2
May 2023

Dancing with elephants and Sun Tzu

Dancing with elephants and Sun Tzu

A large corporate strategic partner is an elephant; a startup is a mouse. I did not create this metaphor, but I do use it a lot. The elephant has the size and the resources but can be a bit slow; the startup has the speed and the ideas but is at risk of being crushed by the elephant. So when the two dance, who's going to win? The majority of startup companies begin as a point solution. This means they are essentially a feature connected to a much larger software system. For example, a real estate property manager will have a property management system that has been in place for a long time. We refer to these software companies as the incumbent platforms. They are big, they generally lack modern technology stacks, and in most cases their customers hate them. But they have no choice but to use them. I once saw a CIO with a sign on his door that said, "I have 99 problems and Yardi is all of them." Despite this, these large companies are not changing systems anytime soon.What does a startup see when they look at this? A large corporate software company that doesn't have modern features but has a massive customer base with a massive sales force. That is--they see a massive opportunity. In broad terms, this is a channel strategy that seems like a massive opportunity. Startups often assume that it will be easy and inexpensive to take advantage of this opportunity. The reality is that it is hard and actually more expensive than direct selling. But if you're going to attempt becoming a point solution for an incumbent software, here's what you should know: There are three functional components to these relationships: product development, marketing, and sales.

Product Development: The integration from a startup product to an incumbent software provider is not trivial. It is also a massive distraction for your core development team that is excited about building the core product. Your team has to be trained on the incumbent software's API and SDKs. These are typically complicated and have nuanced issues. These incumbent software companies have been iterating for decades and the published specs for integrations are always last to be updated. Once your team is trained, they need to maintain a great relationship with the incumbent software company. That is how they will learn about the unpublished nuances. Now that it took twice as long and twice as much effort to get integrated, your team has to dedicate time to maintaining the integration forever. The largest technical challenge is the lack of information on the integration, and the fact that the biggest customers on the incumbent software platform have likely highly customized the platform. It is never plug and play, although everyone sure wishes that it worked that way. So even after the systems are integrated, there will be ongoing effort to maintain the integration and to onboard every new client that may have over-customized the platform. Keep in mind that many of the incumbent software companies also charge for this integration.

Marketing: Now that you have the product development done, it is time to monetize this relationship. The goal here is to gain visibility to both the incumbent software company and their end customers. These joint marketing relationships can be tricky and require a full-time resource on the startup's side to do this well. The startup also needs to be involved with the incumbent software company's annual customer conferences, internal conferences, webinars, and more. Being available to do all of this will consume some resources from your product owner team. Also, be very careful about approvals for any independent marketing activities. I have seen the incumbent software companies get really upset about their logo being used incorrectly. Remember, these folks have entire teams for brand compliance.

Sales: Oh, you thought they were going to sell for you? Wrong. Channel partnerships come down to individual salespeople who own relationships with their clients. They are not going to walk you into their best client to sell something with a tiny commission (compared to the core product they sold). It is important that their selling your product results in the retirement of their quota and a healthy commission. Align your product launch to get an opportunity to present at their annual sales meeting. Personally have conversations with as many of their salespeople as possible.  Now you have to prime the pump. Focus on identifying the clients that the salespeople wish they had. Work those sales relationships, and then hand an opportunity to one of the incumbent software company's sales reps. Yes, you are paying double commission. Yes, this is expensive. So why do it? The salespeople talk. You want them to hear how easy it is to sell your product, and that the product is so great it got them into a new prospect. If you give first, then you get later.So how do you dance with elephants? You don't. You get to know the elephant, and you strategize appropriately.Sun Tzu said, "Know thy enemy and know yourself; in a hundred battles, you will never be defeated. When you are ignorant of the enemy but know yourself, your chances of winning or losing are equal. If ignorant both of your enemy and of yourself, you are sure to be defeated in every battle.