When partnerships should pursue partnerships (hint: rarely)

I wrote about the challenges of partnerships last year and I’m going to have another go at it today. Over allocating resources to partnership deals is one of the easiest and common mistakes that startups make.

This is from the A Founder’s Notebook:

Startups should say no to 99% of partnership opportunities. Most partnerships never go anywhere and don’t make sense for the startup to invest significant effort into the relationship due to being time and money constrained. Partnership opportunities do make sense when there is significant skin in the game on behalf of the partner (e.g. large up-front fees) or a super minimal way to work together (e.g. less than 20 hours of work to get something out the door that is useful).

You might be thinking, ok, that makes sense, but BigCo A wants to partner with me and it could be big. They won’t have any significant skin in the game, but their people are dedicating a lot of time to our discussions, so I’m sure it will be ok.

I’m afraid that it probably won’t. The important point to note here is that big companies are resource rich and spend a lot of time looking for new opportunities around the edges of their business. That’s in stark contrast to startups which are resource poor and hopefully laser focused on the core of their operations. This asymmetry leads many small company leaders to over-estimate the significance of senior large company execs spending time with them.

Big company partnerships are a bit like big game hunting. They promise massive returns on little work and the thrill of the chase is fun too. But relying on closing a big partnership is like making a big kill – it may take years and years or may not come at all. Moreover, it’s hard to remember that the hunter or company you know who landed their prey was probably just lucky.