By Bob Barker
“Whether it sells computers, clothing, or cars, your firm’s fate is increasingly linked to that of many other firms, all of which must collaborate effectively in order for each to thrive . . . and more than ever before, success depends on managing assets your company doesn’t own.”
Marco Iansiti and Roy Levien, The Keystone Advantage, Harvard Business School Press
As companies move past the survival mode of the past several years and into potentiallycalmer waters, how can they get back on the fast track to growth? Partnerships.
So why aren’t more CEOs using them? Partnership myths.
Accelerating growth often depends on partnering with other organizations. The best partnerships are “self-fueling” – that is, structured so positive results for the first party drives it to act in ways that increase positive results for the second party, and vice versa.
Although partnerships can help achieve growth objectives more rapidly than acting alone, CEOs often don’t include partnerships as part of their business strategy. Maybe it is because of common misinformation about partnerships.
“Partnerships favor the larger (or smaller) party.”
In a self-fueling partnership, each party’s success depends upon the other party’s success, so each party gains what would otherwise be out of reach.
“I have a better chance of winning the lottery than creating a partnership that works.”
The probability of successful partnerships is estimated at 20-30 percent, but that includes all partnerships. Self-fueling partnerships are more successful because they are carefully designed to motivate each party to be concerned about the success of the other.
“I could lose control of my business by partnering.”
By being deliberate about building a self-fueling partnership, each party determines the relationship with the other party. The only way to lose control is by choosing to make a change to the relationship, e.g. entering into a merger.
“Partnerships are too complex to manage effectively.”
While it’s true that some partnerships involve many moving parts, they should be designed with metrics to keep each party informed of progress to make them easier to measure and manage.
“The ROI from a partnership doesn’t justify the effort.”
A well-crafted partnership can produce more growth for both parties with less overall effort than separate initiatives would require.
For partnerships to fulfill their growth potential, they must be designed deliberately to achieve optimal results. While each self-fueling partnership is unique, four distinct types offer significant growth acceleration opportunities.
Product and service companies often partner in order to deliver a whole solution to customers. For example, highly technical products may require local expertise and support to ensure customer success, yet building a large in-house service team may be cost-prohibitive. Finding, qualifying, and enlisting suitable partners to provide a scalable service team can be far more efficient than maintaining a bench of services staff that sit idle for a significant time.
When a company decides to enter a new market or region, finding the right partner can dramatically cut the time it takes to reach prospects. Instead of relying on traditional marketing to find prospects, build a sales partnership with a company that has the attributes of an ideal partner:
New companies struggle to establish their brand, while older companies may need to create a more modern image and gain access to newer products. Partnering with an older company may give a new company access to stronger marketing, while partnering with a newer company with “hot” products may enhance the perception and relevance of the older company’s offerings. IBM’s acquisition (the strongest type of partnership!) of Tivoli in the late 90s provided new products and a hot new brand to bolster IBM’s slow-growing systems management software business, while Tivoli gained access to the larger company’s massive sales and marketing machine.
At times, the path to growth is clear, yet significant capital is needed. If the funding required exceeds the amount of internal funding available, finding an investor is an option, but be sure to seek “smart money” from an investor who can derive multiple benefits from the investment.
Suppose a private equity firm’s portfolio includes a company that could grow by licensing company technology. Getting the P.E. firm to invest by offering technology licensing in return can increase the valuation and lower the cost of obtaining capital.
For 30 years, Bob Barker was a software industry senior executive who created partnerships, formulated product strategy, and executed acquisitions for billion-dollar companies and startups. As a trusted CEO advisor with 20/20 Outlook LLC, he creates breakout strategies and growth-accelerating partnerships for visionary CEOs.