“Partnership is the way. Dictatorial win-lose is so old-school.” – Alanis Morissette
I have to admit that I sometimes regret that here at PandaDoc-Quote Roller HQ, where we’re all about creating awesome proposals, we never get to talk about one of the most common proposals of all, the marriage proposal. I mean it sort of seems like the elephant in the room, the litmus by which all other proposals can be measured. But I know that marriage isn’t really like business, so there’s never really a chance to tackle the issue.
Then again… It seems to me that there is one aspect of the modern business that is a lot like a marriage: the strategic partnership. In a strategic partnership, two businesses are intertwined either from the marketing, supply chain, integration, technological, or financial standpoint, or some combination thereof. Such an agreement might exist between a digital marketing agency and a graphic designer, a web designer and a database management firm, or an Internet service provider and an email provider, just to name a few of the many possibilities. Here at PandaDoc we have integration partnerships with several vendors, including Harvest, Google Drive and Nimble, among others.
Whether you’re a startup or a growth company, there are many reasons to consider entering into a strategic partnership agreement (wow, that really does remind me of marriage every time I type it). At the very least, a strategic partnership will add value to your product or service by increasing what you have to offer. A strategic partnership can even be a proverbial match made in Heaven, if the two parties involved reciprocate each other well enough. Doesn’t that just sound matrimonial? Forsaking all other references to veils and vows, let’s take a look at five common types of strategic partnerships, as well as what goes into a typical strategic partnership agreement.
Why a strategic partnership?
First, let’s consider why you would want to enter into a strategic partnership agreement in the first place.
A strategic partnership is a mutually beneficial arrangement between two separate companies that do not directly compete with one another. Companies have long been engaging in strategic partnerships to enhance their offers and offset costs. The general idea is that two are better than one, and by combining resources, partner companies add advantages for both companies through the alliance. Some good examples of strategic partnership agreements between brands that you may have heard of include Starbucks’ in-store coffee shops at Barnes & Nobles bookstores, HP and Disney’s ultra hi-tech Mission: SPACE attraction, and Nokia and Microsoft’s joint partnership agreement to build Windows Phones.
But that’s just the tip of the iceberg. Virtually everyone who’s anyone is partnering in some way, even it’s not obvious to the public. In an ideal partnership, you benefit not only from adding value for your customers, but lowering costs as well. That’s why every strategic partnership is ultimately an act of leveraging costs versus return. Before diving into a partnership, size up the other party and carefully evaluate the benefits and risks of entering into the agreement. If you can satisfy your profit goals and customer expectations through the partnership, then it’s the right call for your business.
Now let’s look at each of the five types of strategic partnership agreements.
Strategic Marketing Partnerships
The first type of alliance we’ll talk about is the strategic marketing partnership. This type of agreement is most beneficial to small businesses that have a limited selection of products and services to offer their customer. Maybe you have a company that provides one service, say logo design. You might do well to partner with a web developer that will always refer you when graphics are necessary, and vice versa. Referral agreements are probably the most basic and informal type of strategic alliance, but strategic marketing partnerships can be considerably more complex. Case in point: pharmaceutical company Abbott India’s agreement to market Zydus Cadila drugs across India. An agreement like this one allows each company to focus on what it does best. In this case, Zydus Cadila gets to focus on manufacturing medications while Abbott India hones in on marketing the drugs. Marketing partnerships are extremely common in the automotive industry, like the Toyota IQ also being marketed as the Aston Martin Cygnet. The idea is that one company makes a product and another adds its own marketing spin to it in order to tap into a new market. The same logic can be applied to a variety of different products, so it’s something worth considering in many situations. If you're interested in forming a strategic marketing partnership, you want to look for either a referrer that you share a customer base with or a company operating in a related field that can market your goods or services to a new audience.
Strategic Supply Chain Partnerships
A popular (and extremely valuable) type of alliance is the strategic supply chain partnership. One of the most obvious places that you can see strategic supply chain partnerships in action is the film industry. If you’ve ever noticed the opening credits of most movies list various oddly named companies before the film starts, it’s because movies are typically made in a supply chain method. A comparatively small production house will handle the filming and post-production, and a larger studio will handle financing, marketing, and distributing the film. Think of J.J. Abrams’ Bad Robot and Paramount Pictures, which maintain such a partnership agreement.
Other examples of supply chain partnerships come to us from the technology sector. Intel makes processors for many computer manufactures. Toyota makes engines for Lotus sports cars. Texas Instruments makes chips for everything you can think of. These companies are entered into strategic supply chain partnerships with other companies. If you make a tangible product that you think could benefit from a strategic supply chain partnership, the decision to enter into an alliance comes down to cost. If you can make it for less yourself, then you don’t need a partner. But if you can hand off manufacturing to a dedicated factory and maintain profitability without sacrificing quality, then by all means, do it. For those of us in the service world, it's often an even easier decision.
Companies usually enter into supply chain partnerships to cut costs, streamline processes, or improve quality. Unfortunately, as valuable as they can be, supply chain partnerships can also be among the hardest types of alliances to maintain. According to Dr. Andrew S. Humphries, supply chain partnerships run into problems because, on the supplier’s side, the measures of success focus on time, cost, and quality, whereas your perspective likely focuses on sales and revenue. A supply chain partnership only works if each party involved can meet with end customers’ expectations for quality and price while remaining individually profitable.
Strategic Integration Partnerships
Strategic integration partnerships are extremely common in the digital age, since it’s always great to have different applications work together or at least communicate with one another. Quote Roller gains main clients from our more than 20 strategic partners, while these CRMs, accounting software and the like gain new clients from our pool. And both sides get to offer a more streamlined service to our customers. Strategic integration partnerships can encompass agreements between hardware and software manufacturers (like how ASUS computers ship with Trend Micro security suites pre-installed), or agreements between two software developers who partner to have their respective technologies work together in an integral (and not always exclusive) way.
In some cases, integration flies under the umbrella of “bundling.” That’s not always the most popular option for your customers through, because it often involves stripped down versions of full products and services. If you’ve ever bought a new PC loaded with trial programs (called “bloat ware”), then you know exactly what I’m talking about. This is something that should ideally be avoided. If you’re going to bundle partner products and services, make sure it’s a value add-on for your end customer. Otherwise, you’ll just be insulting them.
Strategic Technology Partnerships
Another type of alliance is the strategic technology partnership. This type of strategic partnership involves working with IT companies to keep your business afloat. This can be a partnership between your web design firm and a specific computer repair service that you always call in exchange for a discounted rate on services. It could also include partnering with a cloud-based storage platform to handle all of your file storage needs. Basically, any kind of technological expertise that is necessary for your business and that you cannot provide in-house can be relegated to a strategic technology partnership. Choosing a technology partner has to be based on an assessment of your needs and the identification of a positive benefit from entering into the agreement. You don’t need a monthly retainer on printer servicing if you’d save more money by moving to a paperless documents platform. So again, assess the situation before signing up for any strategic partnership. Never enter into an alliance just for the sake of being able to say you have a strategic partner.
Strategic Financial Partnerships
Many modern companies wholly outsource their accounting to strategic partners. Strategic financial partnerships are helpful because when you use a dedicated company for accounting, for example, they can monitor your revenue with greater focus than you might be able to do in-house. Because finances are critically important to any business, strategic financial partnerships are among the most important relationships you can foster. Dedicated finance professionals offer rock solid expertise in managing cash flow and are able to report your current revenue position readily and objectively. And that can be of paramount importance to your business.
What’s in a strategic partnership agreement?
Once you've found a strategic partner to ally with, you’ll want to create and sign a proposal, or strategic partnership agreement, with them. This type of document can range for relatively simple to utterly complex, depending upon the scope of the partnership, the terms of the agreement, and the scale of the businesses involved. In all cases, a basic strategic partnership agreement should include the following:
- The parties involved in the agreement
- The services to be performed by each partner
- The terms of the agreement (percentages of profit, method of billing, etc.)
- The reporting structure, person of contact, etc.
- The duration of the agreement
- The signatures of company officers or their designees
Like I said before, it can get quite a bit more complex than that, but you’ll always see these types of things on a strategic partnership agreement. You want to lay everything out in print, so there's no questions of who does what later. Many companies opt for quality control and auditing clauses in their partnership agreements to help maintain the integrity of the products or services that result from the partnership, so that’s something you might want to consider when creating your own agreement.
Would a strategic partnership help you grow your business?
It seems like every company has at least one strategic partner these days. That being said, some are certainly still totally insular. (Look at Dell.) The decision of which way to go with your business comes down to your needs and goals. If you can perform every function in-house, maintain quality and make a profit, then your company might not get much out of a strategic partnership agreement. But there’s almost always an opportunity to either reduce the costs column or otherwise increase the bottom line in any business, and that’s where strategic partners come in handy. If there’s an opportunity for your company to improve, chances are there’s a partner that can help you do it.
One more thing to bear in mind is that strategic partnerships can also mitigate risk. That means, for example, if you choose a strategic manufacturing partner that operates a factory and insures its workers, you are removed from the liability of operating a similar facility yourself. Likewise, many accountants and financial advisors are bonded and insured. By partnering to fulfill those roles, you again remove the need to incur the costs of operating those types of businesses yourself. Ultimately, two really are better than one. I guess that’s part of why marriage is such an enduring institution in our society. That’s also why the various strategic partnerships that I’ve mentioned throughout this article exist between some of the biggest names in business. Joining forces in a strategic partnership has worked for major players like Nokia and Microsoft, and, with careful planning, it can work for your business, too. It all comes down to taking the plunge and saying, “I do” to a strategic partnership agreement.
Is your company in a strategic partnership? Tell us how it’s working for you in the comment space below. We’d love to know your strategic partnership success stories (and any words of caution.)