Startup founders are known for their passion for their startup idea, and for their passion to kill every competitor. Thus they often overlook the fact that their biggest growth opportunity may be a win-win collaboration with a serious competitor, known in the business as coopetition. Of course, this path involves some risk, but you never get anywhere unless you take a chance.
For example, I once worked for a small software company selling a sophisticated enterprise workflow solution. It provided an industry-leading graphic development interface, but was not so strong on modeling and simulation. We regularly went head-to-head in the marketplace with a competitor whose strengths were on the other end of the spectrum. They sold by minimizing the value of our features, and highlighted theirs. We both often lost as a result.
As small companies, neither startup could afford to extend their product alone, but through creative leadership, we were able to negotiate a win-win strategic partnership for a joint product. As a result, we shared in capturing a new high-end market, without major new marketing or development. All this was done without damaging anyone’s credibility, or stealing customers.
This example illustrates only the first of six potential growth wins provided by creative coopetition between startups, as well as larger companies. Here is a summary of each:
- Complementary strengths allows extended market penetration. It’s very unusual for two competitors to have exactly the same strengths – in development, marketing, distribution, or customer support. A strategic partnership, negotiated with a win-win attitude, can accomplish growth faster and cheaper than either could do alone.
- Capitalize on shared costs and common distribution. Similar companies, even though competitors, usually face economies of scale and overlapping distribution channels. The auto industry learned this a long time ago. Even the giant General Motors has alliances with smaller competitors, like Peugeot, to reach certain small car segments.
- Ability to up-sell customers with related products. In many cases, the products from competitive companies are complementary, or many customers are natural candidates for both. That’s why most retail outlets are not company stores, meaning they sell products from multiple competitors to optimize their own growth. You can do the same.
- Bundling and product integration to create new solutions. With the proper contracts, it’s quicker and simpler to extend your product line with coopetition, rather than funding new development. This works especially well when the new solution takes business away from a common enemy, and strengthens both of your market positions.
- Affiliate marketing and link exchange agreements. Similar to the preceding point, you can grow the business of both parties this way without sacrificing customers from either. This approach has been used for years, and implies very little risk, but many startups are still “too busy” to pursuing possible partners. Simple referral fees can bring real growth.
- Competitors can become strategic investors or merger candidates. Good strategic partnerships often lead to strategic investments, or great acquisition relationships. These days, most large technology companies, like HP and Apple, routinely buy successful and known startup competitors rather than developing new products from scratch. They also manage internal venture funds that may be your growth lifeline.
Before you start negotiating any of these coopetition deals, I do recommend that you spend some time thinking about where and how you will be competing, and how you will be cooperating. Deals that are not win-win won’t work, and may indeed jeopardize your whole future. Make sure you don’t violate even the spirit of local laws or customs, and make sure your intellectual property is protected with proper two-way non-disclosure agreements before you start.
Think about your core values and priorities, and look only at potential partners who have the same culture. For example, if your reputation was built on excellent product quality, don’t jeopardize your future by teaming with another company whose focus is mass produced commodity products at the lowest price.
Thus, while your natural instinct may be to kill your competitors, or fight for win-lose deals, remember that you can often do the most good for your customers, as well as yourself, by thinking outside the box. It’s a lot more fun to enjoy your company as it grows and succeeds, rather than make every step a fight to the death, any one of which you might lose.
Marty Zwilling
