5 Startup Pitfalls to Avoid with Corporate Partners

Working with corporate partners can be an exciting opportunity for startups, offering access to resources, funding, and industry expertise. However, there are potential pitfalls that startups should be aware of to ensure the partnership is beneficial for both parties (ask us how we know 🙂).

In this blog post, we will explore five common pitfalls to avoid when working with corporate partners.

#1 - Tunnel Vision

One of the biggest mistakes that startups can make when working with corporate partners is the development of tunnel vision (i.e. losing sight of the business’s needs outside of the partnership). Overconfidence in the successful outcome of a strategic partnership can sometimes lead startups to inadvertently (or worse, intentionally) slow down or freeze altogether their business development efforts. In the best case scenario, additional opportunities for growth will have been missed, and in the worst, the startup will be left high and dry with no runway to recover. To avoid this pitfall, startups should focus on developing their business independently, using the partnership to enhance their growth rather than relying on it entirely.

#2 - Bespoke Development

When working with corporate partners, startups may be tempted to develop products or services that are tailored specifically to their corporate partner's needs. However, keeping one’s partner happy and engaged at such an extreme cost will not only narrow down the startup's potential customer base (dare we say to one) but it will also make it all the more difficult to pivot should the partnership end unexpectedly. Either way, the implication is that the startup has either yet to identify Product Market fit or has misappropriated the partner to its target audience. If the offering is truly valuable to the partner, they will respect the pushback and move forward nonetheless. If it’s not, then no loss to either side. In short, keep customization to a minimum, your company’s vision and core competencies at the forefront of activity, and focus on product development with the potential to scale.

#3 - Unrealistic Expectations

While there is much to benefit from well planned and thoroughly executed collaborations with experienced corporations, it is not out of the norm that such processes can take as long as one to two years supported by significant resources, before they come to fruition (if they come to fruition). Nevertheless, aspiring entrepreneurs have a knack for developing unrealistic expectations for how quickly this or that initiative will yield results, and what it will take to achieve those results (aka the "Steve Jobs Distortion Field"). In the case of strategic partnerships, the gap can be quite significant. Such wishful thinking / misreading of events / cynical manipulation of external stakeholders (take your pick!) can lead to mismanaged expectations with partners, miscalculated resources needed to bring the collaboration to fruition, and at the extreme, misconduct with company stakeholders. At the risk of stating the obvious, be sure to ask your corporate partner if they have any experience with similar collaborations, and if so, what they looked like in terms of timing and resources. Short of that, consult with someone who may have trailblazed the path before you - an employee, investor, mentor, advisor, or fellow entrepreneur. Whatever you do, avoid the "Distortion Field" (unless you are a reincarnation of Steve Jobs that is)!

#4 - The Squeeze

Working with a corporate partner can be a double-edged sword. While the partnership can provide access to much needed resources, industry know-how, and credibility, it can also squeeze the startup out of the market if the partner's involvement pushes away other potential clients in the same space. When coupled with severely limiting exclusivity clauses, the path to a potential hostile takeover (of assets, IP, or employees through an acqu-ihire) is left to the corporation’s good will (or lack of). Startups should be cautious of this pitfall by limiting exclusivity (to a specific product line, region, or timeline) if not avoiding it altogether (by making a product so valuable, the terms will inevitably be in your favor). Either way, be sure to have a plan B ( C, D, and E) in place in the event that the partnership takes a wrong turn.

#5 - Funding Dependency

One of the biggest opportunities that comes with corporate partnerships is access to funding, both directly (via corporate venture arms) and indirectly (VCs that work closely with corporate partners). But startups should be careful not to create a zero-sum situation where funding is directly tied to the success of the partnership. This is particularly true if the startup has yet to prove its business model, validate market fit, and / or generate meaningful income from customers other than the corporate partner. Stay clear of funding dependency by maximizing “small wins” with low hanging fruit. The more wins under your belt, the more equitable the terms of your future strategic partnership will be. Small steps result in big wins!

In Conclusion

Working with corporate partners can provide startups with access to resources, funding, industry expertise, and where stars align, propel startups into stardom. Avoid these top five common pitfalls to maximize the benefits of working with corporate partners while minimizing manageable, if not altogether avoidable risks.

Good luck!