Do Your Homework Before Partnering -- With Anyone

Last Updated Jul 29, 2010 1:40 PM EDT


Jay Steinmetz is in the business of new ideas, especially around technology. His company, Baltimore-based Barcoding Inc., specializes in creating systems that enable "automated data capture and wireless access to information at the point of activity." Put in plain English, Steinmetz' company uses barcodes and RFID tags (radio frequency identification tags) to help companies become more efficient.

Consider its role in helping a company take inventory. A worker counts the items in a storage bin, scans the bin's barcode and then enters the number of items into a hand-held computer. Barcoding's system compares that figure with what's expected, and then requests a recount, flags a problem or signals that the worker should move on to the next bin.

The applications are far-reaching, and Steinmetz and his team are constantly developing new uses. They work in house to develop products and as consultants on specific projects. Barcoding, with 90 employees, posted revenues of $40 million last year. "We're kind of the skunkworks project place for the automatic identification technology community," says Steinmetz. "We often take what the customer is asking for and turn it on its head in order to provide the solution that the customer really needs."

The company has earned that reputation by discarding many more ideas than it pursues, whether due to flaws in the idea or problems with the potential partner. Through hard-won experience, Steinmetz now relies on two rules to vet projects the company is considering.

Rule one: Thoroughly think the project through
A few years back, Barcoding decided to pursue a new food safety application. The idea: Steinmetz's team would develop a system in which a user could scan a product in a grocery store and know right away whether it contained, say, peanuts or gluten. Steinmetz's team thoroughly researched the market and found that no such product existed -- and it seemed clear that consumers would want it.

However, Steinmetz neglected to consider the obstacles he might face in developing the system. Eventually, his team found that food makers were uninterested in providing the information necessary to make a go of it. What's more, the completed product could expose Barcoding to significant liability risk. "If the system was ever wrong and someone was lying on the floor going into anaphylaxis because they ate something they were allergic to, you know they'd be looking for someone to blame," says Steinmetz.

Eventually, Barcoding pulled the plug on the project, which cost the company more than $60,000, plus wasted time.

Rule two: Really know your partner
Partners can let you down in all sorts of ways, Steinmetz cautions. Sometimes they lie. Steinmetz recalls multiple instances in which partners assured Barcoding that they owned all of the relevant patents to various ideas, when in fact they didn't.

More often, however, a partner will let you down by mistake. For example, a company that works to fill vacant seats in convention halls approached Barcoding with an idea. Its executives wanted to develop a system that could take note of the empty seats in a sold-out concert or game, compare those to the tickets that had been scanned at the entry into a game, and potentially offer upgrades -- at a price -- to fans stuck in lower quality seats. "The idea sounded really interesting, so we jumped in," says Steinmetz.

Steinmetz and his team assumed that their partners' experience meant they understood the industry. So Barcoding developed the system and set about marketing it to venues. However, there was a significant flaw in their plan: It turned out that signing on with Barcoding meant that venues would breach their contracts with behemoth Ticketmaster.

Barcoding assumed many of the financial risks associated with bringing the product to market, in exchange for reaping most of the now-nonexistent profits. "It was a huge lesson," says Steinmetz. "The partner was probably somewhat reputable, but we trusted him rather than doing our homework, and it cost us."

When it works, it works well
When Steinmetz' follows his own rule, things work out. For the last four years, Barcoding has been working with a partner Steinmetz has known a while. Steinmetz knew firsthand the guy was trustworthy, knowledgeable and motivated. "Our partner had pertinent industry experience and he knew what the barriers to making this work would be," says Steinmetz. "He wasn't just a guy with an idea."

The partner's original idea involved developing a way for a supervisor to shut down machinery from anywhere in a manufacturing plant, which could be critical in the case of accident. But the product has evolved, and now is used for productivity as well. The tool uses a logic-based control system with RFID technology to evaluate a number of parameters before a worker is allowed to do something, whether that's turning on a machine or entering information into a console. (Steinmetz likens it to walking into the kitchen and only being able to turn the oven on if he's allowed to turn it on, there's no smell of gas at the time and no one else is planning on using the oven in the next few minutes.)

"It's extremely important to do your due diligence on any potential partnering deal," says Steinmetz. "You need to figure out how much the partner knows and exactly what they don't know."

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