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Making Channel Partnerships Work

By: Lee Wilson

8/1/2008

How, when, who, and why to approach when you're looking for a partner

It was 1995 and our backs were against the wall. The entrepreneurial SIS vendor I worked at had launched five major projects in wildly different segments of the market. In reality our team could only tackle one, maybe two. The path out was clear-- a painful process of canceling projects and selling off parts of the business so that we could focus on the core market.

But there was one ancillary product we were loath to ditch. We had a library automation line that was throwing off over a million dollars a year in technical support fees. We couldn't afford to invest in continued development but we needed the profits it was generating.

The answer lay in a partnership where we white-labeled another company's product. We put our brand on it, then "upgraded" our current customers and sold to new customers. Rather than shutting down this part of the business, we turned it into an opportunity that netted both companies several million dollars over the next seven years.

Why did we succeed when so many partnerships fizzle out after an initial burst of enthusiasm? I believe it is because: 1) we took a comprehensive approach to structuring the relationship; and 2) we were crystal clear on what kind of partnership we needed.

This one-two punch is the sine qua non to any education-channel partnership. In this article, we'll look at the critical aspects of putting together a successful partnership and at the various kinds of channel partnerships that are possible. Setting the right expectations with the right partner takes time, but it will pay off in the end.

It's critical that you take the time up front to map out how products, money, information, and decisions will flow between the organizations

Part 1: Structuring the Relationship

Following on management guru Peter Drucker's ideas, I would suggest that in order for any business partnership to succeed, the physical, logical, and emotional dimensions must be addressed in a coordinated fashion. These three pillars, which are the underpinning of a systems approach to business in general, apply to external partnerships as well as to internal management issues. Let's take a closer look at each of these dimensions to see how they enable a prosperous business relationship.

The Physical Dimension

A partnership is a logistical arrangement at its root. Ultimately it's a legal arrangement, but the contract, in essence, gives definition to how the physical, or tangible, aspects of the deal relate to each other. Think of this dimension as involving persons, places, and things: This is the product we are buying, this is how much we are paying for it, this is where it will be sold, this is who will handle the transaction, and so forth.

It is critical that you take the time up front to map out how products, money, information, and decisions will flow between the two organizations. Even when you do the mapping you are not going to figure it all out-- which is why it is also important to have clarity on how issues will get escalated and resolved. All of this should be worked out between the leaders of the two businesses without lawyers in the room. These are fundamentally business, not legal, decisions. Once you can boil it all down into a memorandum of understanding in plain English, you can hand it off to the lawyers to craft a contract.

Keeping with the tangibility of this dimension, have as much of this discussion face to face as you can. In particular, when you hit a negotiating snag it is well worth the cost of an airline seat to get together before things go irretrievably off the rails. After all, as the psychologist Albert Mehrabian pointed out, over 90 percent of communication is non-verbal.

One way I have found to make the most of your initial conversations is to use a checklist that touches on all of the logistical and legal issues you have to resolve in setting up a partnership. The list should cover everything from branding to arbitration, including topics such as defining the territory, what products are included, if the products will be customized (and if so how much), and whose brands will be used. Creating this checklist early and comprehensively helps quickly surface any deal-breakers.