Brian's Blog

As an entrepreneur building a start-up technology business, it often feel like the path to success feels a lot like the traditional Japanese Keiretsu business model. According to Wikipedia, a Keiretsu is defined as:

A set of companies with interlocking business relationships and shareholdings. It is a type of business group.

In the United States, the Keiretsu concept did not really take off, likely because most large companies begin by acquiring or formally merging vertically to complete their supply chain, then they begin acquiring or merging with other companies horizontally, to acquire other “verticals”.

In applying this concept to technology startup, there seems to be three types of Keiretsus:

• VCs as Keiretsu Communities
• Informal Keiretsu relationships between entrepreneurial organizations
• Virtual Keiretsu through the integration of Web 2.0 Tools

Below, I discuss some observations regarding each type of Keiretsu.

VCs as Keiretsus

As I began to think recently about some of the types of business relationships that a VC brings to a startup I couldn’t help but compare the ideal VC firm model with that of the traditional Japanese Keiretsu. Smart entrepreneurs prefer that their VC brings more to the table than funding, including management expertise and a business network. VCs should bring business networks and true synergies throughout their entire portfolio of investments. This is very much like a traditional Keiretsu, which also tend to be centered around funding sources, such as banks.

Initially, when a company enters a VCs portfolio, the reason is often because of potential collaboration opportunities within the portfolio. But the frantic pace of a start-up often precludes taking the time that a good collaboration requires. In addition, there are often cultural barriers to collaboration. Startups are often led by strong, who feel that they can achieve their startup’s success through their leadership alone.

Unfortunately, successful collaborations between portfolio companies is more rare than it should be. Typically, the earliest that collaboration is encouraged by VCs is when something is going wrong and the VC goes into damage control mode. At that point, you may see VCs requiring engineering or marketing teams to collaborate amongst companies within their portfolio to bolster resources. But by that point it may be too late.

In evaluating how to best utilize your company’s funders, whether they are angel or VC funders, it definitely makes sense to evaluate and discuss how to cultivate strong Keiretsu-like partnerships. What you will likely find is that people are very amenable toward opening up relationships for collaborating.

In my next Blog, I’ll discuss ways that entrepreneurs collaborate to create their own Keiretsu-like relationships and how use Web 2.0 tools to create a Keiretsu 2.0 model.
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