By Karen E. Klein
Q: I have an idea for a niche market-research company and I'm looking for an alliance with an established market research firm to overcome my lack of credibility as a small startup. How do I decide what to ask for in terms of compensation? Should I ask for a percentage of the profits from each job I do with them, or a percentage of the revenue? How do I figure out an adequate percentage? -- N.B., Detroit
A:Before you worry about compensation levels, you'd be advised to focus on interesting these larger companies in working with you, and making sure you have a pitch ready (with solid research behind it, not just optimistic speculation) that emphasizes what you are going to do for them -- not the other way around. If you can't demonstrate that your business will bring them more business, new customers, an expanded clientele, or something else that's beneficial, why would they bother getting involved with your company in the first place?
As you've stated, you're a startup without a track record, and you're coming into this deal without much credibility. By aligning themselves with you, and lending their name and their customers, these larger companies will be putting their reputations on the line. If you do poor quality work, or alienate their clientele by being late or overcharging, you'll be handing them a major setback.
DETAILS, THEN MONEY.
That means you'll have to do an excellent job persuading a larger company's CEO to invest the time, effort, and funding on this alliance, rather than passing on it, or assigning someone in-house to reach the niche market that you're targeting. When you're meeting with these larger firms, don't even bring up compensation until you're well into detailed negotiations and have basically sold the deal, experts advise.
"Money should not be your first thought," says Pauline Field, CEO of International FieldWorks, a management consultancy based in Glendale, Calif. "It would send me running the other way, as I have met many people who ask that question first -- and then I know that this will not be a 'partnership' but rather that person feeding off us."
She recently met with a top exec from a global high-tech outfit in hopes of positioning her business in a strategic alliance similar to the one you're proposing. "In my approach, I first asked him what he needed and how I could help. After he had told me, I was then able to tailor my response to his needs, not my wants. The result was that as the prime contractor, he had immediate needs to sub out to us for resources, and I now have a major global corporation to partner with on large projects for which International FieldWorks alone would not be considered."
HELP WHERE IT'S NEEDED.
In preparation for your meetings, do some research to determine that these companies really need your help reaching this specific marketing niche, Field says. Check out their current customers, research the area you're targeting, and put some numbers on paper that will prove you can beef up their bottom line. Try to figure out why they are not covering this particular niche, says John Vinturella, a management consultant based in New Orleans. "Is this niche one you think they haven't considered? Perhaps they have decided it is...too small to pursue," he says. If so, you'll have to be ready to change their minds.
In terms of proving that you are a good risk, list your documented credentials -- in this field and other related fields -- and be certain that you have good references and professional materials, including a Web site, to back you up. Come prepared to offer the company something in an alliance that it cannot achieve at lower cost with an employee, Vinturella says. Alsom, have a definite idea what form you'd like this alliance to take -- although you will want to allow for flexibility if they have different needs, or prefer a different structure.
A FAIR PRICE.
Here are some other questions to consider: Will they bear the expense and risk of finding the customers in this niche, or will you? Is your ultimate goal to become an independent company, or a subcontractor to a larger firm? Do you want them to acknowledge your part in the research to the customer, or will you simply take a cut on those you consider to be "your customers"? Who gets to decide?
When you get to the issue of compensation, you should ask for a percentage of the sales that are directly attributable to your company. If you wind up primarily as a salesman -- drumming up new customers with your niche expertise -- you could ask for a standard 15% of the sale, Vinturella says.
If you're primarily a researcher, expecting the larger firm to funnel customers your way, you'll want to decide how much you will need to make the alliance worth your while, Vinturella adds, and ask for that amount. If you're both selling and providing the research, the split would be higher -- up to 40% of the sale for you, depending on how much you rely on the larger firm's materials, expertise, and brand name to attract customers and complete the job.
Have a question about running your business? Ask our small-business experts. Send us an e-mail at firstname.lastname@example.org, or write to Smart Answers, BW Online, 46th Floor, 1221 Avenue of the Americas, New York, NY 10020. Please include your real name and phone number in case we need more information; only your initials and city will be printed. Because of the volume of mail, we won't be able to respond to all questions personally.