

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

Hi HN,<p>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.<p>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.<p>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.<p>Thanks
B.
======
benologist
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.

~~~
batman
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.

------
jason_tko
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!

~~~
batman
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 :)

~~~
jason_tko
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.

------
bigohms
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.

------
curt
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.

~~~
batman
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.

------
knes
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

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

[http://www.facebook.com/apps/application.php?id=152643458091...](http://www.facebook.com/apps/application.php?id=152643458091452&sk=app_125778794174766)

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

