Win-Win Partnerships

When considering partnerships, it is crucial to build a strong business rationale for both parties. Finding some intrinsic synergies between the products, business models, and customer bases can make one plus one equal more than two.

Business partnerships can be exceptional value enhancers for startups. For example, a simplified “partnership” situation can be when one company wants to leverage capabilities that another company has turned into a “product.” For example, Apple and Android have created app stores and application development kits that facilitate other companies creating products (apps) that leverage and integrate well with their smartphone platforms. They make various platform capabilities available to other companies. Sometimes there are charges for access to these development support tools, and sometimes there aren’t. The difference often hinges on whether the platform’s sales are improved by having more available apps, in which case the platform company will want to minimize the barriers to entry for others developing and adding additional app capabilities. Alternatively, the platform company may wish to restrict access or may require support for their resources that are invested in helping others leverage their platform to make it make business sense. By using the app stores from the primary phone operating system companies, the operating system companies benefit by having more value-adding apps developed and made available to their users on their platform, enhancing the perceived value proposition.  The app development companies can leverage development standards and development tools to more efficiently create a valuable app and then leverage the distribution mechanism (the “store”) to get their app into customers’ hands. Just imagine what it would be like if you had to find each new app on its own website and figure out how to download it, and set it up to work on your “independent” smartphone hardware and operating system?

At a more complex level, sometimes it makes sense to create a combined offering by two companies. By combining intellectual property, value propositions, manufacturing capabilities, market penetration, and other valuable business assets, companies can produce a combined market offering that boosts sales without having to invest in developing those assets independently. This can open up new opportunities previously unavailable to either party.  As an example, Fifth Eye’s product is a software-only medical device that uses ECG as its sole input to produce clinically useful information about the trajectory of hospital patients.  Without an ECG input, we cannot provide clinical monitoring insight to our users.  Most hospitals have equipped about half of their beds with either bedside or telemetry monitors, so that means that patients in the other half of the hospital beds cannot use our product even though patients in those general ward beds are sometimes the ones who unexpectedly deteriorate and are only being lightly monitored, so it is a potentially excellent use case for our analytic.  What to do?  How about exploring co-marketing our product alongside an FDA-cleared wearable patch ECG monitor to expand coverage to a broader number of beds in a hospital?  For us, partnering with another company that already has developed a wearable patch and secured FDA clearance for it is a lower investment and faster path to the market. Our product opens up a whole new use case for the wearable patch makers for their existing product investment.  This scenario has the potential to be an excellent win-win for both companies.

To realize the potential in a partnership, the most important first step is to sketch out the potential opportunity, identify one or more potential partners who might be interested, and then collaboratively develop the business case for a combined product offering. It is imperative that the business case be strong enough for each party to overcome the natural inertia, business opportunity costs, and other resistance points in taking on a new project. Unless one of the parties has decided to create a supporting product (like the app store example above) indicating that the business case is already clear from their perspective, the challenge of figuring out the overlap between each party’s strategic objectives, resources, assets, and capabilities as it relates to the identified opportunity will require work from both sides.  To make it enough of a win-win, you need to think about the possibilities from both perspectives:

• What can you offer your partner?  Can you quantify the business opportunity for them?
• What can the partner offer you?  What is the scale of the business opportunity? Is this the best use of scarce resources?
• Can the combined product offering multipy value for both parties?
• What are the opportunity costs related to other strategic priorities that would be competing with pursuing the combined offering?  Is the combined offering worth it?

Think about these questions from different relevant perspectives: user experience with the combined offering, product features/functions, pricing models and how they interrelate to create profit for each party as well as how the full scope of customers might perceive them in the marketplace, targeted market synergies/expansions, marketing and sales responsibilities and restrictions, regulatory considerations, manufacturing adjustments, necessary technology integrations necessary legal arrangements with customers as well as between the partners.

As you consider a partnership strategy, remember that potential business partnerships also come with risks. Perhaps the biggest one is that, in contrast to building something within one’s own startup where you have a much higher degree of influence and control, there is an enormous amount outside your control when working with a partner.  Instead of being able to make decisions based on what is best for your company, you have to consider what is best for both companies. And, because you do not have direct control, you need to find enough value for both parties that there is sufficient motivation to do the work that needs to be done to accomplish the joint effort.  Like a Venn Diagram, you have to find the overlapping space where both parties benefit.  Enough value to be shared so that both sides are highly motivated to put in the investment and work to make something new happen!