by Mark Brigman
CHAPTER 4
PARTNERNOMICS.com/C4
Strategic Partnership Approach
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Strategic Partnership Plan (SPP)
Now that you have committed to an exponential growth strategy, determined one to three “growth engines” for your business, and decided that a strategic partnership is your best course of action, you must now identify partner candidates and eventually execute a partnership agreement (or multiple agreements). The next step in the process is to develop a Strategic Partnership Plan (SPP) for each growth engine concept that you created. Your SPP acts as the business case for each of your growth engine concepts and will eventually address the “who,” “what,” “when,” “why,” “where,” and “how.”
Go back to your notes from your SWAT Analysis, Constraints Model, and 6-Cs Framework to refresh your memory. Recall that these exercises generated discussions that led to your growth engine ideas. Take your notes from these exercises and organize them into a SPP framework to answer the “who,” “what,” “when,” “why,” “where,” and “how.” Know that you will not have 100% of your answers, but write down what you know as of now. Be sure to document your company’s must-haves and nice-to-haves and list out the expectations that you have for a potential partner. View this endeavor as an impending marriage between your company and another. I know it sounds a bit corny and cliché, but it is true.
A strategic partnership is a marriage among businesses and the union should not be taken lightly. Recall that strong levels of 1) trust, 2) alignment, 3) transparency, 4) esprit de corps, and 5) results are highly correlated to long-term relationship success. Before we engage potential partners, we must first understand what we want out of the relationship; the SPP will help us identify these components. It will be a living document that will continue to evolve as our understanding evolves and we begin to engage potential partners. The SPP will become the single document to describe what “success” looks like for the growth engine concept. Portions of the SPP will be used to help us draft a Term Sheet, Non-Disclosure Agreement (NDA), and the Strategic Partnership Agreement (SPA), which will all be discussed later in this chapter.
Create a Term Sheet
Before we engage partner candidates, we must create a term sheet. Terms sheets are generally one-to-two pages that cover basic highlights of must-haves and nice-to-haves that you would like to share with prospective partners so they can understand your partnership opportunity. Because you will be sharing your term sheet with “strangers,” it is a good idea to ensure that you do not include any proprietary information on the document. If you and your partner candidate are interested in continuing conversations after the term sheet is introduced, then you are ready to share more intimate information, which may require a non-disclosure agreement (NDA).
The specialty of finding, evaluating, and executing strategic partnerships with other companies is much more art than science. There seems to be countless variables that come into play when you consider the full end-to-end process that takes place. When it all boils down, strategic partnership success is dependent upon value. In order for an agreement to make sense and remain in effect, the parties must perceive that the benefits (revenue, branding, knowledge, goodwill) of the partnership outweigh the costs (expense, time, risk).
As you start to draft your term sheet, consider your partner candidate’s perspective. You will need to position the partnership opportunity in such a way that your partner candidate can envision 1) value for their company, 2) little or mitigated risk, and 3) confidence that the partnership will be successful. You must clearly demonstrate that you understand their business, the market, and you have a sound strategy that will provide value to all, including the customer. Strategic partnership offers require serious “vision setting” skills. You have to create and articulate a picture of significant value in order to garner interest.
Size matters! If you are looking to partner with a company that is significantly larger (revenue, brand, reach), then you are already facing an uphill battle. Larger companies are constantly being solicited to partner. Until your “big idea” comes to fruition and great value is realized, your partner candidate will likely see your opportunity as another project for which they do not have time. Remember, your partnership opportunity is a brand new concept to their company. Even if they hear your pitch and everything sounds good, they have not budgeted the time, money, or people to facilitate your pa
rtnership proposal. Therefore, if you are seeking to partner with a larger company, you will want to write the term sheet in a way that addresses questions and likely objections.
To the contrary, if you are looking to partner with a company that is significantly smaller, your term sheet may be structured differently. If your company is bigger, then you will likely have more influence and leverage when suggesting terms. Just like you, leaders of smaller companies are looking for ways to grow their business and your partnership opportunity just may be the growth engine that they have been seeking. By offering a potential growth engine to a smaller firm, you may be positioned to ask for more value in return, as compared to your offer to a larger potential partner.
As you begin to draft your term sheet, you may have multiple versions based upon your audiences. As stated, write the term sheet from your prospective partner’s view and address topics from the position that will best resonate given their unique position and probable interests. Provide enough information to “paint a picture” and gain interest, but do not spell out everything. After all, you likely do not have enough information about the product/service, market, or potential partner to address factors such as cost, price, revenues, and risk.
The term sheet will likely be the first document that you share with your prospective partners. We all know that strategic partnerships come with a contract negotiation as a critical part of the process. I don’t need to tell you that contract negotiations can be emotional, contentious, and passionate endeavors. Truth be told, the partnership negotiation starts as soon as you exchange personal introductions. As you share and discuss the term sheet and other preliminary documents, be mindful of the Partnership Success Pyramid (trust, alignment, transparency, esprit de corps, and results). Know that the success of every partnership is dependent upon companies working together and successfully navigating these five elements.
Challenges and Roadblocks
Again, keeping Covey’s recommendation to “begin with the end in mind,” let’s understand some of the key challenges regarding the formation of strategic partnerships. In 2013, prior to the international ARPA-E Summit, the association conducted a research study to better understand strategic partnerships among its members. The survey asked a series of questions regarding various stages of the strategic partnership lifecycle. Although the majority of the member companies were engaged in strategic partnerships, the association wanted to explore reasons why even more partnerships were not being formed. One particular question asked CEOs from across the globe what specific reasons, if any, were restricting their formation of more strategic partnerships with other companies.
The reasons, in order, were:
Fear of losing intellectual property
Lack of trust in potential partners
Fear of having internal talent poached by other firms
Lack of knowledge or a processes to manage strategic partnerships
It is worth noting that the ARPA-E survey was given to large corporations, but the concerns noted are similar to those of smaller businesses as well. According to the survey results, the greatest fear was related to intellectual property (IP) protection. As previously stated, it is important to consult with an IP expert if your potential partnership involves IP rights. With the assistance from a seasoned IP attorney, your intellectual capital can be protected. Companies that are heavily dependent upon their IP, such as Facebook, Google, Microsoft, and Apple, engage in strategic partnerships on a frequent basis. Don’t let this reason stop you from forging partnerships.
The second point mentioned, lack of trust, is definitely a cause for not partnering. However, this evaluation should be specific to each candidate company. The overarching generalization that no company can be trusted is simply short-sided and inaccurate. As previously discussed, trust is the absolute foundation of every relationship. And in order to receive trust, one must be willing to offer trust. When it comes to evaluating trust, there is no substitution for reputation. If we treat our customers, partners, and employees with dignity and integrity, we will develop a reputation of being trustworthy.
The third concern, poaching of talent, can be mitigated. The leadership mindset in me says, “Treat your employees well and don’t give them a reason to leave and you will be fine.” But I know that statement does not cover the gap. With today’s competitive landscape, it has become the norm to see non-solicitation and non-compete agreements be executed between employees and partnering companies to offer protections to address this fear. Although these agreements are not bulletproof, they can be useful. Besides, if you are partnered with a company that openly poaches employees, perhaps they are not a great partner and you should consider finding a replacement.
The fourth and final point, lack of knowledge or processes to manage strategic partnerships, is a valid concern. Numerous studies, including this poll, found that many company leaders do not have a process or expertise in developing, managing, or leading strategic partners. This is precisely why PARTNERNOMICS was written. Many companies who have taken the time to develop processes and core competencies that include managing and leading strategic partnerships have turned this opportunity into a competitive advantage. This is why it is so important to understand and leverage this great capability.
Non-Disclosure Agreement (NDA)
Non-disclosure agreements can be an interesting dance with prospective partners. I will tell you that NDAs have value, but they don’t offer as much protection as one might think. If your company has what it believes is “the secret sauce,” then obviously you will want to do what you can to protect your information. If this is the case, don’t be surprised if other companies appear to be unwilling to sign an NDA or that they may require significant modifications to the agreement prior to signing.
If you or your partner candidate feels that a NDA is warranted, I suggest you consider a “mutual NDA.” The mutual version of the non-disclosure agreement attempts to make the terms balanced so that each company is on level terms. Information sharing and intellectual property protection seems to coincide with company cultures. You will likely find that a company will fall on one side or the other with almost no middle ground. That is, they will quickly say yes to executing an NDA and the process will be fast, or they will say no and your choice is to “fly blind” without an NDA or walk away.
Finding the Right Partner
Finding a potential partner is easy, but finding the right partner can be challenging. After you have determined what your “growth engine” is and you have decided that a strategic partnership is your best path forward, you must now find a partner. Your new strategic partner will become an extension of your company. The success or failure of your new growth engine will largely be dependent upon your new partner’s performance.
Finding the right partner is a critically important process. You will want to partner with an industry leader that can deliver the expertise that you are seeking. Whether it is a pool of potential customers, a revolutionary technology, industry know-how, or another great value-add, your partner candidates should be well positioned to provide your missing link. But finding your missing puzzle piece is just a part of the equation. You must also ensure that their organization is aligned with your vision, goals, and culture. They do not have to be identical, but they must be aligned, congruent.
Because you are looking for market leaders, great partner candidates should not be completely invisible. Most business leaders know which companies are strong partner candidates for their company. If you are unsure, start the process by searching your industry resources, websites, associations, tradeshow participants, and business journals. This exercise allows you to become more familiar with the current thought leaders in your space, an opportunity to discover some new partnerships being forged. As you discover industry articles, whitepapers, and blog posts, you will undoubtedly find high value people and companies whom you should get to know. These industry leaders are the types of companies with which you will want to partner.
As you search the landscape to discover potential partners for each of your growth engines, be mindful of your SPP. Your SPP will offer a profile of the types of companies that you are seeking (competencies, capabilities, resources, etc.). As you discover each candidate, list the pros and cons that you see based on the knowledge that you have thus far. This process allows you to create valuable questions to ask the candidate to validate your belief and allows you to make an initial prioritization of the candidates.
Partner Candidate
Growth Engine = Build New Outside Sales Channel
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Cons
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ABC, Inc.
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Blue, LLC
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I have found that most companies are able to find partnering candidates but many struggle with the following step: evaluating the fit. The partner candidate identification and selection process is not fast—it is too important to do quickly. As you can imagine, strategic partnerships can be positioned on a spectrum. Although all are important, some are more critical than others. As the business leader, you will determine the appropriate amount of research and scrutiny to apply to each step of the process.