Doug Kilponen, Ben Smith: First They Ignore You, Then They Want To Buy You: Managing The Startup-Big Company Relationship

Every entrepreneur has met them. Big company executives with big company swagger. They ignore you. They dismiss the business problem you spent your life solving. They think they can crush you.

Then the tables turn. They push for strategic relationships. They want to give you money, frequently at irrationally high valuations. Finally they shell out enough scratch to buy you.

It is no easy task turning big company hesitation into commitment. But several key steps will help you manage this potentially make-it-or-break-it relationship. Through it all, be sure to drill into their heads every step of company progress as sales begin to multiply.

Managing a big company relationship is something we learned first hand at MerchantCircle. Our first executive-level meeting at IAC, with its more than 50 Internet brands including Citysearch, Ask.com, Urbanspoon and ServiceMagic, ended with the disturbing claim that merchant outreach wasn’t that important. Since merchant acquisition was core to MerchantCircle’s strategy, the statement was unsettling and a challenge.

Within a few years and after a change in leadership, IAC became a MerchantCircle investor and internal boosters pushed for our acquisition. By then we had business relationships with several IAC operations and developed the start of lifelong relationships with some of the most interesting people on the web: Kara Nortman and Rob Angel at CityGrid; Craig Smith at ServiceMagic; and Peter Horan, former head of IAC Media. Along the way we also had a chance to learn a few things from Barry Diller, IAC’s Chairman, and Tom McInerney, its CFO.

Many founders walk away from big company meetings convinced the executive behind the desk thinks they should abandon their crazy startup idea. If you really were a smart person and knew what Google, or IBM, or BankAmerica knew, you would seek a job just like his or hers!

This is nothing new. Just read the stories of Microsoft’s early dealings with IBM to understand how a corporate battleship believes it can nimbly defeat a software wannabe.

You shouldn’t let this dismissal turn into an ignore-the-big-company strategy. Given the importance of ecosystems such as Google’s, Apple’s, Cisco’s, or Facebook’s, such a move probably won’t work. The right answer lies in persistence and in convincing the larger entity that you’ve had the right answer all along.

We found the stages you will go through with big companies unfold something like this:

  • Your concept is dumb and no one needs it.
  • It’s cool you are doing a new company but so what?
  • This is just a feature and we will just build it ourselves.
  • O.K., you’re on to something, but we don’t know what yet.
  • We want to partner with you but all the terms will be skewed towards us, thank you.
  • If you don’t sell to us, we are going to copy you or buy your competitor.
  • Copying did not work. We want to acquire you or partner as a peer.

Here are some thoughts on how you can turn the experience in your favor:

  • First and foremost, listen to them, learn from them and then ignore them. If you stopped every time someone decided you were nuts, you would not get out of bed.
  • Figure out what assumptions they’ve made that allow them to dismiss you. Then attack the assumptions when you communicate with them. Don’t overlook these rebuttals.
  • Don’t pick a fight with the partner publicly or privately. Remember it is your role to help these poor souls break away from their five-hour staff meetings and actually innovate.  (Of course there are times when you can position yourself well in the market by attacking the big guy. Think Salesforce.com versus Siebel Systems as the most important recent example.)
  • Pick metrics that support your view of the world and communicate them every time you talk to the partner. Tell them what you are going to do, do it, and then tell them what you’ve done. Rinse and repeat. The more they hear of your progress, the more they will figure out that your metrics matter and that you own the results. Then maybe they will need to own you, too.
  • Stay close and build relationships. In the end, you can’t fake it. You really have to care about the people on the other side. Remember that you provide them with value. You are out there learning something every day while they sit in five-hour staff meetings.
  • Stay persistent and make your vision happen. Most large companies can’t think beyond a 12-month budget cycle, or the average executive tenure of three to four years. Like MerchantCircle with IAC, you will probably work through a couple executive teams at the big company. One of them will get it.

If you keep at it and remain persistent, you are going to be there when strategic moves are required. But you need to be at the table through it all.

And, finally, remember to show sympathy for these guys. They may have laughed at you once or a dozen times. But they are the ones stuck in 18 meetings a week and filling out forms in triplicate to order coffee.  You’re doing what you love.

(Ben T. Smith IV (photo left) is a serial entrepreneur, investor and the co-founder of MerchantCircle.com and Spoke.com. Doug Kilponen (photo right)  is the former SVP of business development and customer acquisition at MerchantCircle.com. Ben and Doug worked together A.T. Kearney. Ben is available on Twitter @bentsmithfour.)

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