliath to commit dollars over the term of your agreement. If you can’t get them to commit to something other than nothing, then nothing is likely what you’ll get.