The Proper Care and Feeding of Revenue-sharing Partners

In the IT industry, partnerships are a must if a business is to be successful.

By Alex Lekas of AIT

You’ve had a couple dinners and a few phone conversations; there is chemistry and a further relationship looks promising. But, how do you really know if the next step is worth taking? In the IT industry, partnerships are a must if a business is to be successful. They are the most cost-efficient means of delivering greater value to customers, and the quickest means of developing new sources of revenue. But, and there is always a ‘but’ when looking down the barrel of a major decision, forging successful partnership agreements (and by “partnerships”, we mean the type that make you money, not vendor deals where you are buying products) is a perilous process that requires a strategy based on several principles.

We’re great, you’re great — so what?
To be sure, not all partnerships work and behind every successful company are some failed ideas; after all, you can’t avoid mistakes if you don’t know what they are and you won’t know what they are unless you make a few. The basics are straightforward: 1) minimize the chances of a bad choice being made and 2) minimize the damage, just in case. Be skeptical. Not everyone who wants to be your partner is your friend, and not everyone who is your friend makes for a good partner.

The foundation for partnership talks lies in the respective value proposition each company offers. Does the other company have name or brand recognition? Does it open a new sales channel for your business? Is there a product or service your customers want? Of course, these questions work both ways. Potential partners want to know why they should consider working with you: product development, deep customer or reseller channel, and reputation for quality service.

Whatever your corporate signature, it must be something that a potential partner also values. It could be something obvious, such as industry recognition, or it could be something you may take for granted, like a years-long track record of successful growth in customers and revenues. Establishing your company’s credibility forms the ‘so what’ basis for further talks.

It only works when it works both ways
This is when the discussion really begins: does the other company know anything about what your business does; is what the company does complimentary to what you offer? Ideally, you offer related products or services to the same target market. That is the easiest partnership agreement to strike as each company gains access to the other’s customers, who presumably, have an interest in the products or services that will be made available.

Let’s say you run a Web design and hosting shop; the potential partner offers search engine optimization services. That’s a mutual benefit. Your hosting customers get access to a service they need, good for the partner. You gain the ability to market to the partner’s customers, good for you. And, there is this: you have not only created a new revenue stream for yourself through a revenue share for the SEO services, your customers also have one more reason to stay loyal as you have met one of their critical needs.

A partnership is only that if both sides gain. In the perfect world, both businesses are complimentary and the customers of each need the other. In the semi-perfect world, one of you has something that benefits the other’s customers, and the buyer gets a cut of the revenue. In the world to avoid, a potential partner is too closely aligned to your core business and will likely become a competitor.