Last year, Jeff Clavier asked me to present at Uncork Capital’s (formerly SoftTech VC) CEO summit on how to do BD deals with large software companies. I was then CEO of an Uncork portfolio company, but the content here draws on my prior experience as GM at largeco (in this case, SuccessFactors/SAP) when I was on the receiving end of BD inquiries.
This comes up with a lot of early-stage startups that I’ve been advising so I thought I’d opensource it.
Obsess about the “Why now?”: If retail is all about location, then SaaS BD is all about timing. The reality is that your timelines and that of largeco almost never lines up.
For largeco, timing can be driven by two factors: First is strategic thrust: what’s the one big message or proof point your partner wants to communicate to the market right now? Is it an expansion opportunity or market share growth in a new category? Or is it the need to simply look hip at their annual conference. The second is the more tactical: what is the one big hole that comes in the way of closing multi-solution deals right now?
Timing is important to you as well. Your runway is limited so every bet matters. Largeco can absorb 4 quarters of dilly-dallying. It can be devastating to you to be empty handed after putting all those resources to work and taking your eye off the ball on direct sales. The confirmation bias that is born out of potentially cheaper and faster indirect selling will blind you into downplaying the very low probability nature of reseller deals getting done.
As startups, we naturally prepare for Why. But it’s not being brutally honest about ‘Why now’ that can make your BD deal be dead on arrival.
Understand how your unit economics will change: Large companies can take as much as 30-50% off the top line. You likely know this, but I’ve personally been part of the process or seen early start-ups I’ve worked with be in the final throes of a deal, only for the CEO to get cold feet about giving up that kind of margin. This egregious move of backing out midstream is fatal. Someone at largeco went way up to get approvals and kept the blockers (more on that below) at bay. And now she has to eat crow. In largeco land, that’s career suicide. So, model out the unit economics before you pick up the phone.
Understand the overall sales compensation structure or the broader product roadmap: When I vetoed a deal of a peer, it’s because said potential startup partner had features not applicable to the deal at hand, that were on my team’s road map. And I was afraid that it would cause confusion in the field with respect to which product a rep positions. And so, I squashed it. So, don’t think of just the right person who can close it. Think of everyone who can block it. The bullets can come from anywhere.
Don’t think too hard about how you make them more strategic when they want block and tackle help: Man, I saw the most long-winded stories sitting on the other side of the table. Your startup likely has some bleeding edge solution that solves for an edge case or wins a new customer category when my mature customer in the heartland is trying to grow corn more cheaply or mine coal more safely. So, understand how largeco plays offense and defense. Intimately. You need to explain how you help largeco play offense or defense inside their boxing arena. Do not romanticize about creating a new sport together.
Help them visualize the morning after: Here is how largeco does deals – there is a named sales rep, a named technical sales lead, a named solution architect and a named account manager. You have an inside sales team with an engineer moonlighting as a technical sales rep. Can you keep up when the flood gates open? You most likely can’t. So, think really heard about how you make them feel confident that you can drink out of the firehose and still knock out some serious NPS.
A lot of this is SaaS 101 and the solutions are very nuanced. But these are the overarching pitfalls I see time and time again at early stage startups.
So, take care of these details. Or your BD deal will redline to nowhere.
(Cross-posted @ Pretzel Logic)