Ask HN: Any advice for negotiating a partnership with a bigger company? | Hacker News Reader

Ask HN: Any advice for negotiating a partnership with a bigger company?

4 pointsbatman11 comments

Hi HN,

We have just launched a fantasy sports app on Facebook. Following a lot of the principles learnt from HN, we focussed on just getting the app out as quickly as possible and iterating rapidly based on user feedback. In two weeks we have grown to 600 users with some users playing the game daily.

Unexpectedly, we caught the attention of a much bigger web company, with approx 1.5 million visitors per month, who is interested in forming a partnership because we have the same target market and this company has been hoping to get into the Facebook space for sometime now. They are offering to advertise our app on their website in return for a 50/50 revenue split as well as having their name on our app.

Does this sound fair? From our perspective, we will benefit from a lot more exposure but because we funded the project from our own pockets it'll make the task of breaking even much harder. The ongoing maintenance costs and enhancements will be funded by us too. Any advice would be appreciated.

Thanks B.

So in exchange for some traffic they want

- their branding on your app

- you to pay all the bills / labor / support / etc

- 50% of the revenue

The revenue's the real killer, them funneling some traffic to you is almost certainly not worth 50% of your revenue, especially when they're just sending a pair of eyes (quality eyes perhaps, but still) that you have to effectively monetize.

Adwords and Facebook ads can also do that and they won't cost you anywhere near as much.

That's an excellent point, is the quality of their traffic that much better than targeted Adwords or Facebook Ads to justify 50%? I'm leaning towards no.

I'd advise you to have a fallback option. A BATNA, as described by the negotiation books.

To achieve this, I'd try reaching out to a couple of similar companies that have similar user bases, where you could do a similar deal.

Write a sales-y email describing the growth of the product, IE, 15% day on day growth, 600 users, good engagement, etc. Then drop that you've been approached by a similar company, and you're looking for a company to partner with, on both this application, and future applications.

And, boom. Once they're interested in bidding, you're suddenly negotiating from a place of power.

Don't forget that you have built something thats very valuable - an application that's growing, that has active users. Ensure you get a fair price for what you've done. And the best way to get a fair price, is by getting a better feel for the 'market value' of your partnership by talking to some other companies.

I wouldn't be too concerned about the idea that "breaking even is harder". If you can find a great partner with a X.X million person built-in user base, you'll be able to replicate this success many times over, for a mutually beneficial partnership. And with a couple of offers on the table, you'll be able to negotiate more favourable terms as well.

You'd definitely be able to negotiate a better split than 50/50. Plus, during the negotiation process, you'll be able to put some interesting benefits on the table to help you get an even better deal, such as - the partner company you chose will get first right of refusal on the next 2 products you generate.

Anyway, best of luck!

Thanks for the advice Jason, we often loose sight of how valuable our product is when comparing it against the big guys. I agree, having other options to gauge your market value takes the pressure off and balances the negotiation. Do you think it's better to delay the negotiations until we have a similar interest from another company?

As an fellow Australian you might be interested to know it's for AFL :)

I think it's good to do things in tandem.

As soon as you've sent your first email to another company discussing potential partnership options, I would recommend sending an email along the lines of:

"Thanks very much for your interest in doing a deal with us. I've looked into your companies background, and I'm really impressed with what you've managed to build.

We're definitely looking for opportunities to partner with companies like yourself to expand our potential userbase, since we've had demonstrated success with this particular app we're keen to continue to build on this success and growth.

In the interests of being open and upfront, I should let you know that we're in discussions with other companies about potential partnership options.

We'll be in touch soon with some more information or questions on how we might be able to move forward."

I would recommend sending a message like that. It does a number of good things.

1. Reinforces your interest to work with that particular company 2. Reinforces your app and the success and growth it's having 3. Shows that you're an experienced operator since you're fielding other quotes, and you're a good operator, because you're being up front and honest about it. 4. Shows that you're in no rush to make a deal, and you'll deal with things in your own time.

All together that sends quite a powerful message, and lets you start negotiating from a position of strength. Which, really, you're in. You just need to realise it, and communicate it.

Focus on your app...harder and faster. This validation from the competition means that you are onto something. Maximize in-game social remarketing potential to expand the audience. 600 users is small enough set that a willful larger competitor can throw 50-100K at to develop their own solution and market it to out penetrate you. Unless this is ESPN calling to market your app on their website, I don't see this as anywhere near a fair deal at current terms. The value of traffic is relatively low compared to high value terms like equity, brand and rev share, especially in a high growth, early stage product.

Don't get into hard negotiations with this firm until you know they are serious about making a play that benefits both parties equitably. This deal initially sounds like a mid-level VP found you guys, is hustling for a stellar deal that'll make him/her look great, without the CxO's awareness. Remember, a banner ad and pixel space on a website is cheap and relatively intangible, cold hard cash and brand awareness is not. Make sure you get to personally know the general directors of the company. Impress them with your team's insight and prowess on the social market.

They should fear your team--not vice versa.

There are a few things to think about. First if you put their name on it, can they then enter the market with a competing product acting as though their app is yours. Second, is it a permanent arrangement? If you can get in a cancellation clause and aren't worried about the first their isn't much too lose. Every 30 days do the math and figure out how much revenue they are bringing to the table if it's more than 50% than you are gaining from the deal.

Sorry I don't quite understand the first question, do you mean if they create another competing app it will tarnish our brand? For the second question, I think the agreement will have a time expiration, possibly a few months so both parties can test out the partnership. Is it worth contracting KPIs? A cancellation clause is a great idea, having some kind of protection so we can walk away from it.

I'm a big fantasy sport fan and I would love to see your FB Fantasy sport app if its already available :)

PM or post here

We are too! It's in Beta so any feedback would be appreciated too :)

http://www.facebook.com/apps/application.php?id=152643458091...

You're basically paying for traffic. Price it out and see if that makes sense.

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