Opportunity Puts Us On a Collision Course
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.
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.