I was reading obits for Tom Petty who died this week and came across a great quote from Tom: It’s easier to form a band than keep it together. Having worked with dozens of bands as a sound engineer in my 20’s ,I saw a thin slice of band life, basically how bands get along during their sound checks. Aerosmith, for example, were incredibly professional. They were extremely particular about their drum sound. In live sound reinforcement the hardest instruments to mike up are acoustic: drums, acoustic guitars and the human voice. Steve Tyler, the lead singer was a former drummer so he would sit in the drum chair while Joey Kramer, Aerosmith’s drummer supervised the sound mix. Then Joey would take over the drums and Steve would listen and perhaps ask for some slight adjustments. Only when they were both satisfied did the full band start their sound check. Other bands, whose names have been omitted to product the guilty, spent their time bickering over set lists, the relative loudness of their instruments, and how the stage should be setup.
So what does this all have to do with founders? Well first of all, musicians who form bands are founders! And they are certainly entrepreneurs as well. And like all talented people they have outsize skills and personalities to match. So much of what I learned about dealing with big egos in the music business helped me with big egos in the high tech world.
I often see startups racing to set up partnerships without thinking through the key strategic and tactical issues involved in partnering. So here’s a few principles to keep in mind.
- It’s not a real partnership if money doesn’t change hands. In my first startup I tried hard to get IBM as a strategic partner, as at that time they dominated the personal computer market. But all I managed to get done was to have an IBM executive write the forward to one of our texts on how to use a spreadsheet in business. If your partnership is just about co-marketing and not helping the partners actually make money it’s unlikely your “partnership” will last too long or help your venture succeed. The pressure to generate revenue for both startups and establish companies is too strong.
- Startups can’t help startups. There’s no doubt that incubators and accelerators like Y-Combinator and TechStars have proven that their networks of successful startups can help each other. But if you aren’t a member of one of these powerful keiretsu then it’s unlikely your fellow startup venture can help you make money. Why? Because they are too busy trying to stay afloat themselves. And partnering with another startup can end up being a major distraction for both parties. So while all rules have exceptions, focus on established companies that have capital to spend and credibility to share.
- Have a company champion. The bigger your partner the more you need a single individual as contact point. But more importantly that single individual needs to believe in your company and be personally motivated to help you succeed. At Course Technology, an educational technology publishing company, we found that the directors of educational marketing at companies like Lotus Development were are obvious product champions. The champions will help you navigate the organization, get in front of decision makers, and get corporate attention – all very hard to do on your own.
- Figure out what’s in it for them. This is my basic rule of all business relationships, it’s not just applicable to partnerships. But without understanding what benefits will accrue to your partner you won’t be able to craft a mutually beneficial relationship. We always created partner presentations that closed with two slides: Financial Benefits and Strategic Benefits. The former is obvious, how we would help the partner generate more revenue. But strategic benefits may be more important for a big company. Your efforts may hardly move their revenue dial, but if they can learn something that they don’t know that they need to know that can be very valuable to them. For example, if you are a company that is using AI to improve some aspect of finance you may be an attractive partner for banks, private equity, and other financial players who may lack any in-house AI expertise, but who realize this is the hot trend today and you can help them get up to speed.
- Set measurable goals. You need to have a written document that sets up what each party will be responsible for – who does what, when – and most importantly, how results will be measured. It is critical to manage expectations and the best way to do that is to agree on goals and metrics from the get go.
- Communicate early and often – in writing. There are so many great communications tools today that there is no excuse for miscommunications. But if you have a meeting or phone call with a partner, make sure you follow up immediately with a written summary that includes todo’s for both parties. It’s far too easy to get into “I thought you said… but I thought you said!” type disagreements if you don’t document what you might consider casual conversations. There’s no such thing when it comes to partnering.
- Keep Tom Petty in mind. The hard work in a partnership is sustaining it. If you don’t have the resources to keep up a partnership you are better off not entering into it. Partnerships take time and effort to provide fruit. Often big companies move much more slowly than startups. So you need to be patient, but persistent. Don’t over run your headlights. And make sure you are responsive to their needs.
- Date before you marry. Partnering can be a great path to being acquired, as it gives you a opportunity for a test drive. The most important factor in making an acquisition successful is corporate culture and a partnering test drive will enable you to learn if your partner’s corporate culture is compatible with your’s. Likewise it gives the potential acquirer the time to truly understand your value and how your venture will fit in to their culture successfully.
Last night I watched the two-part series on Netflix, History of the Eagles. It’s a great documentary that will show you just how hard it is to keep a band together. And there are lessons to be learned about how to keep your startup together, as well as how to keep a partnership together. Even if you are not a fan of their music it is still worth watching to see two powerful founder/entrepreneurs in action.