How Does A Tech Company Get Beyond Its First Partner / Client?

A company has a long relationship with its initial client

, which provides key intellectual property to the company. This client handles all marketing, sales and distribution for the company's principal products, but only accesses 20% of the market. The client is concerned about having its image associated with expansion into markets that the company wishes to pursue. How do you structure a deal that enables you to access the broader market without offending the client?

Advice from a group of CEOs:

The issues for the client are public relations and liability. They don't want to be associated with certain segments of the larger market as it may compromise customer perceptions of their core business. Further, they want to be indemnified should they face damages from your forays into the larger market; even if you agree, they are the deeper pocket should there be a suit. It is important that you address their concerns.

Sit down with the key client. Pose a problem that will generate the solution that you seek and let them solve it on their own. Then seek an agreement with the client on carve-outs within the larger target market with which they are agreeable.

Look at developing an external company with different branding to approach the larger market, without jeopardizing the relationship with the key client. If ownership and management of the two entities are the same be aware that this is a thin veil. Also, keep HR policies similar between the two to avoid state regulatory exposure.

You may increase opportunity for success if you start to build your own successor product - one tailored for the larger market - while your key client is paying you for current business. Once the product is built and ready to go, ask the client whether they want to be involved and if so, on what terms. This puts you in a stronger bargaining position and reduces your downside risk. Here are the steps:

*Initiate a deal with another large client.

*If you have to utilize licensed IP from one of your current client's sources, have the new client pay for this.

*Then go back to your key client and ask them - do you want a piece of this business, or not?

Can you expand your offering, where current products are part of a larger offering? Would this make the client more comfortable? You have two alternatives: go there anyway, or go there with the client. If the client decides that they don't like what's happening and opens the market this could be ideal for you.

Consider your terminology. If there are negative associations with your venture into the larger market, try to adjust these perceptions by using more positive or neutral terms as you promote your efforts. For example, Waste Management created new terminology and a professional image for their services to differentiate themselves from traditional garbage collectors.

by: Sandy McMahon

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