Presentation to Startup Institute - David + Goliath

Scott Pollack@slpollack

http://www.startofthedeal.com

David + Goliath: A Love Story

How Startups Can Partner with Big Companies

2

Celebrity Marriages = Vanity Partnerships

Vanity Partnerships:

• Doing deals > Building your business

• Getting into market > Time spent in market

• Press release > Partnership agreement

The Result: Wasted resources. Burnt bridges. Lost focus. Startup Death.

3

The Path to Successful Partnerships

A successful partnership requires that all sides feel their contributions are sufficiently

rewarded by the value received.

$0 Partner Big Co.

$$$

Create a product

Enhance our brand

Cut costs

Reach new customers

Enter a new market

The Startup Perspective:

4

How to Partner with a Big Co.

Big Companies have plenty of options to create growth.

$$$

Build

Buy

PartnerThem

YouAh, Screw It

M&A

Vendor

In-house

Outsource

$$$

Create a product

Enhance our brand

Cut costs

Reach new customers

Enter a new market

The Big Co. Perspective:

5


In order to partner, you must provide more value than

every other option.

Or waste a lot of time trying.

$$$

Build

Buy

Partner

Them

YouAh, Screw It

M&A

Vendor

In-house

Outsource

$$$

Create a product

Enhance our brand

Cut costs

Reach new customers

Enter a new market

6


“Partnership is only one potential avenue for achieving growth. In order to partner with your startup, you must provide more value than every other option to pursue an opportunity.”

7


A successful partnership requires that all sides feel their contributions are sufficiently rewarded by the

value received.

Communicating Value

How do you find your way through an organization to

show them the potential for your

partnership?

2

8



value received.

Having Value

What value can I create for my company and

another company?

Communicating Value



partnership?

1 2

9



value received.

Having Value


another company?

Communicating Value



partnership?

Delivering Value

Can you deliver on the promise of the value in order

to keep a deal alive?

1 2 3

10



value received.

Having Value


another company?

Communicating Value



partnership?

Delivering Value



What’s in it for

[you/them]?

Who cares? Is it still worth it?

1 2 3

11

Phase 1: Having Value


value received.

Having Value


another company?

What’s In It For You?

• Economic Value • Brand Value• Option Value• Product Value

What’s In It For Them?

• Economic Value • Brand Value• Option Value• Product Value

What is the Value Received?

What value does your company need?Is partnership the best way to create

that value?

12

Phase 2: Communicating the Value

Communicating Value



partnership?

Who Cares?

Perceived Value =


value received.

• What companies need the value you can create?

• Where in the organization does your value resonate?

• Who is motivated to advocate for you?

• How can you establish those relationships now?

Organizational ValueIndividual Value+

13

Phase 3: Delivering Value

Delivering Value



Is It Still Worth It?

• Are we getting what was expected?

• Have our priorities changed?

• Are we growing together or apart?


value received.

14



value received.

Having Value


another company?

Communicating Value



partnership?

Delivering Value



Today’s Focus

1 2 3

15

Inside the Big Company Mind

16

The Communicating Value Stage

The Individual Mind

• Gateway to the organization• Ideas are filtered

through personal motivations

The Organizational Mind

•Gateway to the value•Ideas are filtered through structure, culture, and processes

Value Received

Value Perceived

17

Structure Culture Process+ +

How is the company

organized?

Who do you need to talk about a partnership?

How are decisions made?

Who has the power to say “yes”?

What are the steps to securing

a deal?

What hurdles may get in the way?

The Value Perceived: The Organizational Mind


18


The Organizational Mind: Structure

The structure of a company determines who you need to reach and is different in every company.

• Where will your value resonate?• Does your partnership fall neatly into one business

unit/division/team, or across multiple groups?• Who would benefit most from the value your partnership can

provide?• Who evaluates partnerships?

• Does one team oversee BD for an entire company or division, or are the responsibilities fragmented?

• How flat or fat?• The more layers of management, the slower and more

bureaucratic the organization is likely to be.• How many people need to weigh in on your partnership?

19


The Organizational Mind: Culture

A company’s culture determines how opportunities are evaluated and decisions are made.

• How are decisions made?• Do individual managers have authority to make decisions

autonomously, or are they made “by committee”?

• How do they view innovation and risks?• Does the company pursue iterative “test & learn” initiatives

or do they only commit to large-scale opportunities?• How many public partnerships can you name?

• What are the office politics?• Do you have sponsors/advocates with enough clout and

influence to sell-in a partnership idea as needed?• Who has a personal motivation to advocate for the deal?

20


The Organizational Mind: Process

The processes to evaluate and approve working you can help or harm your deal.

• Who else needs to approve?• Are there other individuals or groups that must weigh-in?• Review panels, CEO/CFO/Board of Directors, other

stakeholder teams, Privacy, Compliance, PR, etc.?

• Is the timing right?• Does the opportunity fit into the budget cycle?• Is it within their priorities/goals for the quarter/year?• Do they have sufficient resources to pursue the opportunity

now?• Are they in “hunting” mode or “barn-building” mode?

• Can they execute?• Are there constraints/requirements that would make it

difficult to execute?• How long will it take to bring an opportunity to market – is it

worth the time?

21


How to Read the Organizational Mind

• Ask the Internet• Press: key divisions, initiatives, and “who’s who” highlighted in the media• Company filings: 10-Ks breakdown business units, key initiatives, etc.• Second-hand research: “Best Places to Work” surveys, job boards• Guesstimate: structure and bureaucracy is often a function of size: number

of employees, departments, initiatives, etc.• Ask your network

• Informational interviews: get in the door not to pitch, but to learn.• Paved paths: Other partners, vendors, service providers of the company• Get out there: Events, tradeshows, conferences in the industry

• Build an Advocate• Advocates: people who champion the prospect of your partnership• They are resources: can help you navigate an organization’s structure,

process, and culture

22


Self-Actualization:• Personal growth• Believe in the value to company/customers/economy

Esteem• Build a personal brand• Being seen as an innovator

Love/Belonging• Networking across the company• Recognition and promotion

Safety• Status quo vs. taking risks• Effort required

Physiological• Goals / targets• In the job description

The Individual Mind: The Psychology of Motivation

To build an advocate, you must appeal to an individual’s personal motivations.

Maslow’s Hierarchy of Needs

23


The Individual Mind: Types of Advocates

Org

an

izati

on

al R

ele

van

ce

Personal Motivation

Hig

h

HighLow

Decision Maker Influencer

NavigatorEvaluator

Low

Navigators have no direct influence over a decision but can

help shed light on how the Organizational Mind works within

a given company.

Influencers are stakeholders whose perspective can inform the

direction of strategic decisions.

Decision Makers have sufficient authority, role definition, and

organizational clout to make the final call on decisions.

Decision Makers have the sufficient authority, role definition, and organizational clout to make

the final call on decisions.

24

Hit my goals and make my bonus

Resume builder

Promotion opportunity

Value to the organization

Opportunity A

Fear of risk-taking

Belief in the idea

Value to the organization

Opportunity BMotivation

Demotivation

Interest Threshold

Level of

Moti

vati

on

Individual Value + Organizational Value


25


Introducing: PowerStack Systems• PowerStack is an early-stage startup that

produces and sells mobile phone charging station kiosks.

• These kiosks provide customers with a secure locker into which they place their phone to charge while on-the-go.

• PowerStack’s kiosks have been a popular addition to New York’s bars and restaurants, providing customers with a convenience and venue owners with a new revenue stream (PowerStack pays 30% of the kiosk’s earnings to venues).

• Given the potential for scale, the CEO of PowerStack now believes the time is ripe to sell their kiosks into quick-service restaurants (QSRs) such as McDonald’s, Burger King, and Wendy’s.

• PowerStack has no relationships in the quick-service restaurant, but payment processing POS market leader FoodPoint is a viable prospective partner.

We are PowerStack’s Business Development division and this is our first day on the job.

What do we do?

26

Step 1: Find a Contact • Explore the organizational structure

• Who plays a relevant role within the organizational structure?

• Look for signals of interest• Whose job title may suggest a relevance to the value you have to

offer?• Who has put out public signals that they could be interested in

working with companies like yours (blogs, Twitter, speaking engagements, attendance at events, etc.)?

• Who has signaled interest in the value you can offer (Job title, blog, etc.)

• Find potential advocates• Your burden of proof of the value you offer may be higher for

Decision Makers or Evaluators than Navigators or Influencers

The Communicating Value Stage – Step 1

PowerStack – Find a Contact• Tweet from FoodPoint VP of Manufacturing:

“Interesting stuff. RT @FastCompany POS system makers evolve their defenses in the age of Square. http://www.fastcodesign.com/3044522/pos-systems-makers...”

27

Step 2: Craft a Value Hypothesis• What is your Value Hypothesis for your partner?

• Value Hypothesis = a testable assumption of the value offered to another party

• Outreach to targets as an experiment, not haphazard “pitch-and-pray”

• Consider the Organizational Value and Individual Motivations• Does this opportunity mesh with the company/division/team’s

strategy? • Why is it worth their time and energy to take a meeting?• Why might the person you’re speaking with get personally

engaged?


PowerStack – Craft a Value Hypothesis• What we know about FoodPoint VP of Manufacturing:

• Interested in direction of innovative, mobile technology (e.g., Square)

• Title suggests clout but role suggests more likely to be a Navigator, not Decision Maker for distribution partnerships

• What we know about FoodPoint• Article speaks to need for new revenue streams across industry.

• Our Value Hypothesis:• A distribution partnership to enable FoodPoint to cross-sell QSRs on

PowerStack kiosks would provide significant Economic Value and Option Value for the leader of an industry facing uncertainty and change.

28

Step 3: Get a Meeting

• Warm vs. Cold Intros – warm intro can help engender a response, but you still need to offer value to get in the door.

• Keep your message concise – 4-5 sentences that clearly communicates your Value Hypothesis and why it’d be worthwhile to take a meeting.

• Know your audience – if you know your first contact is not the Decision Maker, ask them to be a Navigator or Influencer.


PowerStack – Get a MeetingHi Sally,

I was hoping you could help me connect with someone on the FoodPoint team responsible for sales and/or strategic partnerships. PowerStack is exploring opportunities to offer our mobile charging kiosks into the QSR industry and believe there may be opportunities for collaboration. We believe offering PowerStack kiosks to FoodPoint customers opens up a new $6.4M revenue opportunity from existing customers while also providing an improved offering to attract new types of customers.

Would you be able to help connect me with the right person? Alternatively, happy to chat further next week.

29


Step 4: Negotiate the Deal• Validate your Value Hypothesis – initiate the conversation with your

Value Hypothesis to demonstrate the potential opportunity but allow ideas to evolve out of the conversation.

• Raise the interest level – your goal is not to close the deal upon first contact. Your goal is to raise the level of interest with each meeting.

• Align on a high-level deal structure first–you won’t get agreement on specific deal terms until you’ve first aligned on the broader concepts.

• Have a position on key terms –remember the value that you need from the Having Value stage when agreeing to concessions.PowerStack – Interest-Building Meetings

•Value Hypothesis: Enabling FoodPoint to cross-sell QSRs on PowerStack kiosks would provide significant Economic Value and Option Value.•High-Level Deal Structure: FoodPoint’s sales team would sell PowerStack kiosks to QSR customers in exchange for a revenue share.•Having Value Stage Assumptions:

• Economic Value: 30% revenue share (on $6.4M/year revenue)•Option Value: Opportunity to learn about the QSR market.• Brand Value: Establish a reputation within the fast food restaurant market.

30

Key Deal Terms

• Revenue Share: How the any revenue produced from the deal is allocated. • There are many ways to structure revenue shares:

• Percentage splits: e.g., 70%/30%• Fixed bounties: e.g., $25 per newly acquired customer• Tiered splits: e.g., 50% of revenue for the first 1000 units, 60%

for 1000-2000 units, etc.• Performance-based triggers: 50/50 split, plus $100K bonus if

1000 sales are made within 6 months

• Costs: How costs are allocated for implementing, maintaining, and growing the deal. • Clearly articulating how costs will be split avoids confusion and

disagreement down the line.• Costs to discuss can include: operational costs, new product

development costs, marketing expenses, legal fees, etc.


31

Key Deal Terms (continued)

• Exclusivity: Determines whether one or both partners are allowed to enter into similar arrangements with other partners.

• Provides competitive advantage for some time but can limit a partner’s interest in expanding upon an opportunity (“a marketplace with one seller”)

• Term Length: Length of the contract term, which often determines not only how long the partnership will remain active, but can also affect how long other elements of the agreement remain in place (such as exclusivity).

• Shorter term length provides more flexibility to a partner to explore alternative options (Build, Buy, or other Partners) at the end of the term.

• Longer term length requires a stronger case to be made for the value that will be returned over that term.


32


• Termination - Determines how a contract can be ended.• Either naturally (when a term ends and the contract is not

renewed), or prematurely (when a partner wants to cancel the partnership)

• Some partnership agreements allow early termination without cause, others for a very specific set of circumstances (and a termination outside of those circumstances may be cause for financial penalties to be paid to the other partner).

• Right of First Refusal – Provides early access to a new opportunity, such as a new product line, before providing access to other partners.

• Branding – Considerations around whether and how a company’s branding, logos, and trademarks are used.

• Can determine whether or not a press release can be made, how promotional materials will be created, and whether logos and brands can be used on a partner’s marketing collateral.

• Can have a major impact on the Brand Value created from a partnership


33


• Investment – some partnership “operating agreements” are associated with strategic investments. • Investments from corporate venture arms can provide access to the

company resources, but can also constrain future investment/partnerships (e.g., conflict of interest).

• Operating agreements tied to investments may enable the investment recipient to offer better terms on the operating agreement, such as a more favorable revenue share.

• Operational Details – additional terms that detail how a partnership will be launched and supported• Even after a deal is signed, many partnerships require a continued

investment in resources such as product development or marketing.• Defining how marketing plans, product refreshes, sales force

training, and customer servicing will be handled by each partner allows for upfront agreement to avoid misunderstandings once in market.


34

Begin with your Value Hypothesis

There needs to be interest on both sides before you

can get into details

Win-Win Now or Lose-Lose

LaterYou can close a bad deal but you can’t keep one

alive if it doesn’t deliver on the

promise.

Don’t Negotiate Emotions

It’s very easy to take things

personally, but best to focus on the end solution.

Understand value needs

to create options

Create new paths around

roadblocks

Root out causes for objections

Explore why an objection is

raised – are they for organizational

or individual reasons?

Concede according to

a planKnow what you’re

giving up, and trade items of low value for items of

high value

Small wins breed big

winsGetting a smaller

deal through to closure can be easier than a

large deal, and helps you get the

next one.

Set the anchors

“Never set the first price” is bad

advice. Frame the negotiation with

(realistic) boundaries.

How to Negotiating for Value

35

You and your best friend walk into a bakery to buy a

blueberry pie.

There is only one blueberry pie left in the bakery and you both want it.

Negotiate for the pie.

Negotiations Warm-Up Drill

36


Step 5: Close the Deal

• Get other stakeholders involved – aim to get other stakeholders – executives with veto power, bureaucratic review boards, other teams who will support the deal (e.g., sales, product, marketing, customer service, etc.) – involved as early as possible.

• Timelines vary – don’t expect a signed contract overnight. Deals can take weeks, months, or years depending on the companies involved, the complexity of the terms, time of year, will and competence of the employees, etc.

• Narrow the focus – if delays arise, a narrowly-defined deal may be better than no deal at all. Similarly, pilot agreements may get organizational support faster before “full” launches.

• Draft a terms sheet – consolidate the terms into a single “terms sheet” that articulates the primary points of the deal.Know when to fold ‘em – the more alternatives you have available to you, the more strength you have in your negotiation since you can always walk away from the deal.PowerStack – Close the Deal

• You decide how the story ends in Biz Dev: The Game

37

Biz Dev: The Game

Here’s how it works

• Two teams, each representing a different company• Each team gets10 minutes to prepare for the first Partner

Meeting.• Each Partner Meeting lasts 5 minutes. • After each meeting, each teams gets a 5 minutes Internal Strategy Session to debrief and plan for the next meeting.• Teams will continue to meet until a deal is signed, the negotiations fall apart, or time runs out.

Your mission: Get a signed Letter of Intent outlining the terms of a

partnership deal.

38

Biz Dev: The Game – Letter of Intent

This letter confirms your and our mutual intentions with respect to the potential transaction described herein between ___________ (“Company X”) and _______________ (“Company Y”). This document, in and of itself, does not represent an enforceable legal contract.

Description of the Partnership• E.g., Company X and Company Y are entering into product partnership

whereby Company X will create a new develop a new product utilizing Company Y’s proprietary technology.

Key Terms:• E.g., Company Y will provide Company X with exclusive distribution rights to

the product for 2 years. Company X will receive 30% of the revenue generated on every sale of the product.

ACCEPTED AND AGREED

Company X Company Y By: By: Title: Title:

39

Contact Info

Thanks for coming!

[email protected]@slpollack

http://www.startofthedeal.com

http://www.startofthedeal.com/

Presentation to Startup Institute - David + Goliath

Documents

Transcript of Presentation to Startup Institute - David + Goliath