Month: March 2008

There are lots of reasons startups work with large established companies. For the startup, they need the large company as a customer, partner, distribution, etc. The large company benefits from this relationship too. They get to market much faster with a product than they could ever dream doing it by themsleves (typically). And they get a startup that is singularly focused on nailing their subject matter. They both get new revenue streams too.

And that is the value exchange. The terms of the deal dictate how much value the startup provides basically.

The startup has legitimate concerns about working with a big company. They worry that the big company won’t live up to their end of the deal. They worry that the big company has a thousand other things going on and they will be lost in the list of priorities. But if that were to happen, well it wasn’t the right partner anyway.

The big company will have some legitmate concerns about dealing with a startup. They worry if they rely on the startup for something strategic that they will be exposed if the startup dies or fails to live up to their obligations.

When these partnerships go well, or have the potential to do well, the big company sometimes will ask to invest in the startup. That is a big decision that needs careful examination and usually the answer becomes obvious the startups founders & board of directors.

But sometimes the big company goes from partner mode to bully mode. They don’t accept the value exchange (listed above) and instead they want to more stuff. They start demanding exclusivity (which means free ownership) or they demand warrants or options in the startup. All without making an equity investment. They start demanding if they don’t get these things they will walk, sue, work with a competitor, build it themselves (idle threat) or something else.

Now don’t get me wrong. Not all big companies go into bully mode.

But when they do, it’s wrong. They are already getting a lot of value from the startup and the startup & their founders are betting their lives on their ability to execute.

The corporate bully isn’t doing that. They are just being lame.

Hope you have a great day!