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The Curse of the Big-Brand Partner

I have a friend who works for a company with just one customer. Now, that customer is a huge one -- one of the largest Big Box retailers on the planet. My friend's company does critical infrastructure monitoring work for Big Box Inc.

Good situation or bad?

Many entrepreneurs leading small businesses would give their first born for a huge national account. Great reference account, stable income, and valuable experience all wrapped into one. And all true. But when the big account is the only one you have, problems multiply.

For example, how do you negotiate when your big partner knows you have no other choice? And even if you now have a great reference account, you don't have the time to pursue more business in between all the meetings at Big Box Corporate and the 3am phone calls from the Beijing outlet.

Here's another negative, as illustrated in a recent New York Times story, In a Partnership of Unequals, a Start-Up Suffers. If the partnership goes bad, and it's time to go to court, your little company faces a mountain of legal bills and an uncertain future against the big firm's accomplished Leagle Eagles.

The article illustrates a nasty trade secrets dispute between start-up Infoflows and the giant photo licensing company Corbis. The latter fired the former after only four months in business together, and each has since sued the other claiming violation of trade secrets and other offenses. (Infoflows won an initial court ruling and a $20 million award, which Corbis said it will appeal.)

For a start-up, the legal bills can be crushing. And Infoflows tells the Times that the simmering dispute has made it difficult to attract new clients. The legal challenge is a full-time job for co-founder Steve A. Stone. None of these things are good for a new company needing cash flow, new clients, and an engaged management team.

Several takeaways occur.

  • For any business but in particular a start-up, relying on the goodwill of just one customer is a recipe for disaster. Having a number of accounts will not only teach your fledgling organization to meet the needs of diverse clients, but also give you the ability to fire one of them should the partnership not work out.
  • If you do go into business with a big brand, recognize the obvious: You will have little leverage in the partnership, and are at a big disadvantage should things start to fall apart. Make sure your patents and other intellectual property protections are in order (Infoflows did not patent its technolgy, according to the Times), and have access to a great legal minds current on contract and IP law.
As Harvard Business School professor Josh Lerner, an expert on entrepreneurship, puts it:
"What you want is the business equivalent of no-fault divorce. You want the ability to experiment, fail and disengage, and move on, to keep the innovation process moving forward."
Have you ever been married to a giant partner that did you wrong? What's your advice?

(Image of Lord of the Rings sculpture by mararitanitz, CC 2.0)