How Big Deals Kill Companies

I'd also point out that this can be a massive benefit for a startup. Consider this: Microsoft would not be where they are today if they didn't take advantage of IBM not caring about exclusive rights to MS-DOS. Microsoft correctly banked on the idea (whether they fully knew it or not, I don't recall) that IBM did not have a firm grasp on their technology, and that IBM clone PCs would soon take over the world.

Another example. George Lucas was able to convince 20th Century Fox to give up merchandising rights to Star Wars. 20th Century Fox and IBM both had different priorities at the time, allowing the small player to win big.

The trick, it seems, is to make a deal that seems like a Small Deal with the corporation (they will readily agree with it) that is actually a Big Deal if the startup has a way to leverage it.

Once upon a time, in a far far Canada, there was a "Smart LED lighting module" startup. They had plan A and plan B: A - find a freaking huge buyer for the product, and forego all normal sales and marketing till late stage, B - start building up sales from scratch through a regular marketing/sales push.

At the start, both plans were given go. Sales through plan B were going up, but a "big name salesman" from plan A camp also scored a kill - one of the biggest lighting supplies distributor in USA. Upon hearing that, happy C levels completely wrapped up all further product development/marketing/bd and waited for them to obediently sign a cheque.

But, not so easy! That sale was just for their trial run, which would've taken few month, and they wanted changes, and the company simply can't pull out half million units from a Chinese contractor on a minute notice.

They eagerly put a bond for goods and dished out some cash for company's equity.

Half a year later, they come and say: "Ah we have kinda lost interest in that experimental thingy, and since we are in a financial crisis now, we have to wrap up all nonessential developments." They paid the bond, got their goods, and threw them into garbage and to liquidators. C-levels, investors, and the big distributor co. are still suing each other since 2014.

Morale of the story - all eggs in one basket is bad.

I would love to see a lot more articles about the pitfalls of a new company investing too much in landing a big client and all that can go wrong with it. I regularly see questions on HN where a small company is basically under the thumb of a larger one and asking for advice on how to be even more of a doormat. They imagine they can't say no. They imagine if they are sufficiently cooperative they will finally have it made in the shade. The reality is they are often well on their way to going from frying pan to fire.

I think this is a huge, huge pitfall that small companies face. There needs to be a great deal more education, not only about the fact that this is a serious problem, but also about how to cope more effectively with large clients while you are still a small fry. So many new companies feel thrilled and flattered when a large company takes interest in them when they really ought to be much more concerned about the ways this can go badly for them.

There is an African saying: When elephants fight, it is the grass that gets trampled. Far too many small companies fail to recognize that behemoth companies are threatening to trample them under foot. It is the business version of "winning the lottery."

The large company or large client you choose has the ability to completely wreck everything so the smaller fish bends over backwards to do everything to keep the big deal. If you are lucky with timing and a good large client it can be massively good, and that is the attraction to that, but ultimately it can also fundamentally change your mission or ability to get and handle other large deal/clients.

This is similar to the service/contracting industry where you have a handful of large clients or go product development where you have many small customers, the latter always seems to have more lasting power because the loss of a handful of customers in a sea of them is less than the handful or one large client that controls your destiny. The product company that is selling as a service or subscription doesn't need to constantly make sure the large client is happy, just most of their customers. Both types pull you in directions and change you but products with many smaller customers have more stable market support, however the latter takes more time to build.

Self-awareness is critical here.

One place I worked at locked in over half of the big fish in the NA market and never made money off them. We would have been much better scaling up on smaller contracts.

Though, at that point at least, Veeva was basically a salesforce reseller.

If you feel you must pursue such a deal against this advice, one way to counteract the negative effects is to bake in a break up fee in the evaluation/trial phase (don't call it that, though).

Most 'Big Deals' will come with such a trial / prototype phase. One way to structure a 'break up fee' is to say: the trial will cost 10% of the final annual contract value - if we close, this will be counted as a rebate against the final price, if we fail to close, startup will keep the 10% to cover their costs of the phase.

I wouldn't be surprised if they aimed for large deals; this may be an excuse for how they're surviving without them.

That said, surviving without large deals is likely good advice for small startups; just don't confuse the message with the medium here.

Is it sensible to turn your head at a big deal asking the company for a smaller one as opposed to avoiding them entirely?

I think that big deals are always a good thing. Any misfortune that people might encounter after they've won a big deal can only be blamed on themselves.

Most people never get any big deals and have to build a company the hard way. Just slow painful progress.

in retrospect the effort wasnt worth it. the deal consumed many months of our focus and work (plus as a bonus a neverending worry on our minds, because of continuous small requests), during which we werent able to advance our product.

at the end of the day, it is all about creating a great product, which will then sell itself.

in contrast to that, closing a big deal has often more to do with 1-2 senior people at a big company thinking that they need this product for their customers. those senior people may be wrong, because they dont have a good feel about what new technology is attractive to people. and the kicker: no matter how big the deal, once no benefits materialize for the big company, they will kill the cooperation quickly (and usually have ensured enough fineprint to be able to do so).

my summary: there is no free lunch :)