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Get Big Tips on Strategic
Partnering at Coffee & DoughNets

Nighttime networking proved popular with netpreneurs, as over 200 people came to Georgetown University for Beer & PeaNets, the evening edition of the early-morning Netpreneur Program Coffee & DoughNets events sponsored by the Morino Institute.

Attendees celebrated their recent business successes, networked and shared advice. Mario Morino, with the help of Steve Crocker, Chief Technology Officer of CyberCash, exhorted netpreneurs to aggressively pursue and engage in strategic partnerships to make their businesses grow.

Representatives of Georgetown's MBA and Culture, Communications and Technology Program, which hosted the event, joined the netpreneurs for the evening.

  • and IntraDynamics have recently received venture-capital investments.

  • Leon Harris of Chaos New Media reported that his company, which produces mulitplayer games, has inked deals with Children's Television Workshop (makers of Sesame Street) and Fox Sports.

  • David Feldman said that Outreach Technology's product was named Audio Conference Product of the Year by CTI, a publication which bills itself as "the authority on computer, internet and network telephony."

  • National Geographic Magazine will run a story on Ann Shack's company, MapSys, in their April/May issue.

  • Lisa Amore reported that TV onthe Web will be featured in the Feb./March issue of Videography Magazine.

  • International travel highlighted two successes : Michael Garrity of Sanga International just moved from Canada to D.C. to open Sanga's second U.S. office, and Daniel Edelstein reported that he's taking his Joy Of Nature company on the road in February to the Galapagos Islands, where he will file virtual eco-travelogues for the Darwin Fund.
After success stories, Mario Morino acknowledged two distinguished attendees at the night's event, technology inventor and visionary Doug Engelbart and CyberCash founder Steve Crocker. He then introduced his topic for the night: "Strategic Partnerships."

Netpreneurs need to think about partnerships on the broadest level, Morino said, defining them as "any business relationship from which both parties stand to benefit." Urging attendees to "be strategic and think boldly, but realistically," he outlined the pitfalls to avoid and the opportunities to seize in the quest for new partnerships.

Early customers should be among your most coveted partners for several reasons: the demand for a deliverable will keep your development process on-target; you will learn the most about your business from the process of helping these early clients; and customers with whom you have good relationships are often excellent sources of venture capital.

Both in getting and cultivating partnerships, Morino stresses that netpreneurs "have to be the hunter." Constantly search out new information on your industry, on the business climate in your region, and on the operations of your partners and potential partners. Opportunities abound, says Morino, but making great partnerships takes a real investment on all levels of your organization.

Morino defined three primary types of partnerships netpreneurs are likely to get involved in: little guy/little guy, little guy/big guy and "reverse customer" relationships.

"Reverse customers" are clients who have a piece of technology they are not utilizing or are underutilizing, for which you see commercial potential. Arranging ownership or licensing of this technology can develop your own product line, at almost no cost to you. Morino suggested looking at operations throughout your partner's company, in order to uncover hidden "reverse customer" opportunities in different departments or units.

Little guy/little guy partnerships are the mainstay of small businesses, said Morino, and all netpreneurs should be involved in them. Often they are barter relationships, in which one partner may offer marketing consulting in exchange for computer network consulting, for instance.

Co-marketing with another "little guy" is also common, where both parties assume responsibility for sales and service and use each others' expertise to enhance their own product.

Some netpreneurs in the room gave examples of their own:

  • Lisa Amore said that TVontheWeb is co-marketing with PSINet, which provides the bandwidth for their Internet video broadcasting service.

  • Skip Keats of Stoa Futura Consulting says that he has partnered with several other small consultants to buy into a shared Web site.

  • Michael Bruce of Strategic IDEAS said that his company brokered a deal with a company outside the area who had a similar business, selling CD's on a Web site with community-building tools. Each is contributing its expertise to a new site that they share.
Big guy/little guy partnerships stand to be most financially rewarding, but also carry the greatest dangers. If you go into a partnership with a "big guy," always work hard to gain access to and exploit the resources that come with dominating the market: excellent market research and access to proprietary information about the market, superior distribution channels and ability to handle volume distribution, and the credibility you'll carry with you in that association with a market leader.

If you're considering entering a distribution arrangement with a big vendor, you've got a lot of homework to do up front to make the venture successful, warned Morino. You must educate yourself on the different sales channels used by the company. Find the right one(s) for your product and develop personal relationships with the department heads.

Make sure that the sales force will have incentives to sell your product. Otherwise, they may use your product to get in the door but not actually include your product in the sale, effectively freezing you out.

Also ensure that you get the information on all sales leads, so that in the future you can establish relationships with those clients.

Always go into negotiations with a big guy with an excellent negotiator and a good lawyer, to ensure that you get the deal that is right for you. Understand that deals with big guys, like all deals, are made more on the basis of emotional need rather than business need. It pays to know what makes the person with whom you're negotiating tick.

A good lawyer will write or review a contract with the goal of making it fair for you. Morino advised working with your contact in the company to draft a "business language" list of the points of agreement on your deal. Hand that to the lawyers to ensure that these points are met in the contract, and refuse to sign a contract that doesn't measure up.

Morino warned that in big and little partnerships, joint development is a relationship fraught with pitfalls. Among them are issues of intellectual property for all the different aspects of the product development, and the hassle of creating a fair non-compete, no-hire, exclusivity contract and policing it.

All partnerships, stressed Morino, are built on mutual benefit, trust and understanding. Do not pursue partnerships that require "missionary selling" tactics -- you want a partner who "gets it" from the word go. And always keep your eye on what you're getting from the partnership, rather than worrying that your partner is getting too much from you. As long as your business gains, it's a winning situation for you.

Steve Crocker spoke about his company, CyberCash, and he reflected many of Morino's points. CyberCash established a little guy/big guy with Wells-Fargo, one of its earliest customers. Once sealing the deal to provide services to Wells-Fargo, CyberCash threw all their resources into fulfilling the deadline in April 1995. The result of this relationship was a great learning experience, financial support from Wells-Fargo and a new three-way partnership with Virtual Vineyards, CyberCash's first virtual storefront customer.

While gearing up for their Wells-Fargo contract, CyberCash also developed a little guy/little guy relationship with a computer vendor, with whom the company has continued to work. Crocker said that this vendor worked in competition with another, larger vendor on the job, and that this was a great way to assess the capabilities of two different potential partners and see which one would shine. A little guy willing to work hard can shine in these situations, because the bigger guy is slower to react and learn.

Cliff Brody of Kids Own America related his own experience negotiating with American Airlines to contribute unused frequent flier miles to childrens' savings accounts. Brody made the bold move of going to industry leader American against advice that he should go to a weaker competitor like TWA. He felt that getting American on board would bring along the rest of the major carriers.

Brody found a contact at American through an attorney he knew, and made it in the door. He sold his service on a good basis for American, reinvigorating the "worth" of frequent flyer miles for consumers. And he negotiated until he got the deal he knew was fair for him and for American, allowing him to partner with other airlines rather than making the deal exclusive to American.

Other advice that came from netpreneurs on partnering with the big guys:

  • John MacKinnon of A Passion for Licensing advised netpreneurs to look carefully at the "brand worth" of their potential partner, so that they know they are going to get only positive associations with the name of their partner. Read the contract carefully to find out exactly what exclusivity arrangements there are, and be wary of deals in which the partner is only looking for a royalty stream, because there will be little motivation to sell your product.

  • Mike O'Horo of Sales Results Inc. said resist selling until you know what the source of funds will be from your partner's company. He also said that it's important to price your product on the basis of the "value spread," making sure neither to over nor under-sell. Base your price on the perceived value to your buyer.
Mario rejoined to say that it's important while negotiating to talk about value, not price. He also said that it's important to make any prospect feel like they're in a competition to get your services, whether it's true or not.

Copyright 1998 Morino Institute. All rights reserved. Edited for length and clarity.  



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