What is a strategic partnership?

In this piece, Carl Reader discusses the key factors that make for a good strategic partnership between two businesses.

Very simply, a strategic partnership is any relationship with another business or individual that can help your business. This can be a relationship with a supplier or a customer, although in my experience it is more likely to be another supplier to your own customer base. That’s it. There’s no requirement for formal documents, commission arrangements, or structure (although these can help), instead it can simply be two friends working together to help each other. You are probably doing it already without realising.

How do you make a strategic partnership work?

This is the magic question, and there is no one answer. Every potential partner has something else that they want from the deal. I’ve listed the common motivations below, but the order differs depending on who you are dealing with. There’s no way of knowing what floats their boat until it is implemented and tested, and you might need to tweak your plans based on the performance of the arrangement. Also, while potential partners might claim that they are not motivated by referral fees, you might be surprised with what actually motivates them!

Reassurance that you won’t let down their customers. This is really the basic requirement of any strategic partnership, and getting this wrong will ruin the relationship from day one. I’d estimate that 99 per cent of the potential or actual partners that I have spoken to would see this as a key requirement. There are some sharks out there who really don’t care, although in my experience, if they are solely motivated by cash and not much else, there is no reason why you should pursue the ‘opportunity’ as the customers tend to be of a certain kind…

Enhancement to the service that they already offer. Whether you can make their life easier by eliminating some work for them, or can enhance the customer experience by providing the missing link to what they do, your partner will enjoy the reflected glory from a satisfied customer and a satisfied team.

Financial reward for them or their customers. Let’s be honest. Many potential partners look for a kickback or a referral fee. Others feel that it is unprofessional to receive referral fees. I’m not here to judge either way, just to comment that you need to be open to all routes and as such, look to build in a referral fee budget within your pricing. It might be that this fee is donated to charity, or returned to the end customer; either way, if this is done transparently and consistently, it can tick the ‘finance’ box.

Reciprocal referrals. Many partnerships are led by the notion of ‘reciprocal referrals’, but unfortunately this is a pipe dream for many partnerships, regardless of the good intentions on both sides. The reality for many relationships is that it will be imbalanced in favour of one side, based on the ‘food chain’ (see later).

Why do strategic partnerships fail?

Above we have explored the core motivations of a partnership, but all so often, they don’t work. Putting the obvious failures – not paying commission, or not looking after a customer – to one side, here are some of the main problems that I’ve seen:

The food chain effect. A perfect example of this could be a partnership between a web developer and an SEO company. It would be very easy for a web developer to feed work to an SEO company as it is likely that if the business had been trading online previously, the old website was not working in some way. Also, the buyer will be experiencing the high PV (perception of value) that we all experience at the start of a long term relationship with any supplier, and as such would be receptive to referrals. On the flip side, an SEO company will find this more difficult to reciprocate, as all of their clients will have websites, and might be unwilling to invest in a redesign of something that is already working.

Lack of action and relationship management. Just like your relationships with your customers, you need to make sure that you keep in touch with your strategic partners. I often see partnerships start with great intentions, but the two parties simply don’t stay in contact, leading them to forget about whatever actions had been agreed. Make sure that you create at least some structure to help prevent this!

Lack of true motivation. You really need to explore all possible motivations. What people say and what people mean is often two very different things.

What can be done to minimise the chances of failure?

First things first – by reading this article, you’ve done more than 99 per cent of most businesses who go into a strategic partnership! Many enter into these arrangements completely blind, with no idea of what can go wrong. What amazes me however is just like an abusive relationship, both sides will keep going back for more even when what hasn’t worked before has demonstrated that something needs to change!

If you are open to change, or at least minimising your risk, think about the following ideas:

1. Offering all motivation options at day one, and continually remind the partners of their available options
2. Making a plan of relationship management, including check in calls and meetings
3. Discuss expectations of service, reporting to the partner, and other requirements *before* any referrals are made
4. Create a formal agreement that sets out what you both expect from the partnership
5. Make sure you smash your side of the deal!

Carl Reader is director at d&t Chartered Accountants

Further reading on partnerships

Ben Lobel

Ben Lobel

Ben Lobel was the editor of SmallBusiness.co.uk from 2010 to 2018. He specialises in writing for start-up and scale-up companies in the areas of finance, marketing and HR.

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