The Holy Grail for many software and hardware companies–especially the early stage type– is the big deal. Everyone is looking for the big deal, the one that will fund the company’s early activities, provide market credibility and momentum in the marketplace. Of course, if all goes well there can be nothing better. Many times the big deal takes the form of an OEM partnership with a much larger company. But often when these deals do happen they end up fitting in the category of “be careful what you wish for”.
TARGET YOUR OEM PARTNERS CAREFULLY
This is where it all starts, good or bad. It’s important to pick compatible partners. Companies looking for large OEM partners are often blinded by the potential of what the OEM can do FOR their business. They often fail to pay any attention at all to what the OEM might do TO their business!
Does the partner have the potential cause severe channel conflict? Will they tie up the small company in endless meetings, procedures and negotiations? Do they have a corporate structure and culture so foreign to your way of doing business that you end up pulling your hair out from frustration–unable to accomplish even the most simple business objective, without moving mountains? Sometimes with large companies it’s difficult to even figure out who you need to speak with–let alone get a prompt, unambiguous answer.
Get to know your partners as well as you possibly can before you sign a deal. It’s tempting to rush in before “they change their mind”, but the actual relationship is critical to potential success. It’s a lot like dating before a marriage; no matter how attractive the partner is, you need to make sure you can live with them later on.
NEGOTIATE FROM STRENGTH
I don’t like to do deals with people that are confident they have the upper hand. If they think they can push you around–they almost certainly will. Usually one partner needs the other to a greater extent, but you want to try to avoid dealing with partners where you have little or no leverage at all. It generally doesn’t’ turn out well. It’s very important to make sure that you negotiate a deal that you can live, with no matter how attractive the potential partner appears. Above all, you need to discuss internally and create a “line in the sand” that you won’t cross–and be prepared to walk away if the negotiations cross that line.
This can be a painful and difficult thing to do when you are seeing big “dollar signs” in your eyes–and fear if you stay strong you might blow the deal. But remember, you have something that the other side wants as well–or they wouldn’t be talking to you. If you don’t know what your minimum successful deal looks like and you aren’t prepared to walk, you run a great risk of signing a deal that you will regret. Not to mention the opportunity cost of tying up your scarce time and resources, which might have been used working with a more compatible partner.
WORK ON EVEN TERMS
Once you’ve negotiated a deal that you can live with (and hopefully prosper!), it’s time to get to work with your partner. Try to keep the playing field as fair and even as possible in the relationship. Of course, it’s important to be accommodating to your partner, and respect the differences in operational procedures. Big OEMs will usually move slower than early stage companies, are more process-oriented and structured, and often include many more people in the relationship management. All of this is fine, but it needs to be tempered so that the larger partner doesn’t “swallow all of you available resources whole”. It can easily happen if you don’t guard against it. They have more resources than you (but will always think they are busier!) as well as more process-driven requirements that need to be met. But don’t be afraid to draw the line at a reasonable point and remind them that you have fewer people and resources available. Suggest a phone meeting instead of flying three people across the country–or ask that they come to your place, rather than always trekking to their headquarters. Propose that one of their folks spearhead writing that joint position paper instead of some scarce resource in your company–I’m sure you get the picture. Sometimes larger companies will smother you without even knowing they are doing it–don’t be afraid to remind them that you need to do business a little differently than their normal approach.
KNOW WHEN TO SAY “NO”
If you’ve tried everything that you know–as politely as possible–to keep the relationship equitable and reasonable–but it just isn’t–don’t be afraid to say NO. I meet many smaller company executives in my consulting practice who just don’t feel they can do this with a larger partner. They’ll talk tough in internal meetings, but when back in discussions with the partner, the tough talk turns to submission. They just feel like the partner is too important to their business to risk ever offending them in any way. Sometimes they are just too intimidated dealing with executives from an industry giant. Unfortunately, that attitude is a prescription for indentured servitude for your company. I’m not suggesting being unpleasant; in fact when standing up to a larger partner it’s critical to be calm, polite and non-defensive. But by all means be firm in delivering the message of what your business can, cannot and won’t do. If you don’t, what could be a profitable relationship can turn very sour and in no ones best interest.
HAVE REALISTIC EXPECTATIONS
The last key point I’d like to convey is that it’s very important to have reasonable expectations in partnering with large OEMs. Many companies go into these deals believing they will be “company-makers”. In my experience, this rarely happens. Be realistic about what the OEM can do for you and build your business model around the most conservative projections of their performance that’s possible.
Companies usually turn to OEM products from partners to fill niches that they don’t fully understand, or don’t feel would pay back if they invested in developing the product themselves. It is very rare for products licensed or resold from partners to get anywhere near the push that internally-developed products do. It’s very important to be realistic about this so you won’t be disappointed. Results may be largely out of your control so project conservatively; if revenue exceeds your conservative expectations you’ll be overjoyed.
That’s my condensed advice on working with the big software and hardware OEMs of the world. There is much more that could be discussed, as this is a common activity for many companies. What’s been your own experience? Post a comment and let us know your own view.
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