Technology

3 Questions Startups Must Ask to Form the Right Business Alliances

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Max Feneck, Head of Global Alliances at CloudBlue PSA

To multiply their resources, maximize their efforts, and catalyze innovation, more corporations are entering into new alliances or expanding the partnerships they already have with businesses that align with their strategic objectives.  

Cloud giants Salesforce and Amazon Web Services, for instance, recently announced an expansion of their global strategic partnership. Twitter and media giant ViacomCBS have reached a new multi-year global agreement, which is expected to take their collaboration to a whole new level. And Waymo Via, the delivery division of Alphabet’s self-driving arm, is expanding its partnership with global logistics leader UPS.

There are endless benefits to collaborating with other industry players that share a similar vision and values. It can help you expand into new markets where your partners operate, increasing your revenue. And alliances can help partners go after a completely new market they may have difficulty reaching individually, thus potentially increasing the total addressable market for both parties via a joint solution. In fact, 54% of companies say partnerships drive more than 20% of total company revenue.

Another benefit of an Alliance is the ability to jointly go after a market that as individual organizations you could not reach, thus potentially increasing your total addressable market with your joint solution. 

In addition, a joint go-to-market strategy can be more cost-effective than a traditional one because you are splitting business expenses with the partner. What’s more, partnerships offer the potential for adding more value to your market and customers as well as boosting your ability to build brand awareness and brand trust.

In particular, alliances are undeniably invaluable for startups that are looking to establish themselves as key players in their industries as relationships with other stakeholders can help them reach new heights with a limited impact on their financials.

Corporate-startup partnerships are especially attractive because startups bring innovation and agility, while corporations bring financial resources, R&D, scale, reputation, and mentorship. 75% of startups consider collaboration with corporations to be very important, and 63% of small businesses anticipate even higher importance of such partnerships in the future.

One recent successful example of such collaboration is when U.S. pharmaceutical giant Pfizer and German startup BioNTech teamed up to develop the now globally distributed COVID-19 vaccine.

But before startups jump into a partnership with another startup or a larger enterprise, there are three things they should consider to ensure their success:

1. Ask yourself: “Is there something in the partnership that benefits both parties?”

A successful partnership will never get off the ground if there is only a clear benefit to one side. To create meaningful symbiotic partnerships that can last for years to come, startup founders must put their wants and needs to the side, step into the shoes of potential partners, make a conscious effort to understand their point of view, and truly think about what a partnership could provide to them. This approach helps build a partnership opportunity that can ensure their partners’ success as much as or more than their own success.

Earlier in my career, I worked for a company that was building a cloud provider business. We were looking for partners and came across a leading global technology provider. At this time, the tech provider was just entering the cloud and was looking to build out their cloud business offerings. We identified that we could help build out their cloud solutions business via our cloud offerings and a partnership was born. We received access to countless end customers through the provider’s vast network, and the tech provider was able to quickly and cost-effectively build a cloud solutions arm for their customers. It was a win-win. 

A win-lose situation, however, is one of the main reasons why business partnerships fail, with 45% of executives saying that the biggest challenge of business partnerships is keeping them active and mutually rewarding. So it is crucial to always keep an eye on whether all partners are satisfied with each other’s level of contribution to the partnership in the bigger picture and make sure that working together is mutually beneficial.  

To achieve this goal, company leaders are advised to develop a well-defined joint business plan with their partners, outlining investments and expectations from all parties, milestone dates and activities, strategic objectives, success metrics, revenue targets, and overall intended outcomes.  

2. Ask yourself: “Are my potential partners capable of selling my product or service?”

Partnerships can help you close deals 50% faster than any other sales channel, with one study showing that partner-influenced opportunities close 28 days quicker than other opportunities. Partnerships can also be credited with bringing in more revenue than paid search for high-growth businesses. While the average business generates 18% of its revenue from paid search, high-maturity partnerships generate 28%.

It is because partners can advocate for your offerings on your behalf, serve as trusted advisors, encourage prospects to take your call, put you in touch with the right stakeholders and help you bring home a deal. They can also help provide better, more comprehensive services for customers and usually have greater geographic coverage and industry expertise, which can help you edge out the competition in the long run.

Thanks to their many benefits, an increasing number of companies are leveraging co-selling strategies. A 2021 study found that 71% of companies are using co-selling tactics—an increase from 62% in 2020.

But when it comes to co-selling, a common mistake that startups make is failing to align a partnership with the true capabilities of a potential partner’s sales team. And just throwing more money and incentives at a sales team will not solve this critical issue.

To better understand if your potential partner’s sales team is capable of selling your offerings, you have to determine their skill level and their area of specialty. For example, if the joint partnership offer you are selling is a service and the partner’s sales team specializes in selling products, you should assess what level of education you will need to give them to help them sell your services.

In this case, you can formulate how you present the service to the sales team. One way is to present it back to them to look like a product. Another option is to equate the joint solution back to how much “old product” will be consequently consumed because of the new service that is attached.

If you identify that the partner’s sales team is not capable of selling your offerings, you are not out of luck. You can still invest in sales education and enablement for the partner’s sales team via support materials such as sales books, battle cards, FAQs, in-person or virtual training, in-house mentors and more.    

3. Ask yourself: “How are my partner’s salespeople rewarded?”

In a joint-selling model, it is vital that you make sure your partner’s sales team is compensated properly, especially given that the lack of buy-in from salespeople is one of the primary reasons why partnerships fail. If your partner’s sales members are brought into a deal and end up with a small bit of compensation, they will be less likely to hunt for more deals because they will feel it is not worth it. 

It is crucial to get the sales team on board from the beginning and show them the potential upside of working with your company. So once you have identified a partner with a capable sales team, you have to figure out what really motivates them. You need to research and fully understand how your potential partner’s salespeople are compensated and rewarded, and you must look to incorporate this into your partnership and co-selling strategies moving forward.  

It is true that co-selling compensation can be expensive, but joint-selling is certainly a smarter, more cost-effective strategy because it allows you to reach new customers through new channels and increase your sales without having to hire a legion of new salespeople.

The rapid rise of ecosystems

There is a strong compelling case for building business alliances. More than 2,000 strategic partnerships are formed every year, with that number increasing by 15% each year. Around 75% of world trade is now flowing indirectly, meaning that partnerships and alliances have become increasingly important.

By 2025, nearly a third of total global sales are estimated to come from ecosystems—cross-industry players collaborating to create solutions. In the next decade, business ecosystems could bring $100 trillion worth of value to society and businesses as a whole.

About 85% of companies believe ecosystems are important to their strategy, but between 60 to 65% of strategic partnerships fail, with the most common reasons including unrealistic expectations, lack of trust or communication, and failure to agree on objectives.  

It is no easy feat to nurture adjacent non-competitive complementary partnerships, but it is essential in today’s crowded and competitive world of business, and healthy relationships can take shape if you take the right steps in the right order.

Start by putting together a team dedicated to alliances—a team that is rewarded for building joint propositions and measured on the success of the joint business. Another significant initial step is to build a sales team that is comfortable with “four-legged meetings,” meaning that they are willing to meet with and work closely with the alliance partner’s sales team to discuss a joint motion on each prospect.

These steps—coupled with efforts to ensure that the partnership is mutually beneficial, upskill or reskill the partner’s sales team if necessary and devise a strategy to compensate them appropriately—can help you plant the seeds of a lasting partnership and reap the rewards along the way as you grow your business.

Max Feneck is the Head of Global Alliances at CloudBlue PSA, a leading professional services automation tool for managed service providers, and part of the Ingram Micro family of businesses

This article includes a client of Espacio Portfolio

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