Researching Potential Partners
Market Research
December 2006 / January 2007
Volume 4 Number 6
Few entrepreneurs have the resources to go it alone. There is usually at least one area in which a startup company will need assistance. But how does an entrepreneur go about choosing a partner? Market research and planning can help.
First, the entrepreneur must determine the function for which assistance is needed. This, of course, will differ for each new startup company. Sometimes to getting a new product to market will require a partner if the distributors in a particular field limit the companies they represent. Sometimes a piece of technology is needed to round out a product, and it may be easier and quicker to market if a start-up partners with another company for it. Sometimes a partner is needed for clinical trials to gain knowledge of and speed up FDA approval.
Second, the entrepreneur must start looking into the names of actual potential partners. One of the best places to start sourcing names is industry associations. There are often different categories of memberships for the different roles played in an industry. For example, an association may have manufacturers, suppliers, and integrators as categories. If there are no pre-defined categories, it will be necessary to look at companies' websites to determine what they do. To find industry associations, you can check out www.asaecenter.org/Directories/AssociationSearch.cfm or simply search the internet. You can also go to almost any library to look at the Encyclopedia of Associations. Libraries often have specific industry directories as well. The directories and industry associations are likely to identify both large, public companies as well as small, private companies.
Third, and this is the hardest part, the entrepreneur must look into each potential partner candidate to determine the suitability as a partner. Multiple items should be researched, including finances and company size; industry position and reputation; values; methods of marketing and selling; capabilities; and other partners the company has.
Starting with finances and company size, the entrepreneur might begin with looking up financials for public companies at www.sec.gov/edgar.shtml.
Companies' 10-K reports provide much more detailed information than annual reports on finances, the overall market, competitors and any lawsuits in which the company is involved.
Industry position and reputation are a bit harder to decipher, outside of the actual market share. Lawsuits mentioned in 10-K reports should be investigated to try to find out the root cause. Press releases from the company, its partners, or other industry players may shed some light on reputation. Industry trade shows often have company executives, suppliers and customers in attendance; some may be willing to talk with entrepreneurs. Knowing industry trends will enable the entrepreneur to ask the right questions to determine if potential partners will retain or increase their industry positions in light of changes in the industry.
Potential partners' values are critical. Innovation, customer orientation and working for the good of the industry are examples of values important to some startup companies. If the entrepreneur is seeking a partner to fill in technology gaps, any potential partners should be innovators. If they are, the level of R&D spending will likely be emphasized in 10-K reports. Industry awards or press releases might indicate that a company is customer-oriented. If a company is active in trade association committees, it is probably interested in growing the industry.
Marketing, selling and manufacturing are areas in which most entrepreneurs have no experience. Potential partners should market to the startup's target customers and should have a sales force organized to reach those customers. They may even have product line gaps that can be filled with the entrepreneur's product. Manufacturing capacities and capabilities are also important in potential partners. Again, 10-K reports can be most instructive and give many details on operations, as can talking with people and looking at company websites.
If a company has known partners, good sources of information on those relationships might be found in press releases, 10-K reports and web sites.
Once a list has been narrowed down to a few potential partners, a pitch should be developed to get them interested in working with the startup. In general, both parties must benefit in some way. For example, perhaps at the top of the partner list is a leading, reputable industry company that makes and sells hardware. This hardware helps customers, but the customers must figure out how to keep up on the processing and output side after the hardware is installed.
The startup has a software product can help that customer, but has not found a distributor willing to handle it. The startup also does not have the resources for a direct sales force. The entrepreneur might approach this company with an offer to let it sell the software. It makes their products and services more valuable to the customer, and provides "stickiness" —the more things people buy from a company, the more likely they are to stick with the company—in addition to adding to their leading position within the industry. The startup now has a distribution channel. The established company has more customer solutions. This is a win-win situation.
Finally, once the entrepreneur begins to contact and talk with these companies, she should remember to protect the startup in any agreement. For example, a large company may not share a smaller company's sense of urgency in getting something done. Fair performance standards can overcome many such issues and should be negotiated for both sides. There should be ways to get released from a contract (no hand-shake deals, please) if the performance standards are not met.
Standards will vary depending on what the partnership does, but might cover timeframes, sales objectives, manufacturing costs or licensing rights. With good research, it is possible to find, select and work with good partners.
Betsy Gillette is director of market research and planning at Technology Ventures Corporation.
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