In the race for recognition and accelerated growth, many startup founders see large companies as a “ LIFESaving board. However, the reality is not quite like this: closing a partnership with a large company can help a startup gain scale, but it can also hinder its development and innovation and, in the most extreme cases, even end its business.
A striking example of a startup that, by partnering with large companies, ended up failing, is the case of Quibi. Launched in April 2020, Quibi was a streaming service that aimed to offer short-form video content, ideal for consumption on mobile devices. The platform received a significant investment of about US$ 1.75 billion and established partnerships with major Hollywood studios for the production of exclusive content.
However, in October 2020, just six months after its launch, Quibi announced that it was closing its operations.The combination of high investment, unbalanced partnerships and lack of adaptation to the market led the startup to failure, despite the support of important organizations. Therefore, there are appropriate times and ways to seek these partnerships, which, if not well managed, can be harmful to startups.
The right time to seek partnerships
It is crucial to consider the right time to seek a partnership with consolidated companies. Most of the time, the later, the better. Very young startups still do not have a market-adjusted product (market fit), and having a large corporation behind it can solve problems, but it can also stifle the company if the attitude is not appropriate.
For startups that already have a validated product in the market, the partnership with large organizations can start at another level. Large companies can bring significant value by becoming customers, endorsing and distributing products. However, there are exceptions for startups that require large capital, such as hardware, where an initial partnership can be beneficial.
A real example of this successful dynamic is Slack, an enterprise communication platform that has become one of the most popular tools for collaboration in the workplace.In 2020, Slack announced a significant partnership with IBM, one of the largest technology companies in the world. IBM decided to implement Slack as the main internal communication platform for all its 350 thousand employees worldwide.This move not only validated the effectiveness and usefulness of Slack's product, but also solidified its position in the market as an essential tool for large corporations.
Avoiding free service offerings
A common mistake is offering free services for long periods.If a solution solves a real problem and is worth the investment of time and resources, it is important that the service is paid. Testing the solution for two or three months is reasonable, but offering free services for longer can generate cash problems for startups, in addition to creating an unbalanced relationship.
Remember what happened to Homejoy, a startup launched in 2010 that quickly grew by offering residential cleaning services at good discounts and, in many cases, free services to attract new customers.The company managed to raise US$ 38 million in venture capital investments and expanded its operations to several cities in the United States.
This initial strategy helped the company to quickly grow its customer base, but it also created a number of problems.By offering free or considerably discounted services, Homejoy struggled to generate enough revenue to cover its operating costs.
In addition, customers have become accustomed to paying little for services, making it difficult for Homejoy to adjust prices to a sustainable level without losing a significant part of its user base.The low-price strategy has created an unbalanced relationship where customers expected high-quality services at very low prices, putting additional pressure on employees and affecting the quality of service.
In July 2015, just five years after its launch, Homejoy announced it was shutting down its operations.The organization cited financial challenges and legal action related to classifying its workers as independent contractors rather than employees as reasons for the closure.
Defending the value of the product
At the beginning of partnerships, it is essential that startups defend the value of their products. When someone wants to use the service for free, the entrepreneur must stand up and defend the value he is creating and the quality of his services. If the company wants to establish a partnership, it needs to pay the fair value for the service.
Foursquare, launched in 2009, quickly became popular for allowing users to check in at different locations and share their activities with friends.The startup caught the attention of large organizations that wanted to use their location data to target marketing campaigns and improve their business strategies.
At first, renowned companies tried to use Foursquare's data and services for free, hoping to exploit the new technology at no cost. However, the founders, Dennis Crowley and Naveen Selvadurai, understood the importance of defending the value of their product. They insisted that companies pay for access to data and services, highlighting the quality and exclusivity of the information that Foursquare offered.
This firm stance helped Foursquare establish profitable partnerships with large organizations like Starbucks and Microsoft.By championing the value of its service, Foursquare not only ensured a sustainable source of revenue, but also solidified its market position as a valuable tool for location-based marketing.
Therefore, partnerships between startups and large companies can be extremely beneficial when done at the right time and in a balanced way. But remember that these giants are not a good-looking” “lord who wants to help your startup grow just because they love doing good. They have goals and interests and are looking for a business partnership that is beneficial to them. In this way, do not fall into illusions; adopt a strategic and conscious approach, so that these partnerships can leverage the growth and success of both parties.
