There is a lot to consider when an established business and a startup agree to work together. And it’s usually an exciting time. Both sides are generally interested in knowledge-sharing, having access to new resources, and of course getting a chance to explore new ideas. They also often include some uncertainty.
I recently had the pleasure of speaking at the semi-annual collaboration summit for the Canadian Digital Media Network (CDMN) – the network that links together all of Canada’s biggest startup incubators.
Here are the eight tips I shared at the CDMN on the approach Thomson Reuters takes to make partnerships with startups mutually beneficial:
Protect the startup
Corporations don’t mean to trample startups, they just do. The sheer size of an enterprise, both as a customer and as a partner, can easily overwhelm an early stage company. We do our best to put ourselves in the mindset of the entrepreneur and avoid adding any undue risk to the already risky business of entrepreneurship.
Yes or no, not maybe
When a startup approaches us with a partnership opportunity, an ask for a data license, or even just for a product sale, we do our best to give the startup clear, actionable direction. Yes or no allows them to make progress, while maybe keeps them in limbo. Startups tend to see the world through rose-colored glasses – “maybe” sounds a lot like yes and they’ll continue to chase something that may never be there.
No free lunches; pay the startup
If we’re asking the startup to do work for us, be it in a proof-of-concept or market validation, we try to be mindful that we’re consuming valuable time and resources from that startup – a company that is running lean and might not yet be profitable. If they’re working for us, we pay them for it.
Want equity? Invest just like everyone else
Equity is the one thing a startup must guard desperately if they have ambitions of making it big. Trading equity for sales, data, or other services is very challenging, let alone the disputes that can arise over valuation and due diligence. The preferred path to equity is to participate in a financing round for the startup. That being said, requesting a 5 or 10% coupon on the valuation of a future investment round in exchange for data or services is fair game.
Look for the win-win-win
Ideally we’re able to land partnerships with startups that are good for the startup (aligned with their product roadmap and strategic direction), good for Thomson Reuters (aligned with our customer base, product portfolio, or technology strategy), and good for our mutual customers (the solution should be more valuable with the startup and Thomson Reuters together than apart).
Traction is the crystal ball
It’s near impossible to predict which startups will be the winners and which will be the losers. It’s not our place to guess at success, or make assertions about good idea/bad idea – the market dictates success. We look for startups that are getting traction with customers – upward sales trajectory/market adoption is the best indicator of success.
KYS: Know your startup
To assess whether or not a startup is ready for scale and ready to engage with big enterprise, look to the size of the investment to date (min: startup should be nearing series A), the size of the team (do they have enough people to execute against a big opportunity?), try to estimate the burn rate (if the company is not profitable, how much are they losing per month?), the strength of the team (do the founders have a proven track record for execution?), and of course whether or not both the product itself and support teams can handle the load.
Be a good customer/good partner
Beyond providing the startup with an opportunity, there are ways of being operationally friendly to a startup. Procurement, IT review, and contracts are the big three: short invoicing and payment cycles, realistic hosting/security/support/privacy policies, and simple, straightforward contracts. In short, the procedures and contracts that we designed for vendors/partners like Microsoft are not necessarily the same procedures and contracts that are best suited to a startup.