SoFi Startup Stories: How NOT to Negotiate With Bigger Partners
We recently announced the newest members SoFi Entrepreneur Program, a group of promising SoFi members who are starting businesses while also paying off student loans. As they progress through the program, we’ve asked each member to share important lessons they’ve learned on their road to startup success.
This post comes from John Ciecholewski, CEO and Cofounder of Sunn, which is both an app and an LED light that mimics sunlight indoors in real-time to help keep your body clock be in rhythm with nature. Learn more at www.sunnlight.com.
In 2013, a Fortune 50 company invested millions of dollars into a not-so-small startup that crowdsources invention ideas and brings them to market. The investment was part of a broader strategy to broaden the bigger company’s “innovation funnel” and enter the smart home market.
At the time, my company, Sunn, was working on a smart light bulb, and it seemed as though our product would be a great candidate for this smart home initiative. But what we thought would be the perfect partnership ended up being anything but – starting with a negotiation process that cost our company precious time and effort.
We began discussions with both companies not long after their investment deal was inked. For nine months, communications between all parties were very positive and enthusiastic. We heard a lot of great feedback about how our concept, team and design fit into their overall smart home strategy.
Finally, the big meeting was held in February 2014. We walked in thinking we were in good shape, but unfortunately learned – at the very end of the meeting, no less – that there was one major factor which had never been communicated to us. Our potential partners wanted a low priced, high volume smart light bulb. They wanted an easy win. And since the Sunn product didn’t quite fit the bill, all we got was a very polite “thanks, but no thanks.”
In hindsight, here’s what we learned about negotiating a partnership with the big guys – and how we would have done things differently:
1. Get compensated for your time
The giants have zero problems sitting on a decision for months, but for a startup every minute is precious. We spent nine months on a relationship that didn’t amount to anything material. Had we agreed on a timeline and compensation in the event that a partnership didn’t pan out, we would have at least been paid for the cost of not pursuing other opportunities. Your time is money, so get it in writing and get it signed early. If they won’t sign anything, walk away.
2. Be a better investigator
When you’re in the informal discussion phase, focus on asking questions and listening instead of talking. This one sounds obvious, but it’s easy to forget when you’re excited about negotiating with giants. At the big meeting, we delivered a presentation with sensitive information, which could have been avoided if we’d only had more frequent informal dialogues and uncovered that one game-changing factor.
3. Target the decision-makers
To gain leverage, get individuals with decision-making authority on the inside to bat for you. Negotiating is a “people game,” and getting the right people on your side is key. We had strong advocates at both companies trying to make it work. If they’d had a stronger say in their organization’s decision-making process, a partnership might have been reached.
The aftermath: The other parties eventually did release a hub and smart light to the public a couple months after the meeting. Sunn did provide input into the engineering, marketing and design processes on a connected hub and bulb concept, but Sunn does not receive any royalties.
What else should Sunn have done differently?