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Forbes.com

Don't Just Attack Incumbents, Court Them—With Eyes Wide Open

Four warning signs can help entrepreneurs protect their competitive advantage in a partnership.

  • July 11, 2018
  • min read

Article

Don't Just Attack Incumbents, Court Them—With Eyes Wide Open

This article originally appeared on Forbes.com.

Startup entrepreneurs often fashion themselves as disruptors of established markets, who can better serve dissatisfied customers. Increasingly, though, the path to success includes a partnership of convenience with a large incumbent firm.

Some entrepreneurs meet incumbents through formal innovation exchanges, where they get exposure and feedback. One innovation exchange, for example, paved the way for a large beauty retailer in Europe to be the exclusive retailer for a startup focused on nontoxic beauty products. Through the same exchange, a large packaging manufacturer and distributor signed a five-year deal with a startup for manufacturing analytics and predictive maintenance.

Other pairs connect through venture capital firms that have hired staff explicitly focused on matchmaking, in order to find the right large partners for the small portfolio companies.

Each party can benefit. The incumbent gets access to new technology and ideas, as well as an entrepreneurial culture that may spark useful changes in the older bureaucracy.

Startups, meanwhile, can profit from the relationship in several ways. They gain access to a large customer base and, using the incumbent’s name, can get a meeting with a customer in days, where previously it might take a year. The incumbent’s scale also provides expert resources to solve issues ranging from factory safety to choosing accounting software to untangling supply chain snarls, potentially saving time and hassle.

As with any partnership, though, startups need to select their mate very carefully. As a tiny part of a vast ecosystem, a startup has only one real competitive advantage: speed. Even competent startups may struggle to get a meeting with target customers, but once they do start a dialogue, they know they will deliver what the customer wants, tailored to specifications, faster than any large firm. The central consideration in a partnership, then, is how to reap the benefits of scale without sacrificing speed.

An incumbent that does not live up to its promised trust with the startup partner will undermine the speed/scale balance. Entrepreneurs, here are a few telltale signs to watch for:

  • You’re told to get two people to approve every decision, then advised that you should really get the buy-in of a dozen more people because that will smooth the path forward. In reality, too much corporate love shows a lack of trust, and slows decision making.
  • Your incumbent partner brings an overwhelming 20 people to a meeting about technology, and expects you to have 20 on your side. You are more pragmatic—you know how one person can complete the project.
  • The incumbent desperately wants the service you provide, but expresses no interest in how you do it. That’s procurement, not partnering, and as such will be a limited relationship.
  • The meeting starts with an admonition, “Here’s how you can adapt to our way of working.” By rewarding bureaucracy, the incumbent will rob you of that critical asset: speed.

The trick is to catch these harmful behaviors in time to walk away from a bad deal. Wary entrepreneurs can test for an incumbent’s capacity to trust by asking for a trial period or a limited use case. They should look for opportunities where a little trust would speed things up, making it clear: “Help us go faster or, with all due respect, get out of the way.”

Dunigan O’Keeffe is a partner with Bain & Company and a leader in the firm’s Strategy practice. He is based in San Francisco.

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