Creating a partnership starts with a clear understanding the best potential partners and your value proposition. Coloring the potential partnership are the potential benefits and risks as well as the timeframe and resource requirements to build and manage each one. Once the partnership course has been mapped, the Potential Partner Organizations (PPOs) are approached and the partnership creation process begins. This article describes how you can identify and validate the right partner for your company, and in the process, save hundreds of hours and thousands of dollars in potentially wasted effort.
To help illustrate the process, I will use the experience of an eCRM client. This vendor wanted to understand which potential partners increasing its valuation, specifically for the next round of funding. Working from this simple objective, three types of partnerships that would have the highest impact on the valuation were identified. Distribution partners (for recurring revenue), ASP partners (for hosting) and technology partnerships (for on-going innovation and on line branding). Measurable milestones of these relationships included licensing and joint development agreements, and potentially an investment from one or multiple organizations. Factored into this were time requirements and available resources.
Research phase
BMG separates the partner planning process into two phases. The first phase includes identifying the right partner categories to fulfill these requirements. Two categories appeared to be the most strategic for our eCRM vendor: distribution aggregators and technology providers. While investigating the category of a customer/partner, it became clear potential distribution partners were in fact, potential customers, so a separate category was not required. The second step was to assemble the names of companies in each category with the goal of narrowing this list down to about five per category. You may inventory as many companies as you want (it can be 10 or 100); however, in case of the eCRM firm, it started with 10 and 14 companies, respectively. It then applied 3 levels of filtration with following criteria to narrow the list significantly:
1) existence of relevant/competitive products,
2) distribution capabilities and
3) cross-reference for existing alliances.
As a result, 8 top candidates from the distribution aggregator’s category and 6 from the technology provider’s category were selected for the next phase.
Ranking the Top Candidates
To further validate the alignment between target firms, the Relative Values and Relative Risks of each likely partnership were assessed. This compared the potential benefits against known or perceived risks associated with partnering with that particular candidate.
In order to get the most out of these exercises, its necessary to identify and gain consensus on the most important attributes associated with each candidate. You can use any and as many criteria as you want, but ten are usually sufficient.
When listing the benefits or Values, attributes might include: how soon can the partnership be up and running (0-3 months, 3-6, 6-9); is the candidate willing to assign resources to the partnership (yes, no, unknown) and does the candidate have the ability to invest (yes, no, dependency-driven). Each answer has an associated score, usually a 0-10 scale, with 0 as the lowest and 10 as highest. These are “weighted”, or valued by your team to capture the most preferred outcome. Once the list is identified and the scores assigned, your group will go through each attribute by candidate, and identify the most appropriate value. This exercise can be completed in an objective way (using historical data as the reference), or if you are short on time and resources, can be completed in a subjective way (using the knowledge of the team present to assign values). Ultimately, you will have a total score for each candidate. Depending on your scoring system the candidates will be automatically ranked.
Now you need to think about risks involved if you will engage with a particular candidate. Again, think about the most important criteria for you. For example, are concerned they will infringe on your intellectual property or technology? What is the likelihood of this taking place? Will the candidate transfer confidential information to other partners? What is their reputation in the marketplace? Apply the same scoring process to risks as you did for benefits, and you will get a clear picture which company is with the largest risk for a partnership candidate. Sometimes the company with the most benefits is also the most risky. Based on outcomes of these exercises, the target candidates identified for the eCRM provider included Bank of America, Microsoft and several vertical industry organizations.
Revenue model
Also in the first phase of partner validation you will assign revenue projections to the partnerships. The only way to make a reasonable decision on the right partner is to understand how much money each partner will bring to you in year 1, 2 and 3.
Of course, nobody knows for sure until actual contracts are signed, but even a simple estimation based on some assumptions will add substance to theory.
In the case of the eCRM vendor, Bank of America was identified as having multiple channels for using and distributing its products, both inside B of A and outside. In one case, the auto leasing group wanted to provide a tool for its car dealers to better manage their service business. Bank of America arranged for the eCRM firm to meet with several key dealerships in the northwest states. Once done, the dealers implemented the eCRM product, cut their direct mailing costs by 70%, and improved revenue by over 20%. Bank of America then started rolling out the eCRM product to its entire local auto leasing groups around the country, a fabulously profitable and streamlined distribution mechanism.
The estimated costs associated with the relationship are subtracted from the revenue figures. Include your resource costs (e.g. one full time person to manage the partnership). Do the math and you’ll have an idea how much each partner can contribute to your bottom line. These numbers are invaluable when you will talk to you board or investors.
So now you’ve identified and validated right partners and know how much revenue each partner will bring in. Are you ready to contact these companies and give them your value proposition? Answer is NO. You need to do more homework and create a 12-month partner plan for each candidate.
Partner Plan
The second phase of the partner planning process is creating the plan itself. The following is the roadmap any individual in or outside the company can use a guide to create partnership. Your partner plan is a very important document that includes several components:
• Partner objectives (what this partner can provide)
• Your value proposition to the partner
• Tactical approach (your road map from the first contact to the final agreement)
• Partnership timeframes (how long each step will take)
• Resources required to create and manage the alliance (depends a lot on the nature of the partnership) Joint development will require a business manager as well as engineering staff, for an OEM agreement, one part-time manager should be enough.
As you can see, identification and validation of the right partners takes time and effort. It will take you several months and dedicated person. It is not glamorous work; it involves a great deal of searching for information and ability to analyze it. But in the end it will become the first and most important cornerstone you will use to build the partnership. In our third article we will talk about how to successfully create the partnership.
More information on finding the right partner can be found in Chapter (4) and additional details on Creating the Partner Plan in Chapter (5) of Navigating the Partnership Maze: Creating Alliances that Work (McGraw-Hill 2002).
*Originally published in Software Association of Oregon Magazine
Identifying and Validating the Right Partner - To learn more about this author, visit Sarah Gerdes's Website.
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Sarah Gerdes
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Sarah Gerdes is recognized as one of the
leading partnership experts by Fortune,
Inc. Magazine has represented governments,
F50 firms and small businesses in
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