Finding the Right Partner for Your Startup

Would you rather be a small fish in a big pond or a big fish in a small pond? It's a question we face every day. Should you attend the large college with more resources but also more competition, or should you attend the small college where you'll get individual attention? According to new research, it turns out that the big pond, small pond question is also crucially important for entrepreneurs.

What we do in the paper is that we study the decisions of entrepreneurial firms, because these entrepreneurial firms need to decide with which established firms do they partner. Do they partner with a big pond established firm which has a lot of market access but but where they might not get that much attention? Or do they partner with a small pond established firm which doesn't have that market access but where they get a lot of attention? So we looked at this in the video game industry and specifically we looked at PlayStation 2 games. And PlayStation 2 games was fantastic because it was such a hot market. There were lots of developers who wanted to develop for the PlayStation 2, but developing for the PlayStation 2 was incredibly complicated. And you really needed to get the support from publishers, help you actually finalize these games and then commercialize them. And so this question became very salient. Did you want to go with a publisher who would represent a lot of developers but would have a lot of power in the market, or would you go with a publisher who would be really focused on you but might have less access to customers? What we find is that entrepreneurs actually care deeply about whether they are big fish or whether they are in a big pond. There's a lot of variation and they are very thoughtful about how they make this decision. In general, it's very clear everyone would like to be a big fish in a big pond. The thing about it is you face typically a trade off. Most people need to decide whether they want to be a big fish in a small pond or a small fish in a big pond.

Our data show that you need to think about what resources you already have versus what you will need to get market ready. Do you need help with honing and refining your idea, perhaps with your personal skills? If so, go for smaller puns. In contrast, if you're already experienced with a more polished product or idea, and you just need to reach the market and get your product in front of many customers, then go for big points.

You also take into account to what degree you'll be able to prevail in the competition. When you join a big pond, you will face competition for many others. And will you be able to succeed despite that competition?

Many entrepreneurs need to think about with whom to partner to get the resources they need. Simply put, the advice for entrepreneurs is to make an inventory of their existing skills and resources and then make a decision.

Make a choice of partners as Katila suggests, one implication of this research is that entrepreneurs should make an inventory of their existing skills and resources before they decide whether to go with a big pond or small pond partner. There are a few other implications as well. In addition to inventorying your own expertise, inventory what your partner has to offer. Will they have enough time for you or will they be splitting their attention between you and too many others? Thirdly, accept the trade offs and make the most of them. If you know you're inexperienced, don't hesitate to partner with smaller ponds. Even if their market access is limited. Small ponds will have more time for you and will help you hone your ideas into marketable products. On the other hand, if you are more experienced, don't hesitate to seek out big ponds that offer market access and help you reach a big audience, even if it's apparent that they won't have much time at all to help you develop your product.

You could also flip the question and ask what do the results mean for the pons? For the established firm partners, we suggest that some platforms may choose to become more active in helping their sellers succeed. For example, platforms may choose to provide personalized development help, thus becoming more attractive to early stage sellers and to those who face intense competition in their niche. This strategy may be particularly attractive if you're a small, up and coming platform. You can thus differentiate yourself from the more rigid approach of bigger platforms. Now, as for future work, we study the mutual decisions of many individual actors who are thinking about forming ties. These decisions then ultimately accumulate to shape the evolution of alliance portfolios and networks. So studying how ties between established firms and entrepreneurs drive reshaping of industry networks could be an exciting future step.