ItoM, a Dutch startup, recently learned of the initial court findings in its claim against the former Philips Electronics chip division NXP.
The details of this case of “partnering gone bad” between a David and Goliath will become public over the next weeks, that is not the topic of this post. I am more interested in discussing the challenges that start-ups and small companies have in finding and working with a trustworthy larger partner.
Derailment
How could this partnership get so far off the tracks? And why did ItoM think it would be prevail in fighting its former partner NXP in Dutch court?
From the information made public these past weeks, it is pretty clear that NXP engaged in one of the oldest business strategies known in the partnering world:
Do whatever is necessary to keep a more innovative product off the market to safeguard your product development investment and secure the desired ROI. This meant partnering with a naive startup company that carries life threatening international patents.
Key Partnership aspects
- NXP negotiated a licensing and development partnership contract with ItoM that bought it the time and opportunity to pay the lowest possible licensing fees, and
- NXP negotiated exclusive rights, which prevented ItoM from switching to other partners (for this product) for 2 years.
NXP bought itself the time and opportunity to promote its own (more limited product) at the expense of ItoM’s. How did ItoM’s partner do that in its day-to-day activities?
- Pricing the ItoM product higher than its own, in spite of equal development cost.
- Packaging the ItoM chip in a bulkier housing so that it wasn’t interesting for handheld makers looking for smaller footprints.
- Communicating incorrect or incomplete information to potential acquirers of the technology regarding the effort needed to integrate the component
- Misleading, ignoring and bullying other business units into using its own design
- Ignoring potential acquirers of the technology, in spite of lucrative contract opportunities.
From the perspective of Partnering Ready? the main point of interests here is “How could this have happened?” and how does a SME become partnering ready avoid getting into this kind of life threatening mess?
David’s Naivete
CEO Langendam says that naivete plaid a big role when negotiating this partnership with NXP (Philips). Why? Other partnerships established since then appear to be flourishing for both parties.
Here are some obvious best practice areas that any SME should be addressing to prevent getting into a similar mess.
Understand your ability as a partner SMEs need to better educate themselves and must adopt and deploy essential practices related to high stakes partnering, so called ‘Generally Accepted Partnering Practices‘.
Develop a Business Case. The companies interested in partnering must develop a business plan to understand the impact and potential of the proposed collaborative effort. Counter proposals can be evaluated on the merits of the deal, not on ‘good faith’ in a future partner.
Evaluate the candidate’s reputation. It is essential to do your homework and understand who you are considering partnering with. In this case there was a change in organization during the partnership (Philips spun off its chips division into an independent company, NXP).
Build flexibility into the contract. Lots of things happen during the course of a company’s lifetime. Partners should expect that changes affecting the partner will somehow affect their partnership as well.
These are in fact some of the ‘Generally Accepted Partnering Practices’ adopted by many leading, ethical and successful partnering companies. SMEs would do well to heed their experience and hire the best available certified resources they can afford, before they, too, might have a ‘near death’ experience caused by an unscrupulous partner.
If you have experiences like this, please consider sharing with our audience in an effort to continue to make everyone engaged in partnering more successful. Thank you.
Joost
