How Do You Define Good Business Partners?

Finding good business partners is critical to the success of growing businesses. Businesses, especially small businesses, can live or die based on the success of their partnerships. And as with any kind of partnership you may be judged by the company you keep. So how do we define a good partner?

Whether you are looking for a direct partnership, someone who owns shares in your business, or indirect through an independent product or service provider partners can be found for any aspect of your business. These partnerships can based on loose verbal arrangements or formal agreements with penalties for failures.

My first business, many years ago, was a two person partnership. Early on my partner and I decided to base our business on a single vendors product. The product was innovative and used current technologies all of which excited us as well as our customers. We were fortunate not to sell a lot of those products in our first year as we spent our second year of business replacing the products we sold in that first year of business. This was a hard lesson to learn and it nearly killed our young business. What we did learn from that mistake was to consider all the products available and sell the one that best served the clients needs, always research and test products prior to selling to customers and to always seek out better products. We did have other product failures over the 14 years I was a part of that business but nothing that threatened the life of our business. What we learned from following failures was that the real product cost also included the cost of support and to ask for customer feedback. After all if you don't include the after sale costs you don't really know what something is costing you and that can create a serious cash flow issue going forward. And if it is difficult for your customers to use your products or services or their is a lot of after sale support then they aren't likely to recommend you. What we also found was that typically the least and the most expensive products ended up being the most costly to our bottom line and our brand. The lesson here is that product cost was not a factor of reliability or profit.

So if we were to translate my experience into a set of partnership rules they would be:

1. Consider more than one potential partner 2. Research the partners capabilities 3. Quantify those capabilities through referral and testing 4. Calculate the real costs over time of using this partner 5. Assess the partners value not only monetarily but through customer feedback 6. Keep you eyes out for better partners 7. High cost does not always mean high quality These rules only really scratch the surface though because if you aren't riding your partners product, service or brand then then what are the differentiating factors in choosing the right partner(s) to do business with.

About 5 years into that first business my partner and I decided to partner with a company in a vertical industry. We felt that this would be a good strategic partnership because we could cross sell each other products and drive new business without hiring more sales staff. In a further effort to save costs we also decided to move into, and share, new office space with this company. It wasn't long before cracks started appearing in this relationship. My partner had created a compensation model for this partner to resell our products and services. The compensation model included a fee structure for them to refer a client to us as well as a commission structure if they sold the product or service directly acting as our agent. Because the direct sales commission model was more lucrative they opted to do this every time. This satisfied us as it would be less sales calls for us and more sales.

Unfortunately their people would and did say anything to the customer to close a sale. A customer to them was someone to extract money from any way possible. They had no concern for referrals or repeat business and referrals was how we had grown the business up until that point. When we showed up to deliver our product or service we would always have to talk the customer down and do a complete redesign on-site. There were also situations where we had to just walk away from the project because what they sold could not be delivered to the customers satisfaction. This always cost us hours of productivity and future referral business from these clients.

This brings us to the meat of great partnerships. Just like personal relationships successful business relationships are based on what the partners share in common. They may share common goals, values, objectives, visions, standards, interests and the more of these things they share the stronger the bond.

These rules should also be added to the list:

8. Discuss Vision - how big, where and for how long 9. Discuss Objectives - short and long term 10. Discuss Values & Standards 11. Formalize your agreement in writing For example vision is very important because you need to know how your partner envisions their business. The partner may want to maintain the same size and scope or may envision something much bigger for the future. An important part of their vision will be their exit strategy. Will they still be around in five years or will they exit when a financial or personal milestone is met. You need to know if your relationship is just a stop gap or something that is strategic to their organization long term. They could be considering a shift to a new business model, a move to a another partner, a different product or service or they may even be planning on doing what you do themselves.

Vision is one of the most critical aspects of a partnership and it is a discussion that you should have with your partners at least annually so that you are not surprised by, and can prepare for, change. If your partner doesn't know where you are going then they won't be able to help you get there.

Once the vision thing is out of the way you can get to the heart of your relationship which will be the Objectives.

The objectives, or goals, of each partner will be what is used to create the basis for the relationship for it is the shared interests that will determine the near term success of the partnership. Knowing what each partner wants will not only help align and justify the partnership but will also help facilitate efficient communication. If your partner doesn't know what you want they they won't be able to help you achieve it. Without understanding objectives or aligning objectives it will be difficult to really quantify the success of the partnership. If your partner does not deliver on time or does not deliver new business or makes you unproductive they would not likely be meeting your objectives and the partnership would be a failure. The objective should be use to determine the value of the relationship and the most important thing to remember when setting objectives is to make sure the objectives are quantifiable. This means that their should be numbers attached to the objectives so that you can keep score. For example you may have partners that resell your product or service and you may decide to sign up as many of these types of partner as you can. This is a great way to build a sales force but what is the real cost to support all of these resellers and are all of the partnerships returning enough new business to meet your objectives. Setting objectives like the number of sales and size of sales will help you quantify your partnership. An example would be to pay commission on a sliding scale rising with the number of sales or with the total amount of sales over a specific period of time. Also don't forget that when rating your partners always, always, always include customer experience or feedback in your rating.

And finally we come to the one area that will create most of the conflicts and place most of the stress on any kind of partnership, Values and Standards.

It seems obvious that shared values and standards would be the cornerstone of any partnership but it is the area most ignored by people entertaining and entering into partnerships. I think that most of the time we are so blinded by the short term opportunity that we forget about the risks. Probably the biggest risk is not getting paid or paying for something that isn't delivered but it could be even worse if the product or service is of poor quality and places you at the wrong end of a multi-million dollar suit. You will want your partner to be open and honest and uphold the highest standard or a least agree to uphold your values and standards prior to you entering into a partnership agreement.

Which brings us to the final act. Get it in writing. The purpose of the written agreement is not so you can sue your partner over perceived failures but to document the terms and quantifiable objectives. You may have conversations with your partner over time and you don't want to rely on verbal communication when it comes to responsibilities and accountability.

Partnerships are a great way to stimulate growth and improve efficiencies. Great partnerships create a dynamic that is far greater than all the individuals involved.

Dave Soteros is President of Alrym Consulting. He believes that great companies have great partnerships and return value to not only customers but to the greater community.

alrym.blogspot.com

How Do You Define Good Business Partners? - To learn more about this author, visit Dave Soteros's Website.

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