Oliver Segovia is the Chairman and CEO of AVA Online Group, an e-commerce company in the Philippines. He’s the author of Passion & Purpose, published by Harvard Business Review Press. Prior to founding a startup, Oliver was with Procter & Gamble and McKinsey.
In part 1 of this post, I talked about the importance of making strategic partnerships for startups. At AVA, an online retailer that I founded, building these partnerships helped us save up to US$250,000 in direct marketing expenses — a HUGE amount considering that our angel round was less than US$500,000.
While most of the content out there emphasize the analytical side of customer acquisition (most founders are engineers and “growth hackers” after all), founders need to also take a deeper look at strategic partnerships — deals with often bigger companies, influencers, and industry associations that create win-win solutions for both parties.
If growth hacking is more analytical, empirical and scientific, then strategic partnerships require a lot of networking, alliance-building, negotiating, and nurturing relationships — skill sets that don’t come natural to the average engineer. Here I’ll focus on strategic partnerships for marketing, sales, distribution and brand building purposes.
Here’s the second part of what we learned at AVA.
Extract the value story from your product. “We have a great product, with X features, so we should work together,” will be the typical pitch of a startup to a strategic partner. We get in so deep into our products that we forget how to look at things from a partner’s point of view. This will be different even among different teams in the same company. For instance, the marketing arm of a bank cares more about the number of new credit cards it can issue, while the product team could care more about usage and transaction volume. So before even asking for a intro, nail down what metrics the partner cares about. This is what most engineers fail to articulate. It takes a bit of effort to understand another business, simplify common tech jargon, and create specific plan on how your startup moves the needle on those metrics, but it’ll give you a leg up in negotiations.
Build a shared purpose to nurture a relationship. This May, we launched a partnership with Asian fashion icon Tweetie De Leon-Gonzalez. Tweetie’s been a supermodel, an actress, a brand ambassador, the host of Project Runway Philippines, designer and now an entrepreneur. And though many celebrities have branched out to have their own fashion labels and perfume brands, Tweetie is one of the few people who are incredibly involved in the design and product development process. She’s completely hands-on, down to the fabric selection, vendor sourcing, sampling and fitting. This partnership was built on a shared purpose — to bring the best design at affordable prices to the modern woman. For Tweetie, it was a great opportunity to see her designs come to life with the help of a professional product development team, and to reach more women via an online channel. Once you’re able to articulate what that shared purpose is, building a relationship becomes smoother.
Pre-empt nagging doubts and turf insecurities. Partners will usually have unspoken fears of working with startups. Is this guy out to cannibalize our business? Is he out to steal our customers? It’s important that this is addressed upfront, even if nobody asks the question. For instance, brick-and-mortar retailers will normally be wary of working with e-commerce startups for fear of cannibalization. In our partnership with Glorietta malls, we made sure our partners knew that despite the growth of e-commerce, online retail still accounts for less than 15 percent of retail sales in the US. These weren’t substitute channels, they were complementary. The fear of cannibalization is often unfounded, and when your prospective partner has this irrational fear, then they’re probably not smart enough to “get it”. So why work with them?
Manufacture competitive situations. When targeting an industry, you’ll often have multiple companies you can partner with. It helps to get into a competitive situation. When we first started, we wanted to work with one of the biggest card issuers, but got turned down many times. We then started working with two other competitor banks, and once the card issuer saw what we could do, they’ve been reaching out again to revive talks. Recognize that most middle managers are risk averse lemmings, who will just follow the rest of the herd. Once you get a rejection, move on, start something with another company, and loop back with the first company that rejected you. Often, they’ll feel bad for missing out on the deal and will be more psychologically ready to do something in the future.
Fight bureaucracy. Often, a decision maker will agree in principle to a strategic partnership and will pass on the execution to junior people. This is where execution risk can consume any value you’ve created from the deal. And when you’re working with middle managers who care more about their next promotion and the Christmas bonus, executing the deal will most likely be a far afterthought. To combat this, plan regular catch up meetings. Send consistent — but not annoying — follow up emails. Agree on milestones and next steps. You need to manage your expectations too and build buffers on your timeline, especially if it directly links to revenue and user targets. It takes a lot of persistence to fight the inertia of people working in a big company, but the rewards can be worth it.
This is part 1 of a 2-part feature. Click here for the introduction.