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Partnerships Don't Work – Or Do They?

Originally published March 23, 2010

If you manage a technology company, maybe you don’t expect to hear that from someone who builds business relationships for a living. Please stick with me as I explain.

You’re probably familiar with the dreadful statistics about acquisitions and how the large majority of them fail to deliver the promised results. The reasons are many, and we could easily spend several hours on the subject. While I haven’t seen similar statistics on partnerships, I’ll bet they are probably just as bleak.

A funny term popped up in the ‘90s called “Barney announcements” based on so-called “partnerships” that began and ended with a press release whose message echoed Barney – “I love you, you love me” – but with no real substance.  During the run-up to the Internet gold rush, this type of announcement was all too common.

Because of failed partnerships, many CEOs feel like they’ve been burned and don’t believe they work. They’ve gotten behind a proposed partnership, even passing up other opportunities to put resources into it. After the partnership produces a Barney announcement and ultimately fails to produce anything of real value – greater revenue, more market visibility, access to customers, or whatever was promised – the CEO forms a bad opinion of partnerships in general.

So why do so many partnerships fail? The most common reason I’ve seen is that the people pushing the partnership don’t do the hard work and planning required for success. Either they don’t understand the process, or they are unwilling to invest the time and effort needed to create a productive partnership. Gaining an understanding of all the interests of the parties takes time, and if partnerships are an afterthought, the time just isn’t there to maximize the chances for success.

The nicest thing about not planning is that failure comes as a complete surprise, rather than being preceded by a period of worry and depression.

– The late Sir John Harvey-Jones,
    Former CEO of Imperial Chemical Industries

So Why Partner At All?

Developing a partnership strategy is a critical concern for any company. Key to its formulation is an understanding of why partnerships make sense and under what circumstances they should be pursued. Understanding the context for developing a partnership strategy clarifies the decisions that need to be made.

So why partner at all?

“Whether it sells computers, clothing, or cars, your firm’s fate is increasingly linked to that of many other firms, all of which must collaborate effectively in order for each to thrive… more than ever before, success depends on managing assets your company doesn’t own.”

From The Keystone Advantage by Marco Iansiti and Roy Levien
 
While this is universally true, it’s especially true in immature and fragmented markets where no single company can expect to own all the pieces of a solution. Customers face a bewildering array of possibilities and choices. Gaining their attention and commitment is not as simple as relating your value proposition. You’re not just selling against direct competitors – you’re competing for a piece of a finite budget, and the customer can choose to invest in another area while declining to buy anything from you or your competitors.

By understanding the broader market in which you compete and by knowing how your company fits within that context, you’re much more likely to reach a successful conclusion – i.e., educate your customer and help them move to a buying decision. If you’ve analyzed the total market and have partnered and/or acquired to achieve a more complete set of offerings, you can be in a much stronger position to meet your customers' needs.

There are many reasons to partner. Here are a few that come to mind, in no particular order:
  • Enhance delivery, credibility, revenue, market presence

  • Leverage market clout and intellectual assets of market-leading companies

  • Become certified on a process or technology

  • License a product or technology

  • Remove a competitor

  • Negotiate strategic alliances

  • Prepare to execute acquisitions
While these are fairly specific, here’s a matrix with the four reasons that form the basis of almost all partnerships: 

 


In evaluating potential partners, determine early on which drivers are important to your company, the partner, or both. Then compile a list of specific factors that may be important to the target partner. These will become critically important in later negotiations (we’ll talk about “elegant negotiables” another time).

When Should You Partner?

If we know the answer to “Why partner?” then we need also to think about the “when to partner” question. To figure this out, consider three factors that determine your desire and ability to grow the business through partnering:
  • Timing: What is the timing associated with a particular threat or opportunity that drives you to action? Is it immediate or long-term?

  • Potential Impact: What is the potential impact of the threat or opportunity that is currently presenting itself? Is it high or low?

  • Ability to Respond: What is my current ability to respond to the threat or opportunity? Is it strong or weak?
Regarding the timing factor, if the threat or opportunity is not immediate, set it aside. Maybe someday you’ll find time to worry about it! For each immediate issue, evaluate whether the issue could have a relatively high or low impact and the strength of your ability to respond.

Here’s a diagram depicting these points, followed by a brief description of each potential combination:




High impact threat/opportunity, strong ability to respond ("Pursue Aggressively")


You can’t ignore a pressing need, and your company has all the resources needed to address it aggressively through product enhancements and new product creation.

Low impact threat/opportunity, strong ability to respond ("Quick Hits")

When you spot a weakness in a competitor’s ability to respond to such an issue, attack by leveraging your strength in this area.

Low impact threat/opportunity, weak ability to respond ("Prepare to Respond")

These are usually “who cares” issues, but be aware that sometimes they can grow into high impact ones, so keep an eye on them while you do little to address them.

High impact threat/opportunity, high ability to respond ("Create Partnerships")

If you can’t adequately respond to a pressing threat or opportunity, a partnership is the right answer. Of course, a partnership is often a precursor to an acquisition.

If I’m right and I’ve communicated clearly, you have a better understanding of why and when to form a business relationship. These are practical business concepts that will ensure your efforts are directed at the best opportunities to achieve the desired outcome for your business – a business that knows where it's going.

SOURCE: Partnerships Don't Work – Or Do They?

  • Bob Barker
    At 20/20 Outlook LLC, Bob’s senior executive experience in large companies and start-ups enables him to serve as a trusted adviser to CEOs seeking a new vision for growth. His experience includes negotiating and implementing partnerships between major industry players to create new products that drove multimillion dollar increases in revenue. He has also led acquisitions including a $200M+ transaction, evaluated software investments for an early stage venture capital firm, and led product management and technical partnerships at a large public technology company.

    Bob now works with CEOs and management teams to define an appropriate exit strategy; align sales, marketing, and engineering efforts with the strategy; and develop strategic partnerships that increase revenue and profits and grow the value of the company to potential acquirers.Bob may be contacted by email at bob@2020outlook.com.
 

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