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August 2008
The Power of Strategic Partnerships
The Power of Strategic Partnerships
One of the most powerful tools available to early
and mid stage companies for accelerating growth
is the strategic partnership. A successful strategic
partnership can be one of the few real world
examples of that significantly overused word –
synergy. So, what is a strategic partnership? How
can you identify the right kind of strategic partner?
What are the powerful benefits of a strategic
partnership? What are some of the pitfalls to be
aware of when entering into a strategic
partnership?
What Is a Strategic Partnership?
Let’s start off by looking at the definition of a
strategic partnership. My definition of a strategic
partnership is when two or more companies enter
into a formal business agreement to pursue a
common strategic goal. Strategic partnerships are
most commonly driven by the decision of each
company not to invest in that portion of internal
capacity required to achieve the goal on their
own. Let’s dissect this definition to better
understand this powerful tool. First, one of the
main reasons an early to mid stage company
would seek to enter a strategic partnership is to
gain access to a resource that is beyond their
current financial or operational means. For
instance, partnering with a leading, tier one
company in an established market may provide
immediate access to a global sales and support
organization as well as expert marketing
resources for that segment. In addition, having a
company of this stature incorporate your
technology or product into their portfolio provides
a major endorsement of your company to the
customer base and potential investors. This can
greatly reduce time to market and acceptance of
your technology and/or product. The tier one
company benefits by gaining rapid access to
leading technology, which provides a strategic
competitive advantage, backed by an
experienced team without having to try and
accomplish this with internal resources. Almost all
large companies today have come to terms with
the fact that developing new technology internally
is becoming much harder to successfully achieve.
This is one of the major drivers of the growth of
the current M&A market. A strategic partnership
should not be confused with a joint development
program. A joint development program is where
two or more companies typically share
development resources, know how, costs, etc.
and ultimately share the technology, including any
intellectual property developed during the
partnership. There are many reasons why this
can be a dangerous road for early to mid stage
companies. I will elaborate on this below.
Identifying the Right Strategic Partner
So, how do you identify the right strategic
partner? The answer depends on many factors
but one of the major drivers should be your
strategic marketing plan. Look at the markets you
have targeted to enter. Are their existing
companies in that segment that could achieve a
strategic competitive advantage by incorporating
your technology or products into their portfolio?
Are there technologies or products in their
existing portfolio that would be in competitive
conflict with yours? If the answers to the previous
questions are yes and no, they are a potential
strategic partner. Next, look at the potential

2. partnership from your company’s viewpoint. What
do the potential strategic partner companies have
that can help you enter your targeted market and
accelerate the profitable growth of your
company? Perhaps, as described above they
have strong brand recognition. You can imagine
that customer acceptance of your technology or
product would be much faster under a co-brand
with IBM® brand, for instance. Another
compelling advantage would be gaining
immediate access to a seasoned global
distribution network with strong long term
customer relationships. Yet another benefit may
be access to key marketing expertise that may
allow more accurate product specification and
development of a successful marketing strategy.
There are two key points to remember when
identifying a potential strategic partner:
• The partner should be in a market that you had
targeted in your original strategic plan. Resist the
temptation to enter a market just because a
particular company is interested in partnering with
yours. The whole point of a strategic partnership
is to accelerate the achievement of YOUR
company’s goals.
• Make sure that the partnership provides
sufficient strategic benefit to both companies.
This means that both companies’ should be
providing equal strategic competitive advantage
to the other, though this may be in differing
disciplines.
Benefits of Strategic Partnerships
The major benefit of entering into a successful
strategic partnership is the ability to utilize the
leverage of your existing technology or product
offering to gain access to resources that would
normally be beyond your means to obtain. As
described above, these resources can range from
the ability to sell under a strong brand name to
having immediate access to a seasoned
distribution network or marketing expertise.
Successfully executing a strategic partnership
can greatly accelerate time to market and reduce
the perceived risk by customers and potential
investors in your company. Both of these can
allow you to significantly grow the valuation of
your business in an accelerated time frame with
greatly reduced investment. Another key benefit
is the ability to work with a company with
extensive experience in your target market. This
can significantly reduce risk. The cost of
misreading a market can be large, and is usually
irrecoverable.
If you have demonstrated the ability to identify
and commercialize your technology through the
use of a strategic partnership agreement it can
greatly increase leverage during subsequent
funding negotiations. In addition, it is not unusual
for the larger of the strategic partners to be a
viable candidate to make a strategic acquisition of
your company down the road. Since they are
already experienced with your technology and
team it can often result in a significantly reduced
due diligence period and smoother negotiations.
Some Potential Pitfalls of Strategic Partnerships
Like any business agreement there are some
pitfalls that should be avoided when entering into
negotiations on strategic partnerships. These
include:
• Intellectual Property – Unlike joint development
programs there should be no ownership sharing
of intellectual property. The underlying premise of
a successful strategic partnership is that each
party is providing a complementary piece of the
business relationship. Therefore, each company
should be able to retain ownership of what they
are providing. There are other methods of
allowing use of your intellectual property while
retaining full ownership such as licensing.
• Exclusivity – It is not unusual for both
companies in a strategic partnership to seek
some type of exclusivity clause. The premise here
August 2008
The Power of Strategic Partnerships

3. is that if you are seeking investment and
commitment to help bring your product to market
it is reasonable for the strategic partner to expect
that you are not providing the same technology or
product to competitors in the same market.
Conversely, you should be able to expect the
strategic partner will not be distributing
competitive products. Some other key points to
consider:
• Limit the exclusivity to a clearly defined market
segment.
• Limit the exclusivity period to a defined time
frame. This can be subject to renewal based on
agreed upon criteria.
• Have a performance clause. If the strategic
partner is not meeting the agreed upon “level of
effort” to promote or distribute the product, for
instance, there should be an option to void the
exclusivity and seek other partners, or in extreme
cases to void the strategic partnership agreement
in its entirety.
• Branding – One of the key advantages of a
strategic partnership for the early to mid stage
company is both the company and technology
validation of partnering with a known and
accepted brand. Make sure your company name
is prominently featured so you are achieving this
goal. This can be accomplished by co-branding,
etc. Negotiate for joint press releases, etc. to
achieve full benefit of this important relationship.
Don’t ever let your technology or product be
buried in the bowels of a larger corporation’s
portfolio. Otherwise, all you have gained is an
additional revenue stream and there are better
ways to achieve that.
• And, of course, always seek legal advice from a
trusted attorney experienced in strategic
partnership agreements.
So, as you can see entering into a successful
strategic partnership can be a very powerful tool
for an early to mid stage company seeking
accelerated growth at reduced risk. It can also lay
the groundwork for a successful future exit
strategy. Like any business opportunity, a
strategic partnership needs to be evaluated and
executed carefully as there are many potential
pitfalls, some of which can be quite serious.
Copyright 2006 - 2008 The Rockland Group, Inc.
All rights reserved. Reproduction without
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August 2008
The Power of Strategic Partnerships