Choosing the Right Business Partner
While 84 percent of businesses told Forrester Research, Cambridge, MA, that partnerships would be part of their growth plans in 2001, most are still doing the equivalent of eenie-meenie-miney-mo when sorting out who can best help them succeed. GartnerGroup, Stamford, CT, predicts that more than 40 percent of technology companies plan to commit significant corporate assets to partnerships in the coming year. Asset allocation to partnership efforts will rise from 9.4 percent in 2000 to 13.5 percent this year.
If you look at yourself honestly, you realize there is nothing philanthropic about partnerships. Partners are chosen to extract benefits, sometimes mutually, for the parties. Generally the benefits come in one of three flavors, though combinations and hybrids are common.
The benefits of partnership are:
• To establish or borrow credibility. You are nobody. They are somebody. By hooking up you gain credibility or reputation by association, which, in theory, you offset with other assets.
• To pre-empt investment of time, people, money or power. You ally yourself to gain access to a partner's learning curve, technology, workforce or competitive advantage. In theory, your savings and the acceleration of your business that results nets out benefits to your partner. Using the skills, people, technology or tactics of a partner can be a springboard to success.
• To road-test a potential merger. Some partnerships are preludes to acquisitions, mergers or takeovers. During the partnership, the successor firm gets to understand key assets, critical players and the not-so-obvious nuances of a business, positioning them to gobble up the partner efficiently.
Given the significance of partnership as a business tool, it is logical to think that the selection process has to move beyond the emotion or the default and into the realm of strategy.
Consider a two-step process to screen potential allies. Step one, the business equivalent of a chemistry check, will eliminate obvious mismatches and level the playing field for negotiation. As a first step, ask:
• Is there a brand fit? Does the prospective partner align with your brand and your customers? Does it have a reputation on par with yours? Will an association with its brand raise the perception of yours? Does it offer a product or service that your customers know or care about? Could a customer easily or intuitively figure out the link between your brand and the partner?
• Is there a common approach? Does the partner think as you do? Does the partner approach customers with the same perspective on product quality, urgency or service? Is it driven by similar financial concerns, or does it use similar metrics to measure performance or to steer its boat? Does a family, a despot, a committee or an unseen investor run this partner? Who will be your liaison person?
• Is the partner the same size? Will you eat the bear or will the bear eat you? Who needs whom and by how much? Will the level of need change over time or as a result of market activity? While a win-win is the best entry posture, understand and articulate clearly what you expect to gain and why. Then have a plan B in case things do not work out. Too many Internet businesses have signed up all kinds of partners in a rush to seem real and to issue press releases implying "forward momentum." Many of these partnerships are not worth the paper they are touted on.
This sounds like advice you would give a seventh-grader with a crush. But when aligning their businesses with others, many online marketers do not remember their junior-high mating rituals.
Once a prospective partner meets these criteria, it is time to get granular and dig for data or surrogate information. Due diligence is more than picking up a fancy dinner tab. So get answers to these questions:
• What is the partner's annual sales revenue and rank in its category? This establishes who has the leverage and gives you a baseline for reckoning likely expenditures for nonpublic companies. Also, understanding transaction averages, frequency and cycles will give you an understanding of how and when the partner needs help, thereby defining some of your value and most of the inflection points for negotiating.
• What is the partner's geographic profile and how does it overlap or complement yours? This asks you to look at distribution, employment and tax patterns. It inventories the boundaries of any deal.
• Who are its customers - its best customers - and how do they overlap or complement yours? This tells you how high is up and gives you a perspective on how much poaching is likely. It is also useful to know the distribution and concentration of customers or product orders to see who has whom by the tail and to understand the operative dynamics of the business.
• What stage of growth is your partner in? This is a surrogate measure for understanding how aggressive a partner might be and how much that partner might need or value the deal.
• What legal or regulatory issues will come to bear? This gives you a feel for how hard it will be to get a deal done and what parameters might pre-exist in the negotiation.
• Who will eat your partner's lunch? Diplomats operate on the principle that the enemy of my enemy is my friend. Understanding how a partner aligns itself and who is gunning for that partner is critical in weighing any decision on your part.
• How will you measure performance? A partnership needs to have definitive goals that can be measured and counted by both sides. Without a goal and a way to measure, you will never know whether it is worth it.
If this sounds Machiavellian, consider the consequences of a partnership gone sour: loss of prestige, litigation, income loss, employee attrition, etc. Accenture, Chicago, reported that alliances are about bargaining power. And alliances are more like relationships between nations than like a marriage. Finding the right balance of power and striking the right tone of diplomacy are the critical success variables.