Business Development (BD) & Partnerships Make NO sense for most Seed Stage Startups

I find this happens often for founders. They push for a partnership with a large distribution partner too early. The thinking goes like this.

“We have an awesome product and it’s so hard to get in front of customers. Plus I am not a sales expert. So we will just partner with XYZ BIG awesome company who have these customers and they help us sell it or use their channel to do it. Problem solved.”

On paper this seems like it makes a lot of sense. But I think it is a mistake. There are so many unknowns you need to figure out. Adding in a larger partner who may have different priorities adds complexity when you should be looking at some basic things first.

Oftentimes, your product is usually not awesome yet. We are talking seed stage here (ie. pre-Series A) where things are still half baked. There are most likely many issues and bugs. Something an established BD Partner will just not be able to tolerate or be willing to risk distributing to their valuable customer base.

I am a fan of BD/Partnerships for startups but only after they have figured out their own customer segments, have confirmed it by selling themselves and closing a bunch of deals. You need to have a clearer view on positioning: the story and value proposition and sales cycles. And you also need a decent sample set (10–50 customers yourself) and good basic sales process in place. This is the foundation to make BD work for you and you cannot short cut this.

Then and only then, does it make sense to think about and explore BD Partnership. Once you go down that path, you have to ensure you have the right people managing the partnership, educating the channel partners sales team, helping them craft messaging & marketing (that hopefully you will have from your own foundational work). You also need to think about how to manage commissions/revenue splits and track them.

You also need to have people on the team ready to jump in ready to fix stuff when something breaks on product, process or whatever side. Basic account management, otherwise known as channel management. If you do not do this, the BD/Partnership with XYZ Big company will not work because they will not trust that you help in future. Selling someone else’s product/service is always harder and commissions also do not always align to make it work.

So the point is you gotta sell this yourself, then build a team around yourself to sell it successfully. Then and only then, do you earn the right to engage in the BD/Partnerships route. And also more likely to make it work.

Written by

Ever curious: Tsundoku, Reader, Aspiring Shokunin, World traveller, Investor & Tech/Media exec interested in almost everything! www.marvinliao.com

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