A strategic relationship between two companies -- one large and mature and the other small and entrepreneurial -- is much more than the written agreement they both sign. It is a dynamic relationship which must be allowed to change and grow if it is to succeed. It is no more possible to define all the contingencies which may arise in a strategic relationship than it would be to do so for a marriage but, as in a marriage, flexibility, trust and acknowledgment of the changing needs of both parties are the cornerstone of success.
There may be significant benefits for both parties in such relationships. For the small company, it may mean deep pocketed investors who care about strategic value and credibility. For the big company, it may mean access to innovative technology or products. It is important to remember that the innovative spirit of the small company comes in part from the freedom from big company constraints. When, in such agreements, small companies are forced to grant extensive exclusivity or control of R&D or marketing, the results may be the stifling of the creativity needed for innovation. Big company constraints can kill little companies or, "Don't kill the goose that you hope will lay golden eggs."
When seeking help in structuring strategic relationships, lawyers and accountants can play a vital role. Their role should not be limited to helping negotiate the formal agreement. Their greatest value comes from having an experience base consisting of large numbers of such relationships over time and a resulting understanding of what the critical elements are for ensuring the due diligence process in which both parties should engage.
When the big partner sneezes, the little partner gets pneumonia. A change in marketing strategy or even product management can mean the end of the relationship. It is essential to know whom you are getting into bed with. One sure sign of a problem is if the large company has to hire a consultant to evaluate the market and technology of the small company, there is a good chance that the small company is not of great strategic value to the big one.
Strategic partnering may be a very good idea in some circumstances but it should be entered into with caution and care and with a long-term perspective.
Reprinted with permission from The MIT Enterprise Forum, Inc. of Cambridge. The article first appeared in the "Forum Reporter," Volume 7, No. 10, June 1989.
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