How to Start a New Business Using the Lean Startup Method (part 7 – key partners)

Launched in tech university entrepreneur programs in California, the Lean Startup Method is expanding to other universities across the United States. After studying the failures of tech startups, the main goal of the Lean Startup Method is to eliminate all time, energy and money spent on creating products or services that nobody wants to buy. This method is intended for startup businesses, but it can also apply to existing businesses that want to grow.

The seventh step is to identify your key partners. Like key resources, key partners will be different depending on what kind of business you are starting. Creating a service? Building a physical product? Making a virtual product (smart phone app, computer game, online social media platform)? Different key partners. If key partners are critical to the success of your new business, it is vital to speak to them and confirm their interest before committing a lot of money and time to the startup.

In early-stage startups, the most important key partners are suppliers, companies with which you could form joint ventures, and non-competitive companies who serve the same target market with whom you can create strategic alliances.

The most common key partners are suppliers. If you’re Netflix, movie and television studios are suppliers. If you’re a retailer, wholesalers or distributors are your suppliers.

If you’re Carnival cruise line, you form strategic alliances with airlines to get your cruise customers to the ship, and with hotels, tour guides, and other tourist destinations at your ports of call to give your cruise customers a great experience when they leave the ship. Carnival and its strategic alliance partners combine their offers to give their common customers the best possible end-to-end experience, and if the prices and volumes are right, everyone makes money. Locally, health clubs, chiropractors, and health food stores might form a strategic alliance. Each of them serves customers who want to improve their health, and they don’t compete directly.

Joint ventures are more complex and difficult to execute.  Instead of simply combining their separate products and services into a package, the members of the joint venture establish new financial or ownership arrangements. In the simplest cases, one company may acquire a financial interest in the other, or license the intellectual property of the other, and create a product or service that neither one could do separately.

In the most complex form, members of a joint venture create a separate legal entity. They share control of the entity, as well as revenues, expenses, and assets. An example of a joint venture on a large scale is Airbus Industrie. It is made up of a consortium of French, German and British aerospace manufacturers jointly manufacturing airliners like the A-300, A-320, and A-380.

The danger of a joint venture is that the members are all pursuing their own interests, and depending on their individual costs and contributions, some members of the joint venture may lose money while others earn profits from the arrangement. Negotiating skills are critical to success in a joint venture.