By Chris Hsiang and Bob Upham
There are many reasons for startups to work with corporate partners/clients and in our experience asking the right questions early can save a startup a lot of time and resources.
Corporate clients or partners have the budget to provide substantial revenue for a startup and can provide the stamp of approval or channel to help the startup land more key clients. However, it’s well-known that the approval process can be complex and time-consuming. So we put together a few key questions that can provide a startup much-needed clarity when exploring a new business opportunity:
1. Who at the corporation will be using your solution and who needs to approve the purchase?
Many times the users of a solution in a corporation are not the same as the people that must approve the use of the solution and may even be different from the people that have the power to purchase the solution. Five types of actors that may be involved in the process (which may or may not be the same people) include the Initiator, the Influencer, the Decider, the Buyer, and the User. These gatekeepers must all be given substantial attention during the process.
2. Do you have materials that your corporate “champion” can easily share and use to convince who they need to convince?
Many times a startup’s sales process to a corporate client or partner will not be direct. A startup needs a “champion” in the corporation that it is targeting and the champion will often not be sole or final decision maker. The champion needs to be your evangelist and act on your behalf when you can’t be in the room with the other decision-makers. But you can equip them with the right info and supporting materials. Don’t miss the opportunity to ask the champion the right questions about the internal dynamics (like the ones we have listed below) that will get you closer to a deal.
3. Do you understand the corporation’s current short-term and long-term product strategy?
Many resources at a corporation are working toward established (e.g., quarterly, annual) goals. It’s important to understand a company’s roadmap and when you may fit on that timeline. It can be difficult to get attention from your contacts when they are incentivized and guided by their company to focus elsewhere. It’s not unusual for a company to share this timeline with a potential development partner or supplier, so don’t be afraid to ask. Your champion can inform you about the corporation’s timeline or help influence product strategy in order to pick the right time to pitch your offering in front of key people. Their request to circle back the next quarter or in a few quarters may be a good sign they are incorporating you in their timeline though you still need to flush out whether they are truly interested in you by better understanding what factors impact their decision to work with you.
4. Will substantial development be needed for you to work with the corporate client/partner?
Will your product work as is, or will you need to make modifications at the request of the corporate client/partner? Will any customization only benefit the client/partner or will the modifications be incorporated permanently into your product? Will changes to your existing product roadmap negatively impact your development cycles and existing launch schedules? Sometimes founders make the mistake of thinking that once the basic terms of the deals are set, the details are for the legal team to figure out near the end of the deal. However, misaligned expectations about each party’s contribution or IP rights are the type of details that can really change the deal. If any co-development is required, get a more technical perspective of the collaboration and come to an agreement on the details before inking the deal.
5. What are relevant corporate policies, processes and legal requirements you should be aware of?
There are often burdensome legal, financial, insurance and policy requirements in a large company whether or not the company has had experience working with startups (though it can help if they are familiar with working with smaller companies). For example, large companies may have specific insurance requirements (which may be a costly expense for a young startup) or have additional criteria that vendors must meet. Bigger companies have the upper hand in negotiations and it’s also often difficult for them to change existing policies. Agreeing to the terms with the business teams and negotiating the contract gets you most of the way through the deal, but expect some additional processes or requirements for you to become a vendor or be added to the billing system.
6. Are you committed?
This seems like a given but, compared to a startup where you need to chase multiple leads and expect more failures than successes, one failed project in a corporate environment can seriously impact (even potentially end) a person’s career. Also, more often than not today, a corporation wants to know that you can support the product/solution that you provide them beyond the onboarding process. If your corporate champion gets the sense that you’re not committed, it will be difficult to move forward.
7. What is your bottom line for getting this deal done?
The circumstances surrounding a deal may impact what you think is your bottom line. When difficult decisions come up, like whether or not to give exclusive distribution or manufacturing rights, you have to decide whether what you’re getting is worth what you’re giving. Your attorney can help you understand the implications of a term or narrow down the scope of a bad term, but ultimately you have to decide how much you can give or take. Though you may make certain compromises to get specific strategic deals done or to get funding in a tight spot, note that these compromises could become precedence that you have to battle in later deals. Lastly, terms can differ from market to market so don’t underestimate the value of local professional advice (and second opinions) from trustworthy sources.
Do you have other suggestions of what to ask upfront when negotiating a deal with large corporations?
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