When your biggest competitor becomes your partner

Early in my career I sold a hardware board that accelerated a specific video codec. We had one competitor that mattered. Small company, sharp founders, and they were building the same board we were, on the same API, so they could put it inside their own encoding appliances.

We did not build encoding software. We built the board that made that kind of software run faster, an accelerator for the codec everyone was standardizing on. They built the software, the finished product an encoding house actually buys, and they were trying to build our board too. Their software was better than anything we would ever have written. Our board was better than the one they were building. Everybody in the building knew both of those things and nobody wanted to say them out loud.

So I called the two founders and asked one question. Why are you spending engineering money building an accelerator board when your customers are buying you for the software and the box?

They did not have a good answer. Neither would I have, in their chair.

We worked out a deal. Our board went inside their appliance. They stopped building hardware and put every engineer back on the software that was actually winning them accounts. We picked up a customer that had been our loudest competitor, and every box they shipped was now our revenue too.

That is the whole trick, and it is not really a trick. It is a gap analysis run on both sides of the table at once. What were they short of that we did better? Silicon. What were we short of that they did better? A finished product a broadcaster could plug in. Neither gap closes on its own. Together they close in one contract.

Two things I learned that nobody puts in the partnership playbook.

First, the meeting that ends a rivalry never looks like a pitch. It looks like a question about their roadmap that they have already been asking themselves.

Second, the deal does not stay still. A year later a much larger company bought them. We were already selling chips to that larger company directly, at different pricing, under different terms. Two agreements that were fine on their own were suddenly in the same building and did not match. We rewrote pricing. It hurt for a quarter. It was still a win, because the alternative was two companies burning money to build the same thing and split a market neither of us could grow alone.

If you can turn your sharpest competitor into a partner, you do not just gain an account. You take a whole cost line out of the industry. Somebody has to make the first call, and it is usually a call, not a deck.

Thursday: marketplaces, from the buyer's chair, the only one of these I have never run as a vendor.

Who is building the same thing you are, and have you asked them why?

Part 13 of 15 in the Which Partnership series.