When Microsoft Corp. was working on its new Hohm line to help people track and conserve energy, it was looking to utilities to help it figure out how households could monitor their energy use.
St. John's-based Blue Line Innovations Inc. heard about what Microsoft was doing, and it happened to have spent years developing and marketing its PowerCost Monitor, a sensor and hand-held device that allows homeowners to measure power use in real time. "We just picked up the phone and made the call – from St. John's to Bellevue, Washington," said chief executive officer Peter Porteous, whose firm now counts Microsoft as its partner.
"We just said we would love the opportunity to discuss our technology."
Blue Line had wanted to develop its system to become more user-friendly, and be more ambitious about finding new methods to help consumers save money. Microsoft had the experience and the engineers to take the technology to the next level. "We could help [Microsoft]reach 90 per cent of all homes in North America today without having to go through the process of signing on one utility after the other in terms of accessing the data."
The Blue Line-Microsoft partnership is typical of how small firms partner with larger ones, said Eileen Fischer, professor of entrepreneurial studies at York University's Schulich School of Business. In most cases, the small business has the intellectual property that the larger company requires, and the larger firm has the resources to commercialize the idea and bring it to market.
Some of the advantages of partnering with a bigger company include in-house expertise, better distribution, and "certainly small businesses get affiliation advantages from a company like Microsoft," Prof. Fischer said.
The bigger company is usually able to speed up the time it takes to get the product to market, she noted.
On the flip side, Prof. Fischer said she has encountered many "sad stories" from such partnerships. Small firms, she explained, have to be aware of the potential downsides of dealing with bigger companies.
The major one? Theft of intellectual property. "It's very difficult to protect it once you expose that to a partner."
The issue is tricky, she said, because even with protections in place, many smaller firms don't have the ability to fight – they just don't have the money to take on bigger firms in court.
Jordan Dolgin, a corporate lawyer who heads Dolgin Professional Corp., which specializes in small business, agreed with Prof. Fischer. "Sometimes Goliath gets opportunistic and there's little David can do."
He cited the example of a client who worked on software development with a much larger company. At the end of the process, the big firm balked at paying the final bill. The smaller business "was certain they did everything they were supposed to do," but in the end it accepted 80 cents on the dollar because it had no choice – it couldn't afford to fight.
Mr. Dolgin said there are things a small business can do to help itself: First, when negotiating a deal, avoid being personality-driven. Many small-business owners like and have a relationship with one person at the bigger company, but after that person leaves they find themselves in trouble. "Negotiate for the person who isn't here today but could be there tomorrow."
Also, as much as possible, try to make sure all your business isn't coming from one client. Having all your eggs in one basket often leads to cash-flow problems because you often have to spend a lot of money — hiring more people, taking on more space – to provide services for the big firm. "The revenues may be growing but you don't have cash in the bank," Mr. Dolgin said. "It's a common problem."
Most importantly, assess whether the deal is really the right business opportunity for you. It's easy to be blinded by the name of the bigger firm or the scope of the deal, but have an adviser or a mentor who has dealt with bigger firms who can help you decide whether the deal is really your best alternative. If you do proceed, hire lawyers and accountants to help you through the process.
Prof. Fischer offered one other alternative: Consider selling your company outright. That way the larger company buys your intellectual property and "you walk away with something in hand."
The important thing for smaller companies that take the risk in partnering with larger ones, Prof. Fischer said, is to learn from the experience. Often the larger company has a lot of innovative ideas – see how they develop them and learn from the people there. It's a point Blue Line's Mr. Porteous makes when discussing working with Microsoft and its engineers.
Blue Line on its own couldn't make its technology as user-friendly as it would like, he said. "That just isn't our sweet spot. But for our partner, Microsoft, it's their core DNA."
The two partners launched the PowerCost Monitor WiFi in the United States on Tuesday (the Canadian launch is this fall). The product is now part of the Microsoft Hohm line. "To have the resources and the people strength of a company like Microsoft to look at the inside of us and help us look at our processes and our user experience and lend a hand – that was a significant help," Mr. Porteous said.
"It's been a fantastic partnership," said Troy Batterberry, general manager of Microsoft Hohm. "Peter and his company have been a leader in this [technology]"