In the race for recognition and accelerated growth, many startup founders see large companies as a "lifeline". However, reality is not quite like that: closing a partnership with a large company can help a startup gain scale, but it can also harm your development and innovation and, in the most extreme cases, even end your business.
A striking example of a startup that, when associating with large companies, ended up going bankrupt, it's the case of Quibi. Released in April 2020, Quibi was a streaming service that aimed to provide short-form video content, ideal for use on mobile devices. The platform received a significant investment of around 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 release, Quibi announced that it was shutting down its operations. The combination of high investment, unbalanced partnerships and lack of market adaptation led the startup to failure, despite the support of important organizations. Therefore, there are moments and appropriate ways to seek these partnerships, what, if not properly managed, they can be detrimental to startups.
The right time to seek partnerships
It is crucial to consider the right moment to seek a partnership with established companies. Most of the time, the later, better. Very young startups still do not have a product that fits the market, and having a large corporation behind it can solve problems, but it can also suffocate 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 clients, endorsing and distributing products. However, there are exceptions for startups that require large capital, like hardware, where an initial partnership can be beneficial.
A real example of this successful dynamic is Slack, a business 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 has decided to implement Slack as the main internal communication platform for all its 350,000 employees worldwide. This movement 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 offers
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 create cash flow problems for startups, besides creating an unbalanced relationship.
Remember what happened to Homejoy, a startup launched in 2010 that quickly grew by offering residential cleaning services with good discounts and, in many cases, free services to attract new customers. The company raised $38 million in venture capital investments and expanded its operations to several cities in the United States.
This initial strategy helped the company quickly increase its customer base, but also created a series of problems. By offering free services or with considerable discounts, Homejoy struggled to generate enough revenue to cover its operating costs. This led to a rapid depletion of their financial resources.
Furthermore, 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 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 release, Homejoy announced that it was shutting down its operations. The organization cited financial challenges and legal actions related to classifying its workers as independent contractors instead of employees as reasons for the closure.
Defending the value of the product
At the beginning of the 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 they are creating and the quality of their services. If the company wants to establish a partnership, she needs to pay the fair price for the service.
The Foursquare, released in 2009, quickly became popular for allowing users to check in at different locations and share their activities with friends. A startup caught the attention of large organizations that wanted to use their location data to target marketing campaigns and improve their business strategies.
At the beginning, renowned companies tried to use Foursquare's data and services for free, in the hope of exploring the new technology at no cost. However, the founders, Dennis Crowley and Naveen Selvadurai, they 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. When defending the value of your service, Foursquare not only secured a sustainable source of revenue, but also solidified its position in the market 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 "nice guy" who wants to help your startup grow just because he loves doing good. They have goals and interests and are seeking a business partnership that is beneficial for them. In this way, don't fall for illusions; adopt a strategic and conscious approach, so that these partnerships can boost the growth and success of both parties.
