This is Part 2 of 3 on developing a winning partnership strategy for your company. In Part 1, we looked at the three categories of partners and the most important question you should ask prospective partners. In Part 2, we'll take a closer look at channel partnerships and the steps your company should take to focus on ones that add real value.
When we talk about partnerships, we are often really talking about distribution partners – also known as channel partners – who extend the sales reach of your organization. Getting channel partnerships right is particularly important for early-stage companies who have fewer resources and less ability to absorb the cost and time associated with partnerships that don’t work out.
Know your product – Before entering into a channel partnership, make sure you have an in-depth understanding of each component of your product and an inventory of all dependencies on outside parties – hardware, software, peripherals, connectivity, core services and complementary services are common components when it comes to early-stage tech companies. It is easy to overlook everyday external operational dependencies.
Complexity – Once the inventory of external dependencies of your product is identified, each existing or potential partnership should be considered in terms of both market complexity and product complexity. The higher the distribution partner ranks in both of these categories, the more time and resources your company will have to put into the partnership – be realistic and make sure you’re up for it as a company.
Set realistic expectations – If you are convinced you can manage the partnership, you need to understand what your company is going to get out of it, both in terms of revenue and the further development of your product’s core competency. Think of it as follows:
- Low Revenue / Low Product Development – Limited Partnership = Avoid
- Low Revenue / High Product Development – Learning Partnership = Caution
- High Revenue / Low Product Development – Earning Partnership = Pursue
- High Revenue / High Product Development – Strategic Partnership = Aggressively Pursue
Obviously strategic partnerships should be your main focus – these are the ones that will keep the lights on and while also getting your closer to your end goal.
The partner perspective – So you have allocated your company’s resources accordingly and are on the verge of signing a deal with the strategic partner who will take you to the next big iteration of success. Great, but before you get too excited, pause to analyze the partnership from the partner’s perspective too. Is your product key to their go-to-market strategy?
If you find there is high value to both your company and the partner, then you have a strategic synergy and the best-case scenario at hand. If it is strategically important to the partner, but less so to your company, you may still have a good revenue opportunity and a partnership worth pursuing. Conversely, if the strategic importance is low for both companies, you likely have a mismatch in front of you and a partnership that you are likely better off without.
Where most early-stage companies run into trouble is with partnerships that have a high alignment to their own company’s product strategy, but low value to their prospective partner’s strategy. In this situation you are likely to get orphaned should the deal get signed. An orphan partnership is a vacuum that must be avoided at all costs, but aspirations and human nature can cloud judgment and make it difficult to see the the potential for an orphan partnership before resources have been expended. Being part of a high-quality accelerator, such as Communitech HYPERDRIVE, can provide your company with good mentors and help you recruit a knowledgeable advisory board to consult for an objective take on the partner's perspective.
Following the steps outlined above will allow you to prioritize partnerships and allocate resources appropriately. It will set up your company up to implement best practices in partner management, which we'll discuss in the third and final entry in this partner program series.