Drop Everything and Call Your Competitors: 4 Benefits of Coopetition in Strategic Partnerships

Opportunity Puts Us On a Collision Course

don't look now, there's a competitor!

don’t look now, there’s a competitor!

As sure as the sun will rise tomorrow, if you have a great market opportunity, you will attract competitors. Sooner or later, blue skies become crowded with companies, mergers and market share create winners and also rans, and there are limited windows of opportunity to exploit before you exit the market one way or the other. One way to gain advantage during the heat of competition is to join forces with a potential competitor. Often 2 smaller companies will join in a Strategic Alliance to level the playing field with a larger competitor. This type of thing often leads to mergers and acquisitions, so if an M&A exit is in your roadmap, then a partnership between companies can be a first step.

Strategic Alliances

As CEO of Extentech, I found that by teaming up with other companies that we felt were complimentary to our offerings in some way, we were able to increase market and mind-share, pursue new category niches, leverage cutting edge technology and create PR opportunities aplenty. Over the years, our partnerships came with some challenges, setbacks, and risks of their own, but ultimately it was a partnership with a customer that led to the successful acquisition of our company in 2012. The advantages to the right strategic alliances are many — especially for capital efficient bootstrap startups that are looking to scale growth without scaling expenses. Strategic alliances can deliver the following benefits to your company:

  • Break into new markets by selling into the partner’s customer base
  • Gaining valuable insight and market intelligence from an ‘alien’ perspective — the experience, connections, technology, and advice of an outside company with some stake in your success cannot be underestimated.

Partnering with Potential Competitors

Some companies are too ego-driven to acknowledge that they would benefit from learning from and adapting to the products of another company.  Some companies are too secretive or proprietary in nature to do much about their competition other than Don’t Panic and Carry On. And of course some markets are such that the products are too overlapping to warrant combining offers. In these cases, there is no advantage or too much risk in trying to find common cause with a competitor. But for many startups partnering with an otherwise formidable competitor can have real and lasting benefits:

  • It can allow you to influence them to not directly compete with you at all. Who knows, maybe the benefits will outweigh the risks of staying out of each others’ way. Often choosing *not* to enter a market can be a great decision, hedging the bet by partnering up with a company already succeeding in the space is a smart approach.
  • It can be beneficial to innovation when 2 companies stop wasting energy playing catch up with each other and instead focus on value-added innovations.  You can partner with a company doing something similar to you, agree to work on differentiated features, and allow each company to specialize while provide complementary offerings resulting in a win-win.
  • Two (or more) companies can tackle a bigger market or take on a larger 3rd competitor by  teaming up and splitting the costs of growth and sharing resources.
  • Leveraging a partner’s successful brand. Often customers are secretly hoping your products were joined together. There can even be pent up demand for such an offering.  Maybe you haven’t built a cloud-based version of your product yet, or your offerings lack mindshare in the scientific market. Either way, your partner’s success in these areas can become yours. By piggybacking and packaging your offering so that it is a natural fit for these users, your products can see whole new fields of opportunity open that were unavailable before.

Co-Opetition Can Become Competition

A popular example of this type of Co-Opetition could be seen with the original Google Maps app on the iPhone.

Google had something Apple wanted to provide its customers, and Google wanted to get its presence in the hand of all those iPhone users.  A classic win-win.

However when Apple prematurely pulled the plug on this cooperative approach and replaced Google Maps with Apple’s own Maps app — before their own offering was as good as Google’s — there was a backlash from the very customers that the partnership had helped win in the first place.

With the Google Maps/iOS deal, we can see how it is possible to gain a toehold in a market by coopetition and then ultimately replicate and displace your partner’s product. But you can see this is risky and can easily backfire.

That said, some markets can only have one winner, and the co-opetition phase is a part of a longer-term competitive strategy which starts “innocently” but then morphs into outright competition. One big takeaway here is that f you don’t know (and choose) your competition, you are flying blind.

Some additional observations on strategic alliances

  • Customer partners can be very beneficial — bigger or expanding companies that already use your product and have a stake in its success.
  • Customer partners will have a bias towards getting discounts on your product and other concessions, so there might be additional revenue offsets when cutting strategic deals with customers.
  • Integration partners may add unexpected demands on your product development plans, so there can be significant costs as well.
  • There must be trust (if warranted!) between the companies as you can see the exposure to a partner puts your company at risk as well.

In a subsequent posting, I will lay out some of the dark side of strategic alliances in more detail.

Jagga Pokkuru: Hokkaido Premium Potato

Hokkaido Premium Potato

So, imagine a post-apocalyptic wasteland. You are one of the unlucky survivors tasked with re-starting the human race. Unfortunately, there is no food. Perhaps we’re dealing with a scenario like the one in “The Road”… or perhaps all the food has been contaminated and there are no viable seeds left because of big bad Monsanto.  Something like that.

In any case, you’re stumbling around the ruins, picking through empty boboli wrappers and intact packages of skoal bandits when you come across a curious red and white box.

It’s like nothing you’ve ever seen, and lo and behold, it contains the last surviving food on earth. Hokkaido Premium Potato!

Well, you are in luck because, as far as I can tell, even years after the apocalypse, this foodstuff will be as fresh as the day it was made.

Each packet contains approximately 15 medium sized freeze dried french fries. These are no ordinary french fry — somehow they approximate the McDonald’s flavor along with an unnatural yet satisfying crunch.

Salty, crunchy, potatoey goodness. A box of the Hokkaido Premium Potato snack usually lasts about 4 minutes in the office as the packets are snagged and munched immediately, or snuck into jacket pockets and laptop bags as a guilty pleasure for the post-work N-Judah ride.

Oh Hokkaido Premium Potato, how I cherish thee!

Quantifying Opportunity Cost

ROI (Return On Investment) is a popular metric that helps us understand how well our money is working for us, but what about the question of how well your time is working for you? After all, time is money, right? Many of us who have billed by the hour, or work for wages have placed a value on our time — in fact the act of setting a negotiated hourly rate places a concrete number on the value of your life’s limited duration.

So, considering the importance of the resource, how well are you investing your time? How are the choices you make today impacting your future when your time is considered in terms of an investment?

Answering this question brings up the concept of Opportunity Cost — accounting for the inevitable loss incurred when making any choice. There is a value that is lost when a choice is made — the value of what has not been chosen drops as it is placed into the impossible column.

The ever-smiling Richard Branson famously said that in his career what mattered most was not what he did, but what he chose not to do. I have to assume Sir Richard knows a thing or two about opportunity cost, made even perhaps more remarkable by the fact that he found success even though he invested in a record label and an airline — two industries famous for shrinking margins and sketchy financials.

We see opportunity costs in sporting events as opportunities to score are lost forever, as the possibility to “turn around” a losing game, or pull a win out falls towards zero as the game progresses. Choices are made in lineups, tactics, plays. Execution plays its part as does chance. And as each quarter, period, inning and turn progresses, chances for a positive outcome are lost for good, and upside becomes more of a miracle with every miss.

The inverse is true for the winning team. “Good” choices are made, plays are more easily made, luck seems to be on their side.

Opportunity Cost is associated also with the value of taking risks — in fact, taking no risks is sometimes equated with zero loss, as if by keeping chips off the table, you cannot lose them. However as long as life is measured in ticks of the clock, there is always a cost to inaction. The time for action in life is a finite resource, and to not spend it wisely is to miss out on any possible upside. This timid and conservative approach would argue that it is more important to not incur the pain of downside loss when some of our risks do not happily return on their investment.

But the ultimate counter argument is that one has but one life to live — and to stand on the sidelines while others play the game to win is the ultimate lack of investment in oneself. And if you do not have the courage or conviction to invest in yourself, certainly nobody else ever will. Nor should they.

If risk can be quantified, then much like a form of currency and can be traded in. Much as “credit default swap” derivatives seek to buy and sell risk as if it were legal tender, the Entrepreneur too deals in the currency of risk. But one can only take risk if one has freedom to do so — freedom of choice, freedom from contractual obligation, freedom from debt, freedom from subsistence-level concerns.

The Entrepreneur that can be as unhindered as possible, that can incur the most risk without panic or collapse, the seasoned battle-hardened veteran that can keep a steely eye on the prize while competitors fall on the swords of their risk aversion, those that can choose the path best traveled from the path most weary and the path most worn, are the players that ultimately succeed.

The Tokyo Banana

Ever since my Software company — Extentech — was acquired by a Japanese company — Infoteria Corporation — our office staff has received a seemingly endless supply of incredible snacks, cookies, mochi, and a variety of freeze-dried “food”. Every time our Japanese colleagues visit our San Francisco office, they bring us snack foods like nothing we’ve seen before.

Tokyo Banana: I am told this is the “official snack cookie” of Tokyo. Basically a banana-paste-filled soft cookie

So I present “The Tokyo Banana” — a series exploring a corner of the wonder-world that is Japanese snack food.

But before we do it, and to truly grok the scope of things, we must go to the source — the vending machine center of the universe: Tokyo, Japan.

For a city that has elevated the food machine to an art form there is a bit of irony in the fact that Tokyo has by far the most Michelin-starred restaurants of any city in the world: an astonishing 331 total Michelin stars.

Not only are they completely awesome in the packaging arts, objectively speaking, Japan rules the world of cuisine with an iron fist.

In fact, Osaka and Kyoto Japan add another 200+ stars to the Japanese scorecard… Japan’s Michelin star total is more than France, America and all of Europe combined.

It’s not even close.

Perhaps for Michelnin, In-n-Out and Pret A Manger don’t count for anything?!?!

As a San Franciscan of course I’m partial to our local versions of fast food such as Lee’s Deli, Red’s Java House, etc. and while I have never been to the Lucky Penny — I have eaten many an It’s It after watching a Giants games at the stick — a cold experience indeed.

So to kick things off, I offer you a form of “launching point” — a photo of a vending machine found in the Akihabara district of Tokyo. The machine is ready and able to provide you with canned “pig stuff” along with a well-paired iced coffee drink to wash it down.

This machine will give you everything you need and much much less.

In the next article, we catch a plane back to San Francisco, USA and see what our colleagues have brought back with them on their visits to us here in America.

Now, with extra sulk!

Sulking Canned Pig — Now with Extra Sulk!

An Akihabara mega store: Like a 10 story tall Best Buy on Steroids

Until then, I leave you with an image that I look at whenever I need a good strong dose of WTF.

That pig is obviously displeased — but is it with your taste in food? That body language says to me that if I complain about his noodles then why don’t I just goto the train station next time?!

Starting a Software Business: 1999 vs. 2012

The year is 1999, Google is still a word that only math majors are familiar with. A startup called Kozmo will hand deliver a snickers bar and a DVD rental to your front door in 15 minutes — for free, and no tips allowed.  A company called MP3.com will give you a free set of high-end computer stereo speakers complete with sub woofer and 50 high quality MP3 files — just for signing up on their website.

It was into this environment that I launched Extentech — a bootstrapped boutique web development and web hosting, and consulting firm. Initially our plans for breakout success revolved around creating a turn-key website appliance to allow SMBs to “get online” and establish a web presence.  In fact you can still see the original Extentech site here.

This was a time of massive hype and minimal substance — and I was going to try to differentiate on quality and actually building software systems, not just web-based brochure ware.

Some of our many expenses included the need to build and host servers ourselves and on behalf of our customers.  There was good crossover work and a steady hosting income to supplement revenue lulls between projects, but the ability to subsidize some product development without having to raise capital was enticing.

The year is 1999 and Extentech has been launched to help get you online!

The Extentech website circa 1999

What we didn’t have at the time was a product, and of course having a software product and selling a license to use it and support is a much more scalable business model than selling your limited time as a consultant.

After a couple of years of consulting, we were eager to build something more lasting and that opportunity came in the form of a Java Spreadsheet tool, ExtenXLS.  We basically took on the hardest project we could find, and tackled a customer need that nobody else wanted to mess with — reverse engineering the Excel file format.

We figured that everyone uses spreadsheets in business, but not everyone was running Windows — especially in the Enterprise. So ExtenXLS was born as a way to add Spreadsheet functionality to Java applications. This turned out to be a fine idea, and one that has sustained our business for over 10 years.

After a decade of fighting with some of the trickiest coding issues around (try grokking the BIFF8 spec for a mind numbing sleep aid) we developed the most robust Excel-compatible spreadsheet toolkit for Java.

Extentech was a business that evolved from circumstance and customer needs. We did not start out with a plan to develop a spreadsheet SDK, nor did the AJAX technology upon which we based Sheetster our online version even exist at the time the company was founded. We basically pivoted our way to success, tweaking our business model and positioning based upon the changing marketplace.

When Google muscled into our space with Google Docs in 2006, we were forced to rethink our plan for a consumer-based online spreadsheet, instead rebuilding Sheetster from the ground-up as a development tool. The positioning of Sheetster as an embeddable, Open Source alternative to Google Docs and Excel was forced upon us, but in fact resulted in a more sustainable differentiation.

By the time Infoteria purchased Extentech in May 2012, we had many enterprise customers, and a sizable demand for our products.

So, in the 14 year journey that was Extentech, we faced innumerable challenges, built our own tools that predated the existence of much of the available platforms today. For example, when we first began building web applications, there were very few JSP-compatible application servers available — so we built our own.  In fact, over the years, we built and dog-fooded our own security frameworks, blogging tools, KB, CMS, and eCommerce systems, app servers, and reporting tools. I even hand-coded a Java-based SMTP server in the early days.  With the availability of  SaaS offerings, and open source tools, the vast amount of platform code and tooling that we built ourselves would be totally unneeded today.

With the tools and services available today for free and/or marginal cost, without a doubt we could rebuild everything we did at Extentech over the years in a fraction of the time. Today, developers with one tenth of the experience can build software 10 times faster than 10 years ago. Business models like Kozmo’s have come and gone, and the inefficient have fallen by the wayside. Had our product stack had a lower barrier to entry and lower value to the customer, then there is no doubt we could have shared that fate.

We were lucky in that we picked a product to develop that had a huge demand, was well differentiated, and carried a high barrier to entry. These ingredients to success are still vital and in fact even more so now that the technological barriers have fallen across the board. Moving products up the food chain from SDKs and platforms to vertical applications that leverage best practices and industry expertise are the winners in today’s market of ideas.

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