TRC 021: Partnerships. Are they worth the effort?

Read time: 5 Mins

We often get asked by early stage startup founders to help them work out whether they should go ahead with a potential partnership.

Partnerships can be a genuine driver for growth, but they can also be a HUGE time sink.

So, how should founders think about partnerships?

Here’s our 2 cents.

First of all - what are partnerships?

They are collaborative relationships formed between your startup and 3rd parties.

They typically have the following characteristics:

1. Mutual Benefit: Partnerships are ideally built on the premise that both parties benefit from the collaboration. Each partner contributes resources, expertise, or market access in exchange for shared success.
2. Strategic Alignment: Partnerships are often strategically aligned with your startup's goals. They can provide access to new markets, technologies, or distribution channels that you might not be able to access independently.
3. Medium-Long term Collaboration: Partnerships are typically longer-term commitments. They require ongoing communication, cooperation, and adaptation to ensure both parties continue to derive value from the relationship.
4. Shared Risk and Reward: Partnerships involve sharing both the risks and rewards of the collaboration. This means that the success or failure of the partnership affects all involved parties.

The ‘Pros’

1. Shared Resources: Partnering can mean access to complementary resources, whether that's technical expertise, market access, or financial support. You bring your strengths to the table, and your partner reciprocates.
2. Expanded Reach: With the right partner, you can tap into their existing audience, thus extending your brand's visibility and credibility without the painstaking groundwork.
3. Risk Sharing: Whether you're entering a new market or developing a new product, partnering can spread the associated risks.
4. Learning & Growth: Collaborating exposes you to new perspectives, best practices, and business models.
5. Speed to Market: The combined effort can mean faster product launches, quick market entries, and rapid scalability.

The ‘Cons’

1. Opportunity Cost: The most significant partnerships often require significant time investments. If they don’t align with your primary objectives, they can sidetrack your venture. Be especially careful of those that require significant technology resource where the upside is uncertain.
2. Revenue Sharing: More hands in the pot means splitting revenues. Ensure that the partnership increases the pie enough to justify the shared slices.
3. Loss of Control: It’s easier if you both see it as a brief test and learn before making a commitment on clear results.  But tread carefully where there is a strict legal basis to the partnership. Especially one with penalties attached. You could be committing your time and resources to something that only has downside.
4. Dependency: Relying too heavily on a partner can put you in a vulnerable position if they pivot, underperform, or exit the partnership.

So, what can you do to better understand the risks before making a commitment.

Here is a set of questions that’s it’s good to ask:

The first thing is to understand potential upside - is the juice worth the squeeze. Work the numbers.

• Are they paying you for your time or technology regardless of results?
• If they are promising traffic, visitors, customers, what can they point to that will give you confidence they can do it again?
• If success is dependant on driving traffic, ask what the sources will be and work these back to standard click and conversion rates?

It’s also good to understand how important this is to them

• Do you understand where this sits in their overall priorities?
• Are you dealing with decision makers? If not, you risk putting in effort whilst the priorities at the partner end chang.e
• What resources are they committing to the partnership?

Then you need to understand the cost to you.

• How much resource will this take from existing priorities?
• Outside of time, what are the other financial commitments you will need to make to deliver the partnership?
• What is the potential impact on existing objectives particularly those you have committed to customers and investors?

While partnerships offer potential upside for startups, they can also lead to large opportunity costs.

More than anything, have some basis for working out the upside vs the costs (without your rose tinted spectacles on).

Partnerships always need careful, clear eyed planning and communication.

It’s OK, to get excited when it seems exciting, but not without having a sound basis for calculating the ROI.

Allocate your resource carefully.

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