Ask HN: Advice on partnership with a large firm.
I've been working part time on an application which I think is rather good. I met with a company on Friday that wants an exclusive partnership with my application.
The company is very connected and is the largest in it's industry in South Africa, my application is focused on their industry.
They are providing the infrastructure and the clients. I am providing the application and my knowledge.
I want to go ahead with them and form a partnership. Basically it looks to be that they will pay an upfront amount to secure the partnership and after that revenue will be split accordingly. Does anyone have any advice on how I could go about proposing this?
Or have a better opinion on how to go about doing something like this?
17 comments
[ 3.3 ms ] story [ 75.7 ms ] threadA partnership of equals can work but if the power in a relationship is too one sided then one of the "partners" is effectively the employee of the other.
You describe a potential customer for your software that can see that there is money to be made in exploiting your IP. They are offering their company as a test bed plus some money "up front" in exchange for 50% of the business.
From their viewpoint this could be a great deal They get a bespoke application (for be sure they will insist that your software meets their needs in particular) at a good discount. Plus if you manage to sell another copy or three they get their money back.
Beware the idea that a company is "well connected" when it comes to their trade rivals - they might be industry fashion setters but this may not translate into software choice - plus a package that is seen as being owned by a business rival has to be pretty good (or cheap) to overcome that stigma.
I have run into a great number of businesses over the years. Almost all of them think that their business processes are typical and a good model for the rest of their industry - in my experience they are all wrong when they think this. Each business has a whole lot of similar processes but they all emphasise different aspects, measures and controls. Writing packaged software based upon the model of a single customer is likely to produce software that will be difficult to sell to others in the same line of trade. A good package is based upon as wide a set of industry experiences as possible.
OK - I have raised a while bunch of issues but have no specific advice other than "Beware - proceed with extreme caution".
Think of it in terms of an equity investment. If they invest $X on a $Y premoney valuation, they own X/(X+Y) of the company. After the investment, the company then pays partners based on contributions (e.g. it pays you a salary and pays them sales commissions based on success - or any other means you choose.).
Having read everyones comments I totally agree that worldwide exclusivity would be a foolish mistake.
might consider including a minimum revenue stream necessary for the partner to maintain exclusivity. or a term for exclusivity (e.g,. 18 months).
This company (a smaller one though..I was working with them as a full-time employee) was interested in my idea. They accepted my proposal. My terms were, I'll build the app, they will fund the development, they get exclusive rights to sell in Australia in exchange and I'll keep the rest along with IP. But they wanted to have exclusive rights all over the world. I said yes because I didn't understand what those exclusive rights were...hehe
But they still walked out of the deal because:
1. They thought they would have to spend double the amount on maintaining the application after I developed the first version. I never understood those terms though.
2. They thought it was too risky to trust an individual developer over a registered company.
What I understood from the discussions was: they wanted me to develop the application, take some money for the time I spent developing it, hand-over the source and then walk away from it. Exclusivity meant walking away.
So the deal didn't happen. But I haven't given up on my idea yet. I have started developing it after a gap of one year. I still like the idea even after one year gap. The only problem is I haven't completed it even after 2 years :) I am getting closer to it. I don't know when I'll complete it though. But I am not in a hurry because nobody is funding it.
I get the feeling that growth would be accelerated by going into a partnership, and would also allow me to get back to full time work on it.
Seriously, a few $$$$ now could save you heaps. I did the same thing (worldwide exclusivity) when I was young and naive, and there were no "minimum sales" targets set. The company who now owned the code sold none in the first year despite being well connected and rich. I managed to wrestle the IP off them via free consulting, and within a week had my first "enterprise" client.
Make sure if you sign something you get minimum sales volumes written into the contract, as well as who gets what once the money comes in. Anyone who has ever set up a distributor or partnered with a company will tell you the same thing.
In my last 2 startup companies, I've had 2 partnerships with large, publicly-traded, tech firms in the valley. Other than a few nice, free dinners and the temporary ego boost of having their logo on your website, both were a complete waste of time and resources.
Big companies like to throw their size and influence around as incentive to partner with them ("we have XXX customers", "do $X million dollars in Y industry", etc.). In reality, they really don't care about your success, they will always call the shots–or they're simply "too big to move".
Our best partnerships have come from connected individuals in our industry. Influential bloggers, other entrepreneurs and industry/regional experts can go a long way if you let it.
If this partnership is the only way to get into Africa quickly, I would say proceed with caution. I wouldn't do anything exclusive unless it was tied to a performance quota and short timeline.
Just my $.02