I frequently see discussion about/advice for startups about dealing with big companies (“BigCos”). Hunter Walk at Homebrew has this great, widely-shared piece on how startups can avoid wasting their time with big companies, and Steven Sinofsky has tips on competing with BigCo (and he would know). This is all very smart advice, but the way “BigCo” is often presented also struck me as somewhat unfamiliar, especially in that idiosyncratically Silly Valley way.
I’ve spent most of my tech career at big companies, not at startups, and I think a lot of startupland lacks an appreciation for the “BigCo” perspective on things. This is unfortunate, since many of those startups aspire to either (1) get bought by one of the BigCos they spend so much time complaining about, or (2) become a BigCo themselves. So here’s a few things I wish they understood.
In the consumer web, startups are frequently more relevant to big companies than they are in our world in enterprise software/B2B. You see evidence of this in the acquisitive behavior of the GAFA giants, who must maintain their lock on distribution. For consumer businesses, distribution (eg. user growth, adoption, retention) is king, which is part of the reason why GAFA’s dominance draws so much consternation in the tech world. The eternal question for consumer-facing startups is: why can’t Google/Facebook/Amazon simply crush you with a blink of an eye? And why haven’t they done that yet?
(The answer-cum-prayer for most is: “It would be cheaper to just acquire us instead! Seriously!”)
In enterprise/B2B, however, things are different. Sales traction, not “user growth,” is key. This can make building a successful startup a much slower, labor-intensive and more expensive proposition, which is why enterprise software tends to be dominated by larger, older companies with deep moats. It’s also why, for me and most of my colleagues, startup competitors are typically an afterthought.
I find this generally true at enterprise software “BigCos,” but I suspect it holds for many large consumer firms too: to the extent we think about our competition, we usually define them as a small group of peer companies, roughly firms our own size or larger, who are selling to the customers we want. Eg., not startups.
To the startup, getting an inbound meeting request from a Biz Dev person at IBM or Microsoft or SAP could be a really big deal: “IBM wants to talk with us!” But remember that at virtually all large companies, the right hand almost never knows what the left is doing. Everyone has heard this cliche, but for those who haven’t worked at such a very large company, it may be hard to grasp how literally it is usually true. Reaching out might mean that an executive at a division of the BigCo wants to talk about a formal partnership (perhaps as a precursor step to an acquisition); but it also might mean that a mid-level partnerships manager just wants another logo for the constellation on their “open platform” page, right along with a dozen of your (read: not the BigCo’s) fellow startup competitors.
In other words, the value of that discussion is highly variable, albeit slanted towards the BigCo (as you would expect). That’s just the price of being a startup in a market with big players.
Here’s a not-so-secret fact: there are lots of companies, both in consumer and enterprise segments, who actually have great, well-engineered products, which no one uses because their sales or distribution process sucks. It is often much easier for a startup’s leaders to descend into engineering purda and then emerge with some whiz-bang software than it is to put together a strong sales organization that is able to execute at a consistently high level to distribute and sell that software. Neither is easy, mind you; it’s just that you see companies successfully do much more of the former than the latter.
So let’s talk Acquisition, because that’s what all the startups really want, right?
Some real talk first: most startups are not market-dominating unicorns. Rather, most are just honestly grinding, day to day, week to week, for points of market share and incremental edges over equally hardworking and smart competitors, whose products mostly have similar lists of pros/cons. BigCos looking to acquire are probably looking at a dozen or more such companies, many of which have similar economics. Different companies obviously have different M&A processes, but in my experience, a great deal depends on non-financial factors like quality of leadership and key roles, makeup of the customer base, product and engineering strength, and plain ol’ “touchy feely” stuff, like how everyone gets along. The financials are critical, obviously, but most due diligence teams I’ve seen care an awful lot about the relationships in play.
So this is where I have to disagree with part of Hunter’s take. Here’s my advice to startups in meeting with BigCo:
- Be open to a very informal meeting. It doesn’t need to be long – in fact, I’d intentionally time-box it. The worst that could happen is you waste an hour, and the best-case scenario is much more positive, so the expected value of that time augurs in your favor.
- Come reasonably prepared, but relax – no one’s expecting fireworks. Your last public product update is fine. We (the BigCo folks) probably just want to introduce everybody.
- Don’t go making demands yet. If some no-name startup is asking that Product Managers or engineers be in the room for a meeting before they commit, I’m probably going to roll my eyes and say forget about it.
At a BigCo, many of us get several inbound queries a month from startup BD people asking to meet to talk about how we could “work together.” I politely turn almost all of them down, after a reference to our partnerships manager (who, in turn, usually turns them down herself). The reason isn’t because we’re jerks. (At least, not only that.) It’s simply that, as one of my mentors at Big Blue once explained to me, most startups are really just looking to get acquired (which is way above my pay grade) and their products aren’t that interesting. So when we do pursue a meeting with Company X, there’s usually some good reason for it.
There is great wisdom in the advice, which both Steven and Hunter also mention, to keep your head down and grind. Hopefully everyone knows that. But if you’re a startup competing in a space dominated by BigCos, my advice would be to be open to working with them – not for their benefit, but yours.