Healthy alliances can be a critical growth factor for business

Ryan S.

Dec 16, 2020·6 min read

Within product-focused organizations, I’m of the opinion that the role of widespread partnerships is undervalued, and can go unnoticed when compared to direct sales channels and proprietary products.

In more dramatic cases, software-as-a-service businesses may shy away from forming partnerships until very late in their maturity. Despite various examples of unicorns that grew explosively in part due to partnerships, there still may exist a negative stigma against partnerships apparent within some organizations.

We can’t truly understand causality, but there are several potential reasons for why a company may avoid going the partner route. The recurring theme here is that all of them stem from culture.

Why might businesses avoid exploring partnerships?

1. Fear the partnership will be perceived as a “weakness” or loss in credibility due to the “inability to build it themselves”, either by customers or investors.
2. Fear of lost revenue or market share when working with a partner, under the belief they could have succeeded better alone.
3. Fear of losing intellectual property (IP) if they offer a product through a partnership channel or fear of negating their product’s value through the use of another company’s IP.

However, these are typically shallow outlooks rooted in confirmation bias — and fail to recognize the benefits (assuming that the partner program is run successfully) that counter and outweigh each of these points.

What’s all the hype, anyway?

Companies that choose not to adopt a partnerships strategy tend to miss out on several key benefits, which I’ve covered in detail below.

Build credibility

Perhaps the biggest benefit of a partnership play is the long-term perception of credibility, whether that’s to prospective customers, an existing client, or investors. A partner won’t just blindly sign an agreement: a level of due diligence goes into the relationship to ensure it is viable, meaning when a partnership is finalized it speaks to the longer-term health of the business. To those who care about these things (ex. private equity investors, regulated customers) — it’s a big green checkmark for the business.

The symbiotic relationship between both parties

Often, one side can grow its total addressable market by introducing new capabilities via a partner’s product or feature, while the other receives revenue that would have been trickier/slower/impossible to generate alone due to some barrier to entry. Both sides win in this case.

Expansion of brand and image

Partners allow an organization to broaden touchpoints with new audiences and communities that would be otherwise challenging or expensive to reach. Maybe it's as simple as breaking into a new geographical market, or simply reaching a new segment (ex. Enterprise customers) that was blocked before. As an organization grows in these markets, its reputation within it also grows.

Focus product development efforts on a core competency

Translation: companies can invest in their “bread and butter” and lean on “best of breed” partners to cover off any gaps (actual or perceived )in the product. In other words, it allows companies to be great at one thing and double down on it, as opposed to being “okay” at many things.

Scale faster with services and VARs

Adding new channels and services partners will allow teams to win more deals, period. This comes without the traditional overhead and scaling of services and sales teams. As long as a company is handling channel conflict and not cannibalizing the income from their own teams, they can easily grow the bottom line and retain a portion of revenues for minimal effort.

Partnership, however, is a Journey

As a company scales, the simple idea of partnering with others will likely shift as it grows from a product(s) org to a platform org. Below we’ll cover some “tiers” on the spectrum of partner program maturity.

Tier 1 – Channel and VARs.

At this tier, a company is likely still early in its growth. But how can they reach a broad audience (in another geography, let’s say) without hiring an entire fleet of business development resources? The answer is that they can leverage channel partners, sacrificing a small percentage of revenue in exchange for reaching customers who they simply didn’t have the bandwidth to reach.

Tier 2 – Technical alliances, integrations.

Point solutions that solve niche problems (think a single department or a single industry) often work together from a technical perspective to make their offer more appealing, saving customers’ IT teams the headache of writing glue code to make their vendor products talk to each other.

But what’s the benefit to the product companies? The integration partnership reduces the TCO and time-to-readiness for their customers, which means they save money. Chances are, those customers may spend those expenditure savings on something else the product company sells that will bring them value.

Tier 3 – Marketplaces and ProServ.

At this point, a company’s partnerships channel has likely snowballed into its own large piece of the revenue pie.

Organizations can begin to enforce how partners will integrate with their products and will establish standards for how consulting firms will provide guidance on implementation and adoption.

Let’s use Workday as a recent example. They offer a marketplace with several styles of integrations and add-ons, where they dictate who can and cannot publish offer their products inside of it. This is a perfect example.

Tier 4 – Ecosystem and a community of practitioners.

At this stage of maturity, entire organizations may build their business around a company. Think of Salesforce: when it first launched, it was simply a CRM. Now, it’s tough to create a product for revenue teams without in some way touching SFDC.

Start-ups are using the Lightning platform to build their companies on top of Salesforce.com, sacrificing a portion of their own revenue to the platform provider in exchange for a pass to be a part of the ecosystem — knowing it opens the door to all of the provider’s customers and prospects.

Bonus Tier – M&A, spin-offs.

Let’s look at SAP and Qualtrics as a baseline here, a success story for ecosystems. A company that has built a great platform and ecosystem over the years (like SAP) may wish to acquire some of its downstream marketplace partners.

A product within the marketplace may begin to become a competitor of the platform provider, and others — seeing the traction being gained — are eyeballing the company for acquisition. This was the case for Qualtrics. The product company had chosen to become a partner of a larger ecosystem (SAP) and became so popular that the ecosystem provider scooped them up.

We’re now even seeing that the acquired company can have such a loyal partner base that it spins back off into its own brand after the growth.

The Bottom Line

Partnerships are a key for unlocking massive growth within the business. And because of this, organizations shouldn’t be afraid of (or ashamed of) building a partnerships or alliances program.

Although it may feel like a sacrifice is being made, in the long run, both sides of the relationship are benefiting in ways that wouldn’t be possible prior. Smart organizations will recognize where they should and shouldn’t invest precious time and resources at a given time, and look to partners as a strategic lever for growth.