Strategic partnering, also known as forming strategic alliances, is one of the key elements that make up the business development function in technology companies. I believe that strategic alliances and partnerships are underutilized in many ways. Conceived and executed properly, alliances can greatly extend the partner companies’ reach in the marketplace.
VARIOUS AND SUNDRY TYPES OF PARTNERSHIPS
There are many types of collaboration that fall under the umbrella of “Strategic Partnering”. Let’s take an expanded view and examine a few of the most common:
Formal Third Party Programs
Probably the best-understood category of technology alliances. Partnering in this manner is generally low risk, but also low rewards for both parties. A program usually consists of many smaller partners gaining modest benefits from a larger company. The larger company gains (at least the illusion) from having a large number of partners working with their product/technology.
This represents another well-understood category. Mild benefits are usually obtained by the participating parties, including some publicity, a stamp of approval, and the opportunity to network with other consortium members. The unique aspect of this form of partnering is its one-to-many relationship, as opposed to the “one-to-one” or “one-to-few” relationships found in most partnerships.
Many people might not consider sales agent relationships as partnerships or at least not strategic. But they certainly are. There is usually a minimum of entanglements here. Generally, simply a contract that provides a commission for sales generated or leveraged. The product doesn’t change hands between the partners. There is often little training and support involved, relative to other partnership types used for product distribution.
These agreements occur when a company doesn’t want to relinquish the sales function for its products. But for some reason, it needs a third party to provide support services. These agreements are most common in high-end, enterprise hardware and software markets, where 24/7 availability and on-site support is critical. Storage Hardware, ERP Software, and Mainframes are good examples. They are also seen in more commodity-type markets, where a company has decided that service/support isn’t their core competency. So they job it out to a third party that can handle service/support at a lower cost. The use of Indian Call Centers by major computer manufacturers such as Dell is an example of this concept.
This is a common but often poorly executed form of partnership. The errors usually occur when a VAR, distributor or other Channel partner is treated like an end-user to be sold to, rather than a hybrid or a wholesale partner as should be viewed. Distributors and Resellers need to be treated as an extension of a company’s sales force. Of course, they still need to be “sold to” initially much as end-users are. Sadly they often are not treated as true members of the team. This leads to such misguided policies such as channel stuffing and over-distribution, which lead to issues that become extremely difficult to resolve.
Cooperation on marketing matters should be where most companies reap the greatest benefits of strategic partnering. Partnering in this area is really low risk, can have great benefits, and is a great way to get started with a new partner. There are so many ways that companies can cooperate in joint marketing; the list is really only limited by your imagination. Some of the ways I’ve been able to utilize these types of partnerships include discounted product promotional bundles, trade show space cost-sharing, joint press releases (of course!), sharing of prospect and customer lists, prospect referrals, and joint direct mailings. The great thing is that there are so many different areas to explore to find overlap in the two companies interests.
Integrating the products of two companies is what often comes to mind when many tech executives think of partnerships. It can make good sense and the potential rewards are great. However, there are some reasons for caution, prior to jumping straight into this. I’ll discuss below:
POTENTIAL PARTNERING PITFALLS
As discussed above, partnerships or strategic alliances can take many forms. As a result, there is a lot of confusion and disagreement as to what even constitutes a “good” strategic partnering. Let’s take a closer look at two frequently seen categories of strategic alliances, along with some common missteps:
You see a great many press releases which go out trumpeting the partnership between company A and company B. The release goes on to discuss the great benefits that will accrue to customers and the two companies making the announcement. The language tends to be vague and laced with buzzword terminology like “synergy” and “combined market-leading value proposition”. More often than not, that initial press release is the high point of the partnership and little is heard about it subsequently. You may have heard the term “slide-ware” to describe products that exist only in a PowerPoint presentation. This type of partnership is the PR alliance equivalent to slide-ware—I call it a “PaRtner-ship.”
Product Integration Fiasco
As mentioned above, on the other end of the strategic alliance pitfall spectrum are technical folks who think of alliances in terms of product integration. Technical integration can be the basis for a great partnership. However, it’s a lot of work and a big resource commitment for both parties. The danger is that the partners too quickly dive headlong into the product integration work, basing their decision on an impulsive belief that it “makes sense”.
In a not unusual scenario, the two products are complementary and from an engineering perspective, it looks like a marriage made in heaven. Several dangers are lying in the weeds, however. First of all, any product development effort runs a high risk of failure. When you put together two disparate engineering teams who have never worked together on a project, that risk rises exponentially. Usually, both engineering departments have their own product releases to worry about concurrently. These are ALWAYS higher priorities. Lack of communication, low priority, cultural differences, and ego can easily conspire to lead to a failed integration project. Or at least one lacking the features to be of much leverage in the market. At this point, the partners have spent a lot of money and precious engineering resources with little in return. This leaves finger-pointing and a search for scapegoats as the next step.
Product Integration Alone Is Never Enough
In addition, it takes much more than good product integration for commercial success by the partners. There needs to be a solid plan for marketing cooperation and distribution (see above!). Otherwise, even technically-elegant product integration strategic partnering will leave both parties disappointed. Alliances that are born from product integration, unless carefully thought out and efficiently executed, can lead to disappointment by one or both of the partners.
There are many “gotchas” involved in working together to push and pull this combined solution into the market. It helps to have some practice working together, prior to making the big bet on the integration of technologies. That’s why I often recommend to my clients that product integration is usually best as a step down the road in an embryonic partnership. Not at the beginning of one.
STRATEGIC ALLIANCES MAKE SENSE—BUT EXECUTION IS KEY
Should partnerships be avoided? Not at all! They are one of the areas that can make be a huge differentiator for your company in a competitive market. But the key takeaway message here is that too many partnerships are conceived as great ideas—and peak right there. Like most business activities the devil is in the details and execution is the key to success. When I’m working with smaller clients with limited capital for marketing and sales, I often recommend an aggressive partnering program. If executed well, the company and its partners can gain cost-efficiencies and marketing economies of scale far exceeding their own size. But I have two final key pieces of advice before you embark on a new partnering program:
1) The very definition of a partnership is a “win-win” relationship for BOTH parties. Takers don’t build winning partnerships—givers do. Offer to take the first step, do the first piece of the project. A partner that believes you are acting in his best interests will be very impressed and willing to provide a level of cooperation and support that you never dreamed of. Build that relationship by being the first to “give”. The trust you build will come back to you multiple times and set the stage for a profitable, long-term strategic partnership.
2) Do start, but start small. I’ve discussed above the many pitfalls of moving too fast. It’s best to pick something easy, with obvious benefits to both parties. Working successfully on a small project creates momentum. This helps build the trust and familiarity that is crucial to success on more ambitious future projects. I will often suggest a simple list swap of prospects as an initial step. If either party views even that with suspicion, a blind mailing can be done to each company’s list. This way, the actual lists don’t change hands. Building a prospect or customer list is very capital-intensive. By partnering with just one other company, each can double your lists overnight. It’s almost a certain Win-Win, creating excellent leverage, and NO financial investment by either party. It’s easy to succeed and sets the stage for discussions on additional collaboration.
I’m sure you get the picture—does this make sense to you? Post a comment below with your own strategic partnering success stories and failures.
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I have been working in strategic partnerships between software manufacturers and systems integrators/ITFirms for years and support your stances on partnership types and how to build/grow relationships.
One thing that we've done very well is combine many of the benefits of the mentioned partnerships under a white-label strategy aimed to expand our partner's brand more than our own. Inherently, this strategy forces a true partnership feel with little worry of mistreating partners as clients.
Our program has such flexibility that we appeal to businesses of all sizes–small firms to top-ranked [globally] retailers.
This strategy has made us one of the top actors in the online backup market with significantly lower overhead than than our competitors.
Phil Morettini of PJM Consulting says
Thanks for your comment, Derek. White Labeling can be very successful. Of course it has implications for your own brand as well, but a developer that commits to this strategy in a big way can obtain a strong advantage in the OEM channel (especially important in a competitive segment such as backup), as your company has been able to accomplish.
Rolf Lips says
Excellent observations. One form of partnering that I found to work well is what I would call technology partnering. It involves the careful selection of engineering teams of a potential major partner to work with our company’s engineers. The object is to find and develop new technology that would greatly benefit both firms. If properly executed both firms benefit and/or will initiate merger discussions. Your thoughts?
All the best
I think it’s something that can have a big payoff with the caveat of as you say “if properly executed”. As I wrote in the article, I think that it’s prudent to take some smaller steps to make sure the companies are compatible before taking this step. It ties up what is very scarce resources and I view it as a higher risk, higher return activity. Other problems in the relationship can predominate and undercut this activity if you haven’t established a good relationship at other levels.