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How to partner with larger established software business on new offering without losing control?

We've developed a very specific IoT solution for improving rooftop solar electricity and battery storage. An opportunity is emerging to partner with an experience industrial ERP and big data analytics solutions provider. The ERP people have a track record in a manufacturing but want to shift into energy utilities. The partnership would allow me to integrate with their systems and offer a complete solution to utilities. For them, I enhance their offering to utilities by opening up the solar sector customers and fast tracking access to solar data which will enable a jump start on competitors who are waiting for smart energy meter rollouts. They are 60 people with a $35million turnover ... we're an early stage startup of 3 people with a big idea and a lot of unrealised (and unproven) potential ... however you look at it its a great opportunity.
  • What are the key factors I need to consider in taking this arrangement forward?
  • How do I structure this partnership so as not to loose control?
  • What's realistic ... should I chase investment, buy-out, merger, cross-licensing ... mix of these?



5 Replies

Christopher BYRNE
2
0
Christopher BYRNE Entrepreneur
CEO
1 Partnerships work best when there is a real customer driving both of you to the table.

2 Your item is just one of many the sales guy has to sell. Don't fall into the trap thinking you are controlling the deal because of your product.

3 Way too early. private label or reseller option for now.
Gurudev Basavaraj Goud
0
0
StartUp-Growth Hacker-Digital Sales & Marketing Leader
Hi Andrew,

As an embedded IOT s/w h/w design company ourselves and from my experience in the past with ERP companies, I would suggest the following

  • What are the key factors I need to consider in taking this arrangement forward?
Look for what they will get out of it i.e will it increase thestickinesswith their existing clients, will it help them to beat competition...airtight contracts-mou/moa and NDA's should help
  • How do I structure this partnership so as not to loose control?
Get to know their leadership, VC's if any, check if they see you as perceived threat, check if their VC's were looking for someone like your company for adding you to their portfolio and helping their clients. Keep the contract simple, they make money and you make money, ( per click, per visit etc.) , see the contract has a clause to grow the relationship
  • What's realistic ... should I chase investment, buy-out, merger, cross-licensing ... mix of these?
too early to think of this, start a relationship, make a handful of profitable and strategic sale then it would be obvious.

Jared Hardy
2
0
Jared Hardy Entrepreneur • Advisor
Founding Director at Data Roads Foundation
Generalising these questions a bit helps me match this to my experience in the games industry, where small developers often partner with goliath studios and distributors. Note my subtle rewordings in questions below.


  • What are the key metrics I need to consider in taking this arrangement forward?

Trust is most important of all. It's difficult but worthwhile to measure. I personally tend to distrust "partners" that require any form of exclusivity, especially long term or proprietary lock-in of any sort, because those only limit your ability to escape a bad deal later for better horizons. Big studios are able to gobble up small developers cheap by merely withholding contract payments near the required product delivery time, to make the developers more desperate for buy-out liquidity. Product delivery timing is often much more specific in contracts than payment timing, which makes the small developers more vulnerable to breach of contract litigation even when they are working without sufficient payment.

  • How do I structure this partnership so as not to lose control?

Given the mismatch in size and capability here, I'm not sure you can retain any control in such an integrated solution without being absorbed into the mothership and given leadership over your one engine piece, so to speak. For true independence and control, your best bet is finding *multiple* integration partners that you can load balance and play off each other. I find that most load balancing techniques require a minimum of 3 for redundancy in case 1 falls through. They will not like sharing you with their competition, so this increases the pressure to create industry-wide "must have" features that they can't sell without.

  • Should I chase investment, buy-out, merger, cross-licensing ... mix of these?

You started this out asking about retaining control, and I don't see how you can retain any independence without gaining investments or customer buy-in independent of the goliath partner(s). You also said IoT not SaaS (though "management cloud apps" are confusing the distinctions a little), so do whatever is necessary to keep your physical manufacturing pipelines distinct. The software pipeline is much harder to keep distinct after integration, so use license-free and open standards whenever possible, because that prevents both future customer lock-in and bigger "partner" enterprises from taking it from you later via litigation. Unfortunately in IP law cases it's often the side with the most expensive lawyers who wins, not the true innovators or implementors.
Dale Lampson
1
0
Dale Lampson Advisor
Product Management at Fitbit
Andrew

Congratulations on reaching the second plateau in the long climb towards building a successful company. From a quick read through your website, seasoned with the experience of my own residential solar energy simulator start-up experience, a few suggestions:

1) Key factors in the arrangement.

At this stage, you need a partnership that gives you a) market access, b) resources and/or c) expanded product capabilities. Bucket what you think this partnership option does in each area. Then ask yourself if that's enough to get your business to the next level. If so, it may be worth the time/effort. If not, use the gap awareness to either a) reframe the opportunity or b) guide your hunt for a better partner. Don't do exclusive. Don't loose your brand identity.

2) Structure and loss-of-control.

Own something that's critical to the combined solution value and hard to replace (e.g., swap out). Data might be one option for you, assuming you're the best positioned to collect/manage it -- even if the partner is going to be the analytics/presentation layer provider. Whatever you end up with as your unique thing to own, identify a clear pathway for how this relationship enables you to more rapidly expand your product's footprint/capability/scope/value than would be possible with your next-best alternative. Then throw everything you've got at making that a reality as quickly as you can.

3) What's realistic?

Agree with others here...you need customers and momentum before you can extract value from potential. So maybe realistic goals are simply defined around customer traction and market reach. The sun shines everywhere. Although Christmas Island's annual solar insolation is hard to beat anywhere in the world, is it realistic to think a strategic partnership down under might provide leverage for another partnership in sunny (dry) California? And could 2 (or more) global partnerships provide further market validation as to where you should focus your innovation efforts/investment? Likely.
Andrew Mears
1
0
Andrew Mears Entrepreneur
Policy integrator and entrepreneur for clean energy and climate change
Great feedback from experienced and insightful people.

Clearly I need to be sure on my vision for the product ... I want to build an enduring and prosperous business and I need to see this first opportunity as a step in the long game.

What questions haven't I asked which I should have asked?
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