Forms of partnerships

Earlier I wrote about the partner program. A tool which helps establishing solid partner relationships. In this post I will discuss various forms of partnerships. This posting is part of a series on Partner Management.

In general there are five ways of partnering with other organizations: by affiliation, sponsoring, chains and channels, complementary products and joint ventures. Although the partnership via chains and channels is the most common type, I will discuss all types briefly.

Partnership by affiliation is a very loose partnership. Partnerships are formed on a small aspect of the work that is done and on an ad-hoc basis. There typically is no partner program; the partnership is very much opportunity driven. Sponsoring is a form of partnership where your partners are associated with you for a limited time or for only a special event. The partner program is in this sense a sponsor program. Beside the difference in naming most principles that apply to the partner program also apply to the sponsor program.

It is doubtful whether the organizations that form your sales channel should be called partners. The relation that you have towards your distributors and reseller could be characterized as hierarchical. At least there will be strong negotiations. However, ultimately you and your channel partners have the same goal: bring a good product to the end-client. This is where channel partners definitely work together as real partners.

Partnerships which are formed because two different organizations market two products that should be sold together are the purest form of partnership. A good example is a product vendor and a service provider teaming up. The parties categorically work as equals. Both organizations could decide to market their respective products and service alone and are therefore independent.

Joint ventures are found all the way on the other end of the spectrum. They require both parties to make a significant investment, in time and money. Most companies only have one or two joint ventures, if they have any at all. Only large companies will have many and then still it is questionable whether implementing a partner program is appropriate.

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The Partner Program

This posting is part of a series on Partner Management.

If your company is in business for quite some time, it inevitably has accumulated not only relationships with clients and suppliers but also with partners. The partners tend to be contacts of the owner and senior management. Typically cooperation is very much ad-hoc and results lack, until something happens: a merger, a new manager, a crisis or perhaps a large new order.

At one stage someone will look at the partners and thinks to himself: what is happening? I am no longer in control of all our partnerships! How can we make the partnerships more fruitful? It is this very moment that your company needs to implement a partner program.

A partner program unifies the ways in which your company wishes to work with partners. It harmonizes and brings structure to the relationships. The premier benefit is that partnerships rely no longer on an individual employee, but that anyone within your company can utilize the relationship.

The partner program is in many ways a standardized product catalog; it specifies what kind of partnership opportunities your company has on offer and what the default conditions are. The catalog includes all the trainings, certifications, marketing campaigns, reseller fees and more. The program should leave it to the partner which individual elements of the program are relevant and of interest to him.

It is sometimes argued that a formal partner program takes to fun out of a relationship. I disagree: a partner program gives structure to a relationship; it takes care of the house-hold task and enables both parties to focus on getting results. The partner program helps to identify if and how both parties can work together. A well-established partner program sets the guidelines and leaves enough room to fill in the blanks for each individual relationship.

How much room there is to adapt the program for each relationship depends heavily on how your company perceives its positions with its eco-system. The more partners your company seeks, the more stringent the partner program needs to be applied. It is then simple not possible to tailor each partnership.

When a company is small and works with a limited number of partners a partner program could be too much of a good thing. As a rough guideline a partner program is relevant when the organization works with more than twenty partners.

Reciprocity

This posting is part of a series on Partner Management.

Partnerships are formed on the basis of equality and most of them operate as such on the principle of reciprocity. This principle dictates that a relationship is kept in balance, not by the use of money, but because both parties deliver an equal amount of value for each other. If I scratch your back, then you scratch mine. Reciprocity is a very powerful and yet extremely dangerous concept: what happens if at the end of the day one party ends up doing a lot more scratching than the other? Then a basis for conflict is born.

Reciprocity might seem to be an excellent idea if you expect that the other party will deliver much more value. That is indeed fine if you seek a relationship for only a limited period of time and don’t mind ending with a conflict. In all other circumstances I would suggest to think carefully about the way you appreciate the mutual contributions to the relationship.

A classic example is to following situation where you decide to enter a partnership with another company: You deliver a product; the partner provides the services. The partner needs to train its employees to work with the product and they will most probably sell your product to their clients.

Again, the principle of reciprocity dictates that the partner can train its employees for free. Of course they will be in your debt for this. The debt is not a monetary debt, but an emotional one. The score is kept by the individual employees who own the relationship on behalf of the companies. Further, during the course of the year, the partner manages to generate business for you. Again, following the principle of reciprocity there is no commission. Instead the emotional debt is settled.

As long as the relationship between you and the partner is in good health and there is regular contact between the two employees involved all is well. The relationship however relies heavily on those individuals who own the relationship. When one of them leaves, the predictable result is that the partnership is at grave risk.

When a company develops more relationships which need to be available to more than one employee reciprocity is no longer a viable option. A well designed partner program appreciates this and strives to identify how partners ad value and how that contribution is monetized. This means that both parties pay each other for services that they deliver.

When you implement a partner program you will need to specify that partners pay a normal training fee and that they will get a commission on their sales volume. In the end of the day it is still well possible that invoices send by both parties are of the same amount. This would effectively be as if the principle of reciprocity was applied, but now at least there is full transparency and no room for any disputes.

Although I advocate moving away from reciprocity, I also know that this can be difficult thing to do in practice. In most cases you will end up with a partner program in which you will expect your partners to invest in the relation first. With already established relationships your loyalty may be questioned. It may come across as if you do not longer trust your partner. New partners may be reluctant to be to only party who is making the investment. Communicate carefully about this issue.

Clients, suppliers and partners

This posting is part of a series on Partner Management.

Companies exist within a dynamic ecosystem. They continuously interact with the environment in which they operate. Every company is always on the lookout to sell more products at higher prices to existing and new clients. At the same time the purchasing department is eager to build trusted relationships with existing suppliers whilst at the same time scouting new suppliers who can do a better job at lower costs. At either end of the supply chain the relationships are characterized by the fact that money is flowing from one party to another. Clients pay the company and the company pays the suppliers. Revenue minus costs is profit, the cornerstone of every business.

To the business partners are as important as clients and suppliers. Still they typically lack the cash flow characteristic. Partners are those parties that are important to an organization although no real transactions take place. Where the relation between a client and a supplier is hierarchical (the suppliers serves the client), the parties in a partnership work as equals. There are no or only a limited number of transactions. In most cases no money is flowing from one party to the other. And if money is involved then it is even likely that it is flowing in both directions.

The fact that little money is involved makes it often hard to take partnerships all too seriously. In practice partnership are commonly formed ad-hoc. Old buddies meet again after a long time –completely unplanned – and decide that it might be a splendid idea to team up might the opportunity arise. As such there are no formal agreements or expectations. And indeed often there are no results. These partnerships however are still extremely valuable. They are insurance. When a business opportunity presents itself, the relationship is already in place and deals can be made quickly.

Although these old-boys-network-partnerships are not often a money spinning activity, they are still essential to every company. They help in small ways. Examples include: introductions to influential people that you know through your network, opportunities for cross- or joint-marketing or to simply share (business) war stories and gain free advice on various issues. For most companies partners are the business equivalent of friends: they won’t pay your bills, but you can always turn to them for good advice.

In future postings on this weblog I will share my thoughts on how to establish constructive working relationships with partners that really add value.