Questions

How should an early stage startup approach a potential product integration with a larger established company so as not to loose control?

We've developed a very specific IoT solution for improving rooftop solar electricity and battery storage. An opportunity is emerging to partner with an experience industrial ERP and big data analytics solutions provider. The ERP people have a track record in a manufacturing but want to shift into energy utilities. The partnership would allow me to integrate with their systems and offer a complete solution to utilities. For them, I enhance their offering to utilities by opening up the solar sector customers and fast tracking access to solar data which will enable a jump start on competitors who are waiting for smart energy meter rollouts. They are 60 people with a $35million turnover ... we're an early stage startup of 3 people with a big idea and a lot of unrealised (and unproven) potential ... however you look at it its a great opportunity. What are the key factors I need to consider in taking this arrangement forward? How do I structure this partnership so as not to loose control? What's realistic ... should I chase investment, buy-out, merger, cross-licensing ... mix of these? Thanks in advance ... any considered feedback is most welcome.

2answers

Congratulations on the opportunity...! I've seen situations like this from the other side, working for a big ERP vendor.

To try to answer your questions out of order:
How to structure? Based on the info provided, the simplest thing would actually be no specific arrangement at all. Lots of ERP add-ons are sold to ERP customers without being "contracted" by the vendor. However, if they want to work with you directly then a contract (not a joint venture or anything else) is the best place to start.

A contract ensures all factors are on the table such as your investment to provide the integrated product, and so on. Is the arrangement month-to-month or for several years? Is there any guaranteed volume, or is it just "best efforts". And so on.

What's realistic? Again, for two companies that don't really know each other and with a size differential, you're unlikely to get anything you'll like other than a contract. The exception is if they see you as extremely strategic to their future, in which case you might swing an acquisition -- if you actually want to lose control in exchange for equity in their company.

What key factors? It's hard to say without knowing more. I'd say stick to a simple contract unless an outright acquisition is likely. Make sure you don't put too much in up front without a reasonable guarantee of return; a bigger company can easily change direction six months from now and leave you hanging. As soon as you have one customer in common, you'll be stuck to this other company for years, so play fair! If they are not good partners, consider walking away. ERP has a very long lifespan.

I'm not sure what you feel you might lose control over (you think they might copy your product?) but if you negotiate a reasonable contract, you shouldn't have too much exposure.

Hopefully this is useful; there are a lot of issues that will be specific to your exact situation.


Answered 6 years ago

Speaking from my experience, which includes helping companies avoid blind spots in acquisitions and integrations, you need to have a solid gap analysis performed on the operational and cultural aspects on the two products and companies. This will identify places where things will grind to a halt because the companies function completely differently.

If you would like to set up a time to talk more about doing a gap analysis or where to find the tools, contact me through Clarity.

Best of luck!

Ken Clark
Coach, consultant and therapist to entrepreneurs


Answered 6 years ago

Unlock Startups Unlimited

Access 20,000+ Startup Experts, 650+ masterclass videos, 1,000+ in-depth guides, and all the software tools you need to launch and grow quickly.

Already a member? Sign in

Copyright © 2021 Startups.com LLC. All rights reserved.