Posted: 3/19/2018 by Norma Watenpaugh
Finding the Right Partner
Qualifying the right partner can have an immense impact on the eventual success of a partnership. Too often I’ve seen companies rush into a partner relationship, because “we like those guys!”
While chemistry is important in a successful partnership, there has to be the right fit in other dimensions as well. Best practice recommends you conduct due diligence on your partner candidate according to a ‘fit’ model.
What is the impact of selecting a poor fit? The wrong partner with the wrong fit will almost guarantee failure.
Let’s examine some fit criteria.
Strategic fit is going to look a lot like your reasons to partner. Strategic fit describes how aligned you are with your partner in achieving the long-range goals of your alliance strategy. Your partner’s goals may be different than yours, but the extent to which you both can accomplish your goals through collaboration is a good indication of a sustainable, successful partnership.
What are you trying to achieve through partnering? You may be looking for geographic coverage. Or you might be looking for partners that fill a skills gap such as vertical expertise or technical skills required for implementation. Or looking to fill a product or feature gap. Let’s look at an example of product gap.
Tesla has a product gap. Lack of charging stations impedes the adoption of a fully electric car. Tesla has partnered with GE to develop solar powered charging stations that are installed along the major US highways.
Another example is Apple’s application store which drives innovation and new applications for the iPhone and iPad through a network of developer partners
In Technology, you may be one of the few companies that have a comprehensive and integrated suite of soup to nuts applications. But chances are you are focused in one core area. Creating alliances with companies that offer complementary capabilities enables you to offer customers a more complete suite.
Operational Fit. There can be many dimensions to operational fit and generally reflects your ability to work together and execute on the expectations of the partnership. Sometimes operational fit is straight forward such as "is the potential partner financially viable?" Will they be around for a while; can they make the investments necessary to be successful in the partnership?
Evaluate whether your prospective partners have the skills and capacity to execute on the goals of the partnership. If you are partnering to gain geographic coverage, for example, how strong and how deep is your prospects presence in the targeted geographies? Are you looking for sales capacity or manufacturing capacity? How many offices, how many people?
Sometimes the right operational fit is less obvious and not based on whether a company operates like you do. You may be looking for a partner that has a different business model than you do because that offer a complement to your business. For example, if you are a product company, you may be seeking to partner with a services company that can add complementary services that you cannot. However, these differences in business model can mean you are optimizing business operations for different outcomes that can result in conflict. You would be trying to sell more product; your partner is trying to sell more services and clients have fixed budgets.
I often see a disconnect with SaaS based companies that promote time to value to clients as a matter of minutes or days and a large consultancy that wants to do a 3-month needs assessment first.
Do not overlook the Relationship Fit. Intuitively we want to work with people we like and who are like us. It is certainly important but not the only criteria for partner fit. Relationship fit underlies the entire business arrangement and can ultimately determine how successful a partnership can be. There are very important relationship attributes that should be evaluated such as trustworthiness and commitment to the partnership.
Check out the reputation of your prospective partner with other partners. Are they a good partner? Or a predatory one?
What are the company values and culture? How might they conflict or complement yours?
Partnering Maturity is also an indicator of future success. Do they have successful partnerships? Do they have a well-developed process for partnering? Do they have a culture that supports collaboration?
As with operational fit, sometimes a complementary fit will best serve you.
A large bureaucratic company might want to partner with a nimble fast-moving company to capture a fast-moving market. The cultures might be very different. Sometimes those differences will be a source of friction and the relationship risks will need to be managed.
Lastly assess the potential value in the partnership. Best practice is to do build a pro forma business case against which to compare what resources each potential partnership may require versus the benefits you expect to derive. One potential partner may have a higher calculated ROI than another but also a higher risk profile based on the fit assessement. This will have to be rationalized in someway to arrive at the selection of the best partner.
Approach partner selection systematically. Treat the process like an arranged marriage versus love at first sight. Here is a sample process model in evaluating a potential partner.
First, assemble the selection team and identify stakeholders. Determine their roles. Some may be active throughout the process, others want to be kept informed, others may be involved in the final approval of the candidate partner.
Validate your selection criteria with the stakeholder team. Then determine based on your initial selection criteria, who will you evaluate? This is your long list. You may have partners who you work with already who may be a good fit, or you may have to look outside of your current network to find unique capabilities.
Conducting due diligence entails research and validation against your selection criteria. Information may come from many sources. One source is from the potential partner. This may be published sources such as their website and collateral. But also, conversations with key executives exploring how the alliance might work? What resources are they able to commit? Does the alliance make sense to them? Do they have the ability to execute? There are also ‘official’ sources such as their annual report, 10K or SEC filings. Are there relevant analyst reports from Gartner, Forrester?
Seek out external sources such as ‘what are their customers saying about them?” Do reference checks with other partners to get the perspective on how they partner? Are they reliable? Do they honor their commitments? Do they think win/win?
As you gather information, score and compare your candidates. This is often a reiterative process. As you find information about one partner prospect, you often have to go back and gather more info on the others to get a fair comparison.
Refine your business case to understand not just how value is created, but how much. You won’t have complete information, but you should be able to get a relative comparison between candidates.
Don’t be surprised that your partner is doing due diligence on you. So, you should be aware of what they are likely to discover. Do due diligence on yourself to be aware of your reputation and how good a fit you might be for your partner's objectives. You will find this perspective to be of importance as you start to formalize your partnership and move to contract.
One more piece of guidance: Don’t rush to contract.
There is a tendency to rush to wrap up the contract and then celebrate, announce the partnership to press and analysts and quite often that’s as far it goes. The hard work is forming the partnerships and building the operational plan to execute.
We advise you to take the time to conduct a thorough discovery of your partner, to really understand their business and how a partnership will create value for you, your partner, and your joint customers. We also encourage partners to spend considerable time in building a joint business plan or operating plan before you write the contract. Otherwise you will be rewriting that contract after you completed this plan. You will also learn a lot during the process that will clarify what value you will derive; what resources are going to be required, and if you able to work together effectively. This joint planning can be accomplished on an MOU (memorandum of understanding) while you will work together to design the partnership without binding commitment until you have workable plan.
One of the key things to look for during this planning process is whether your partner is looking out for your interests. Are they seeking value creating options that increase your value in the partnership as well as their own? This is in many ways the litmus test for the right partner. Partnerships that operate on a value creation basis versus dividing a zero-sum pie are, in the long term, more successful.