This week I had a conversation with an executive at a mobile banking company. We spent a majority of our time discussing the strategy of using strategic partnerships to build a customer base, deliver products that meet customer needs and generate revenue. This executive shared an unfortunate experience where his team was pushed into a partnership where they provided most of the product development resources and had to commit to the lion share of the marketing spend to promote. Unfortunately, the double barrel commitment yielded little return in helping the company achieve its goals. The partnership was more of a distraction and had high opportunity costs. Frustrating.
Strategic partnerships are an important lever to pull to grow revenue, drive acquisition, build out technology, and increase product functionality. However, it’s mission critical that the right strategic partnerships be established or the relationships will be a distraction and take critical focus off of what is important.
One of the most important exercises a company must go through is to understand who their customer is and how the company will meet customer needs. Without this understanding, it will be impossible to find the right strategic partnerships. Once the customer is understood, companies need to evaluate potential partners across 4 factors.
The first factor is access to the right customer. Will the partner enable a company to market their product to a customer segment that will generate revenue and have high life time value? If not, the partnership will yield access to consumers whose needs are not met. As a result, little value will be provided to the company. Unfortunately this happens far to often as young companies rush to find ways to acquire new users and monetize as quickly as possible. As we all know, this is a symptom of a short-term focus and a need to show growth to current and would be investors.
The second factor is to understand the required investment needed to realize the value of the strategic partnership. For example, eBay entered into a strategic partnership with PayPal to meet the needs of its users to pay for things securely online. Yes, eBay had to invest product resources to integrate the PayPal technology into its listings. However, the investment had a very positive ROI for it brought huge value to eBay buyers and sellers. The product partnership proved to be very successful, as we know, and eventually resulted in eBay acquiring PayPal.
The third factor is the company’s internal resources and willingness to support the partnership. I’ve seen many companies stumble on this factor. I was part of an organization that needed to partner to quickly provide product features to remain competitive. It was one of those standard “make vs buy” debates that resulted in the executive team deciding to move forward with a partnerships strategy. Unfortunately, employees outside of the executive committee did not feel they had the resources needed to support any technology partnerships and quickly dug their heals in and resisted any discussions. Needless to say, any partnership agreements quickly stalled in the implementation process.
The last factor is both parties’ shared interest in a successful outcome. The partnership must be of equal or greater strategic importance to both partners. While at Excite@Home I managed a strategic partnership with Paramount Pictures that was designed to increase awareness that Excite was a destination to learn more about the latest blockbuster movies. I managed a team of developers, designers and marketers to build solutions to promote Paramount’s movies across the Excite@Home network. We busted our butts to get things done. Unfortunately, Paramount didn’t have much interest in promoting us as defined in our partnership agreement. We were lucky to get an Excite@Home logo placement on the front page of the Paramount website…but were nowhere close to receiving any offline placements. Paramount reminded us of this too frequently. Such is life in the big city. It will always be Silicon Valley vs Hollywood.
So blah. What is the conclusion to my bloviation? Before company executives start frothing at the mouth to strike strategic partnerships, it’s important to do the introspective work first. Who is your customer? What customer needs are being met with the product? What needs are not being addressed by the product? Only with this sense of corporate self-awareness can companies enter into fruitful strategic partnerships. Without doing the upfront work first, it’s like searching for a spouse without knowing what qualities one is looking for in a mate.