Because new businesses are resource constrained, they often make partnering an essential part of their business plans. As illustrated throughout this book, effective partnering can help a start-up in many ways. The following are examples of the types of partnering scenarios that are common in business plans.

Smaller Companies Partnering with Larger Companies to Bring Their Products to Market
Because the cost of bringing a new drug to market is so high, biotech companies normally partner with large pharmaceutical companies to bring their products to market. Biotech companies specialize in discovering and developing new drugs—it’s what they’re good at. In most cases, however, they have neither the money nor the experience to bring the products to market. In contrast, the large drug companies, like Merck and Pfizer, specialize in marketing and selling drugs and in providing information to doctors about them. It’s what they’re good at. As a result, most biotech firms’
business plans plainly state that their mission is to discover, develop, and patent new drugs and that they’ll partner with larger pharmaceutical companies to bring the products to market.

Smaller Companies Partnering with Larger Companies to Produce, Fulfill, and/or Ship Their Products
Many new firms, from the get-go, structure their business plans on the notion that partners will produce, fulfill, and ship their products. As a result, a start-up that develops a new type of board game may have the game made by a contract manufacturer in China, have it shipped from China to a warehouse and fulfillment company in the United States, and when an order is placed (by a retailer like Barnes & Noble or Target) the warehouse and fulfillment company ships the product to the buyer. While there are costs involved at every step in the process, this arrangement frees the board game company to focus on designing and marketing products and reduces its initial capital requirements. A variation of this approach, for catalog and Web-based companies that sell other manufacturers’ products, is a method called drop shipping. Drop shippers like eBags, which is an online retailer that sells luggage, backpacks, and similar items, doesn’t warehouse anything it sells.
Instead, when it receives an order it passes the order onto the original manufacturer (or distributor), which fulfills the order often in an eBags box with an eBags invoice so it looks like it came directly from eBags. This arrangement costs eBags money, but it is integral to eBags’ business plan of offering a wide selection of products to customers at affordable prices and not getting caught with outdated merchandise.
Smaller Companies Outsourcing Human Resources Management Tasks
An increasingly common feature in business plans is outsourcing human resource management tasks that are labor intensive and take specialized expertise. Some start-ups outsource only administrative tasks, such as payroll processing and benefits administration. These firms partner with payroll accounting firms such as Paychex or Ceridian. Other start-ups outsource a broader range of their human resource management functions and partner with a company such as ADP or Administaff. These companies are called professional employer organizations (PEOs) and act like an off-site human resource department for a start-up or other firm.
Along with doing everything that Paychex and Ceridian does, PEOs can help a start-up with hiring, firing, training, regulatory compliance, and other more in-depth human resource–related issues. Outsourcing these tasks can minimize a firm’s investment in human resources management personnel and support (such as software products) and frees a company to focus on other core activities.

Questions for Critical Thinking
1. What factors in the business environment encourage firms to partner to compete?
2. What risks do small firms face when partnering with large, successful companies? What risks do large companies take when they partner with small start-ups?
3. What are three ways (that are not illustrated in the feature) that small firms can partner with larger firms to lessen their capital requirements?
4. The “You Be the VC 4.2” feature focuses on PharmaJet, a company that is producing a needle-free syringe and injection system. What types of partnerships could PharmaJet form to lower its capital requirements and allow its top management team to focus on its distinctive competencies?

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YOU BE THE VC 4.2 Company: PharmaJet Web: www.pharmajet.com Business Idea: Administer injections using a needle-free injection system. Pitch: Administering injections is an integral part of both preventative health care and the treatment of sickness and disease. Traditional injections use a needle to penetrate the patient's skin and insert the vaccine or medicine. While this has been a staple practice in medicine for decades, it has drawbacks. Patients of all ages have a fear of needles, and for some the fear is so acute they avoid necessary injections. Needles are problematic for health care workers. Their sharp points require special containers to dispose of safely, and all health care workers worry about receiving an inadvertent needle "stick," which may contaminate them with someone else's blood and as a result, potentially someone else's disease. In one fell swoop, PharmaJet addresses these problems with the development of a simple, safe needle-free injec- tion system that's cleared for sale in the United States. Instead of using a needle, it delivers intramuscular or subcutaneous injections through a high velocity fluid jet that penetrates the skin in one-third of a second. The device is spring powered, so there are no gas canisters to dispose of. Many of the earlier iterations of needleless syringes used bottled gas to power the syringe, which was costly and cumbersome. The PharmaJet system is environmentally friendly in that two of its four parts are consumable and the other two are reused. The consum- able components consist of the needle-free syringe and a filling adaptor. The reusable components consist of the injector and a reset station. The only component that comes in contact with the patient's skin is the needle- free syringe, which is disposed of and replaced after each use. While a PharmaJet injection isn't painless, it's gentler than a needle stick for most patients. For most patients, the pain is analogous to being snapped by a small rubber band. An ancillary benefit of the PharmaJet system is that there are an estimated 16 billion needle injections given each year in developing countries. In many instances, needles are reused. Because of this practice, the World Health Organization estimates that 50 percent of needle-syringe injections are unsafe, and that 21 million people contract hepatitis, HIV, and other diseases each year from previ- ously used needles. Once used, the PharmaJet syringe auto-disables and cannot be reused. This feature may make it particularly attractive to nongovernmental organi- zations (NGOs) and other organizations that provide health care assistance in developing countries. The PharmaJet system may also be attractive in select niche markets. For example, detention facilities and prisons struggle with the use of needle syringes because needles are contraband in a detention setting. Q&A: Based on the material covered in this chapter, what questions would you ask the firm's founders before making your funding decision? What answers would satisfy you? Decision: If you had to make your decision on just the information provided in the pitch and on the company's Web site, would you fund this company? Why or why not?