Great Ideas for your Small Business: Find a Strategic Partner
Finding the right strategic partner is a critical key to success for many small companies. Teaming up with a bigger, financially stronger partner can provide a source of cash for growth and expansion. Joining forces with a more creative, nimble, or well-connected partner can open doors to new markets.
In the case of BabyPressConference.com, which provides live streaming video from kiosks set up in hospital maternity wards, the company relied on a strong relationship between its owner and the chain of hospitals he worked for to raise $4.9 million in 2000 when the rest of the dot-com world was crashing. The company, founded in late 1998 by Lee Perlman, executive vice president of the Greater New York Hospital Association, capitalized on Perlman’s strong industry connections when it came to promoting, placing, and funding its video streaming services to hospitals. A for-profit subsidiary of Perlman’s nonprofit trade association invested $1.5 million in BabyPressConference.com and owns 40 per- cent of the company. And Perlman openly acknowledged that his current high-level executive position in the hospital industry gave him access to the maternity ward, a very secure place in the hospital.
Through BabyPressConference.com, proud parents can broadcast live on the Internet from seventy-five hospitals, reaching friends and family at no charge. The profit model? The video file is only available online for two weeks after the initial broadcast. The company hopes to make money by selling families a CD-ROM of the thirty-minute broadcast for $29.95.
Because parents and grandparents are avid consumers of baby clothes, toys, and equipment, investors including Toys“R”Us eagerly supported Perlman’s company and partnered with the BabyPressConference.com site by providing links to its Babies“R”Us online store. When expectant parents register for the webcast, they can also register for baby gifts at Babies“R”Us. Michael Goldstein, chairman of Toys“R”Us, said that the business relationship with BabyPressConference.com was a natural one. And, after using Perlman’s streaming video service to introduce his newborn daughter to the world, Gold- stein proclaimed to the Wall Street Journal that the service was fantastic.
Perlman said he’s attracted a total of $13 million from investors, including Cabletron Systems’ Enterasys Networks, which sells technology to hospitals, and Primedia, which owns American Baby magazine. “In a tough financing environment, you have to look for the right strategic relation- ships,” advises Perlman.
The right relationship can also spell the difference between success and failure when it comes to raising money. If you listened to your parents and went to a top university, you may have a better shot at funding your dreams because of your school ties.
“We believe entrepreneurs who have gone to top schools have a better chance of success,” said James Marcus, CEO of UniversityAngels.com. “So the question is, how can we help these people achieve and succeed in the entrepreneurial world? We’re very much based on alumni helping alumni.”
Founded in 1999 by four graduates of Harvard Business School, UniversityAngels.com has facilitated about a dozen deals since its launch in January 2000. The company has also established a $20 million fund that intends to make follow-on investments in a select group of companies that receive funding through the network.
Angels and entrepreneurs can find each other via the network of about seventy-five university-specific websites. (Forty-five of the schools are U.S.-based.) So far, more than 2,000 graduates of top schools have registered as accredited investors with an interest in connecting with worthy entrepreneurs.
“We received funding from people we never would have contacted in any other way,” said Stephen Hassett, CEO and cofounder of iTendant, Inc., a small Atlanta-based company that sells software to property management companies. The firm raised $780,000 from several private investors. Although Hassett declined to say just how much money came through his UniversityAngels.com posting, he said that entrepreneurs trying to raise money should log on to the UniversityAngels.com site to see if their alma mater qualifies for access to the network.
“They really did a great job in an extremely tough market,” said Hassett. “There were a lot of eager investors and they found some for us.”
Forming alliances is time-consuming but has the advantage of letting you work with established companies rather than starting from scratch. Keep in mind that a successful alliance has to create a win-win situation for everyone involved.
Here are some things to consider before you craft a strategic alliance:
- Set clear goals for what every partner hopes to accomplish.
- Clarify exactly what each party has committed to do to move the project forward.
- Specify who will be the key players and how they intend to communicate with everyone involved.
- Try a small project before you leap into a major initiative.
- Regularly review the success of the project and make suggestions for improvement.