Why Use Partnering?
Introduction
Did you know that more than 50% of B2B buying decisions depend on an established and credentialed relationship with the buyer such as an advisor, colleague, peer, or some previous established vendor oriented relationship?
Likewise did you know that referrals account for more than 40% of new clients for small businesses (companies with less than $20M), and for more than 60% of high growth oriented service businesses?
Last question: do you realize that partnering is proven to be nearly 60% less expensive than the cost of direct sales for new customer acquisition?
These very impactful recent survey results of 2017 establish the fact that partnering and the use of non-direct sales venues for revenue growth are not only critical to establish a “portfolio” of revenue sources, but also enables service businesses to illustrate long-term consistent and predictable revenue growth.
Partnering also provides your business model the following substantive benefits:
Increases brand equities and brand recognition; enhanced brand awareness;
Enables your business to share best-in-class technology and tools with your partners;
Learn and utilize the partners best-of-breed business processes;
Provides scalability of your marketing and customer acquisition costs;
Mitigates external risk factors and competitive threats;
Profitability is increased by higher mass and density inside geographic or segment markets;
Reduces reliance on direct sales which depends upon availability of resources and labor market;
Provides increased market and value proposition intelligence;
Institutional investors value partnerships and thus companies achieve higher enterprise valuations;
Assist the “C” executives in developing “pragmatic” relationships within the sector or markets.
This guidance document briefing outlines Partnering Best Practices and provides a “Lock-Step Program” for establishing significant partner relationships. These best practices are a result of primary research conducted by Tablero on Partnering activities since 2009, (most recently in 2017) online surveys and “on the street” first-hand knowledge as part of Tablero’s client engagement and investment activities overt the past 17+ years.
Note: These best practices are exclusive to and apply to business-to-business (B2B) focused companies selling and providing services or outsourcing value propositions.
Who Should You Partner With?
Who makes the best partners & why?
The simplest way to answer this question is to ask another question: Who in your market, or markets sells or provides product and services to your “highest probability” of a sale to a target client? The partners clients must illustrate most of the same attributes that your “target client” must illustrate: These attributes can include: company size, technology platform, buyer decision maker profile within the end user company, geography, their growth needs etc.
Once this high level “targeting” is agreed upon by your company and the potential partner, a very simple calculation to determine a partner’s potential value is to calculate the future “Net Lifetime Partnership Value.” That is, calculate the total number of clients that the partner has that have the same demographics (size, industry, needs, etc.) as the organization’s current client base multiplied by the average retention in years for a new client multiplied by average yearly revenue per customer. Next, rank all potential partners by NLPV (Net Lifetime Partnership Value).
Naturally once partnership relations are “established and productive” this same methodology should be used to annual evaluate partners and determine to whom are most optimum partners to deploy your limited partner support resources and dollars.
Who are the organizational types that are potential partners?
This is where the “art” comes into play for the most successful emerging businesses: the best partners again are those that fit the aforementioned criteria's and attributes . In general the following categories should provide thought provoking guidance:
Trade Associations and Trade Groups
Consultants and Advisory types
Financial Services providers
Functional Associations (i.e. CFO or CEO organizations)
Networking Organizations
Marketing (Co-marketing)
Sales (Co-selling)
Vertical Market Leaders
Horizontal Market Leaders
Technology providers
Reciprocal types: where value propositions are highly complementary
Partnering Key Success Factors
Over Tablero’s many years of developing high revenue growth and transformational business models in the services sector, one of the most critical success factors is that once a high potential Partner is identified and the companies see long term value in working together, the “Partnership” must be formalized, not only in terms of compensation, fee sharing, etc., but in terms of “interlocking business plans” and business processes. At Tablero’s we call this the Lock Step Partner Development Process.
Lock Step Partner Development Process
The fundamental logic behind partnering is that it is easier to sell 1-to-Many versus sell 1:1, and as such, the objective is to develop partners which potentially by bring dozens or hundreds of new clients.
Therefore to enable Partnering to Become a Reality of Your Vision, this Lock Step Process must illustrate the following:
Key Attributes:
Partnering plan clearly and succinctly delineates the objectives and goals, metrics, approach, programs, and activities to meet near and long-term revenue goals and business objectives.
Repeatable and scalable “interlocked” customer acquisition processes.
Repeatable and scalable “interlocked” end user client support and client retention/satisfaction processes.
Established and adhered to communications rhythms that provide actionable outcomes to improve the partnership performance.
Each of the parties must invest not only human capital resources but “hard” dollars to the partnership.
“C-suite” support and commitment from both organizations
Additional Tablero Guidance on Partnering:
Partnering is one of the least used, least understood, least skilled, least committed to, and least successfully executed upon revenue generation venues in the services sector. With that stated: when developed, implemented, utilized, and managed effectively it can be a substantial wealth generator for the CEO Entrepreneur and all stakeholders.
While partnering is not applicable and effective for “all,” we do urge each of you to evaluate and analyze its value and applicability to your business model and relevant market opportunity.
What we can tell you is that in our advisory practice and the many successful investments we have made over our many years, those organizations where partnering has consistently represented 30% or greater of new revenue generation, have received up to 20% to 30% increase in enterprise valuation upon exit!