Startups should seek quality not quantity in partnerships

When partnering with larger companies, startups with a small number of carefully chosen alliances will reap the most benefits, according to new research.
The study found that by aligning with established companies, a young firm gains valuable access to additional resources and markets.
However, as a startup adds more outside partners, eventually the firm's internal capability will weaken and the cost of maintaining its alliances will exceed any remaining benefits.
"Partnerships offer many mutual benefits; established companies can tap into a startup's cutting-edge technologies and innovative potential, while young firms acquire knowledge and status from experienced partners," said Ramin Vandaie, assistant professor of operations management and strategy in the University at Buffalo School of Management.

"But more is not necessarily better. We found the benefits of alliances with larger companies do not increase proportionally with the number of partners, but instead start to level off and turn negative as more partnerships are formed," he added.
The study examined 150 independent film production studios and tracked their partnerships with major studios and performance from 1990 to 2010.

Vandaie said the data can be applied to many industries, particularly creative fields like publishing or advertising, as well as professional services like accounting or law firms.
In addition, the research showed that highly specialised firms experience greater benefits from inter-firm alliances than more generalist competitors.

"Small, specialised firms that have the opportunity to align with larger firms should put their expansion plans on hold to gain the full benefits of those partnerships," Vandaie said.
"Later, they can use their newly developed capabilities as a basis for growth and a more reliable path to expansion," said Vandaie.
The research appears in the journal Organisation Science.