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  Prosper Through Partners
December 2001

Partnerships can leverage your resources and tap new opportunities This story is an excerpt from:

Corporate partnering is nothing new. However, technology has elevated it to a new level.

"Today there are so many technologies being introduced, it's simply not possible for one firm to understand them all. We need to focus on where we can be strong and differentiate ourselves," says Dave Steeves, founder of Steeves and Associates in Burnaby, British Columbia. Launched in 1992, the IT-consulting company now has 60 employees and more than $18 million in revenues, and partnerships have been instrumental to its success. "Partnering helps us offer more complete solutions to our clients and find new ways of adding value," says Steeves.

Partnerships can also help a company:

  • Gain credibility in a new field.

  • Expand market presence.

  • Gain access to technology.

  • Diversify offerings.

  • Share best practices.

Partnerships leverage resources. You're trying to join forces with someone who does something better or cheaper than you or offers something for which you don't have time or capital. Because partnerships can save money, they become an alternative to traditional financing.

Alliances can be with smaller or larger companies: customers, distributors, suppliers and competitors.

However, many people use the term too loosely, calling everyone a "partner." Just because you're doing business with someone doesn't automatically mean you've established an alliance. A partnership is a relationship where each party takes certain risks and each stands to benefit from the union. It doesn't have to be the same goal, just a compatible one.

Strategic partnerships allow one or both parties to reach a new level. Case in point: Four years ago, Steeves established a strategic alliance with two Canadian companies, one in Montreal and one in Ontario. "Each of us were highly respected in our regions, but our alliance helps us compete better at the national level," says Steeves. "It allows us to serve clients with an expanded geographic footprint that otherwise we couldn't reach as easily."

Formulating a game plan

Whether you seek a strategic partnership or a more general alliance, four ground rules apply to both:

  1. Think strategically. Don't approach partnerships in an ad-hoc manner. Determine what you want to do before you look for a partner to help you do it.

  2. Determine the value you bring to the table. How you position your company's value will change depending on each partner you're trying to attract. Remember: Your value isn't necessarily your product; it may be the market you command or your technical expertise.

  3. Be specific. When pitching to a prospective partner, give detailed goals: We want to increase market share by 25% in the next year. Remember to pinpoint your partner's objectives; the relationship only works if both companies win.

  4. Know your boundaries. Otherwise, in the heat of negotiating, you may agree to something that later ends up being a big mistake, such as giving away exclusive distribution rights or something that may be important to the company's future success.

Assessing prospective partners

It's also important to conduct due diligence on prospective partners. Do they have the financial wherewithal or technical expertise that you require? What about distribution channels and rights to intellectual property?

Consider how long it takes to reach an agreement. Is the prospective partner returning your calls promptly? A slow response may be reason to reflect. Perhaps that's just how the company operates. But it's probably not going to get any better after you sign an agreement.

Don't partner with someone you don't like or trust. Because a partnership isn't operating exclusively under your roof, you don't have the same management controls. If members from the other team slip up on a deadline, you can't discipline them.

"It can be tempting to run off with anyone who presents an opportunity. However, you've got to be careful when other people want to work with you," points out Dan Gould, CEO of Synergy, a Framingham, Mass.-based consulting firm for energy and lighting retrofitting. Gould launched Synergy in 1994 and has grown the company to more than 25 employees and $12 million in revenues.

"Once we hit $8 million in revenues, we came onto a lot of people's radar screens. But you have to watch where you invest time and energy with partners," says Gould.

Synergy typically works as a subcontractor of energy service companies (ESCOs) and has long sales cycles that run six months to a year. "We try to partner with ESCOs who will be the winning organization on a bid that may sound obvious, but it can be very gray to figure out which organizations will succeed in the long run," explains Gould. "At the end of the day, if they've lost the job, we've lost it and we've wasted a lot of time on free estimates without compensation."

Gould values partners who are savvy at qualifying. "Before we get involved in a presentation, I want to know if the true decision-maker has been identified and what the buying criteria is," he explains. "You could be dealing one level down and not know it. Until you get buy-in from the right people, the project never moves forward."

The relationship

A partnership runs smoother when you work out details in advance. Try to nail down deadlines, marketing plans, when and where meetings will be held, the cast of characters and what to do if something goes wrong. Because it's difficult to forecast problems, agree to a system for resolving disputes.

Put it on paper. Partnerships are open-ended relationships, so it can be tough to craft a formal agreement. But it's still important to document the scope of the partnership and specific responsibilities.

"If you're partnering with a larger company, they may already have a boilerplate contract. Don't let that intimidate you. Just because a prospective partner hands you a contract, that's not the one you have to sign," says Jeff Stevenson, founder of SmallBizManager, a Chicago-based B2B Web-portal company.

"I'm not a lawyer, and I hate contracts, but I spend a lot of time going over them," says Stevenson, who has piloted more than 150 partnerships. "I don't think I've ever had one presented to me that I didn't raise at least some questions on and many that I've sent back with changes. And doing so never squelched a deal."

As you progress in a partnership, things may come up that need to be changed. "Make sure you document it," advises Stevenson. "I usually send an e-mail that sums up what we discussed. Granted, it's tedious, but if you don't document, it's too easy for something to slip through the cracks."

Communicate regularly. It's key to stay in touch with partners on a regular basis. "If you take them for granted, they can start interpreting events on their own," says Steeves. A couple of his strategies:

  • A weekly electronic newsletter brings partners up to date on what's happening at the company, including new projects, awards and new employees.

  • Bimonthly social gatherings help nurture the relationship. "It's good to see people as people," says Steeves.

Go above and beyond. "There are a lot other things that can be done to enhance a partnership that aren't necessarily outlined in the contract," adds Stevenson. "You could include your partner in press releases that you send out about your company, giving them visibility without the work. It could be referrals. It could be participating in some promotion that they put out."

Surprising dividends

Rodney Capron Jr., founder of Synthenet Corp. in Northborough, Mass., initially embraced partnering as a means of outsourcing, but he's encountered some unexpected benefits.

Capron's Web-development company, which has 12 employees and generates $1.5 million in revenues, focuses on complex, Web-based solutions (CRM, e-commerce, Intranets). When two key free-lancers who Capron relied on were suddenly no longer available, he began to cultivate relationships with local ad agencies, which allowed him to tap graphics expertise without the overhead.

Not only have the partnerships brought in new business, they've also given Capron new insights. "Partnerships have helped us learn to charge more appropriately," says Capron. "As a smaller company, you often become very friendly with clients and may not be charging for all the time you put into a project. By working with our partners, we've seen how larger companies are very accurate and methodical in the way they track their time. It was a big eye-opener for us."

Capron has also gained perspective in determining market value: "When you're a smaller company, you don't want customers to get the impression your prices are exorbitant, yet you still want to earn their business. So nine times out of 10, you charge less than you should. Larger companies better understand their value and how to present that value back to the client." Granted, a partnership is never smooth sailing. "The first couple of projects you do together can be frustrating and challenging," observes Capron. "But when you get it right, it's amazing how powerful a partnership can be. It's like doubling the size of your company overnight in terms of your resources."

Writer: T.J. Becker

Sources: Brian Kolkowski owns a legal consulting practice in Leroy, Ohio, specializing in intellectual property and technology for small businesses. E-mail: kolkowskilaw@aol.com. Dorothy Langer, president of Langer and Co., a Boston-based consulting firm specializing in strategic alliances and financing strategies. E-mail: dorothy@langerco.com.

Related Information: Click on www.lowe.org/elr for recommended articles, books and sites.

CEO in Action
Joe Tedesco

Pumping up sales

Earlier this year, Architech Corp., a Reston, Va.-based software-development company with 30 employees and $5 million in revenues, embraced its first partnership. "We wanted to grow revenues and develop some products that would expand us beyond project-based consulting," explains founder Joe Tedesco:

Before we approached anyone about a possible partnership, we first analyzed growth opportunities in the marketplace and what our organization lacked, which was a sales and marketing program that extended beyond referrals. Then we picked 20 different ad agencies in the Washington, D.C., area and did a road show of sorts, presenting our company's strengths and how we might be able to partner with them.

One agency, ROI Advertising, became interested in one of the products we demonstrated a software program that distributed e-mail and tracked how many people responded to the message.

The attraction: The Bullz-i software would enable ROI to offer their clients a new product, setting them apart from competitors. ROI would give us the sales infrastructure we lacked to market Bullz-i.

Sizing each other up: It was important to us to assess the potential partner's culture and make sure our values matched. Our priorities included customer satisfaction even at the expense of profitability, as well as a team-based environment. We wanted to make sure that any partnership wouldn't change who we were and what had already made us successful.

Another consideration was whether ROI had the capacity to grow with us a concern because they were about half our size in terms of employees. If this took off, would they be able to support the growth? How many clients could they handle? What was their level of commitment?

To address this, we had a series of meetings. I visited their offices first, and then their CEO came over to Architech. Then we had a social gathering with about five key managers from both teams. The idea was to see how we interacted and to make sure everyone felt comfortable with each other. Within a month after our initial meeting, we decided to go forward with the partnership.

Establishing parameters: One thing I think we did well was to clearly delineate our respective roles and responsibilities at each phase of the client-development process. We decided that ROI should be in charge of initial client contact that's what they're good at although I go on every prospective sales call. Architech handles the operational side: The software is a turnkey product, but there is a small amount of customization that needs to be done for users.

We also elected to comarket ourselves, which proved to be a wise decision. Prospective clients said they were pleased to see two companies working together, instead of one company doing everything. That was a surprise for me.

Challenges: The biggest hurdle so far has been managing costs and splitting revenues difficult because we're on different planes. I had a huge fixed cost in the software development, whereas ROI's investment has been time and energy. We've talked about a licensing agreement, but it didn't really give Architech control over pricing and allow us to participate in the success of the product. Right now we're pricing on a per-client basis, but we expect that to change and become more standard.

Payoffs: For ROI, Bullz-i has substantially increased its volume of business with existing clients. For Architech, the partnership is bringing in new clients without investing in a salesforce something that's saving between $200,000 and $300,000 per year. It's also very enlightening to see how another company operates.

Although the partnership is still new, we've considered it so successful that we're thinking about other alliances.

Your peer connection: Joe Tedesco, CEO, Architech Corp.
E-mail: joe.tedesco@architechcorp.com

Swimming in a bigger pond

It used to be that large corporations weren't open to alliances with smaller firms; their growth was internally focused. But since the '90s, things have loosened up. Large corporations are actively seeking partnerships with smaller players.

That's good news, but there are some nuances to working with a big fish.

Figure out the food chain. For a smaller company, one of the major roadblocks is the slow decision-making that's typical of large corporations. Get a handle on your potential partner's decision-making structure from the get-go; it will not only lower your blood pressure, but can help you present and pilot a project more effectively.

Accept calculated risks. Smaller companies usually don't have in-house legal counsel. They hire outside attorneys who may be fine advocates, but often argue in the extreme for their clients, which is a turnoff for the other side. It's better to accept some risk if it helps you move the deal forward. That doesn't mean accepting foolhardy chances, but rather knowing your real boundaries. Think of the worst-case scenario and play out your risk from there.

Splitting control. Partnerships often may split operational control right down the middle. But when you're working with a larger company, that 50-50 split isn't always the best recipe; directors from the larger firm may be distracted by other ventures. It may be wiser to have a majority of directors from your company, which is more nimble. Look at the strengths of both parties. Try to find someone who's been involved in similar ventures to review the proposed structure and give a second opinion.

Source: Brian Kolkowski, owner of a legal consulting practice in Leroy, Ohio, specializes in intellectual property and technology for small businesses. E-mail: kolkowskilaw@aol.com.

Partnering pays off

Getting a foot in a better door: Steeves and Associates, an IT-consulting firm in Burnaby, British Columbia, had been working with a client at the IT level. PriceWaterhouse-Coopers, one of Steeves' partners, had been helping the same client at the executive level and brought Steeves in to help with strategic planning. "Partnering with a complementary partner brought us in at a higher level where we could provide more leadership," says CEO Dave Steeves. "Being at that level paves the way for larger initiatives and gives us a bigger role than we would have had with any projects coming from the IT department."

Closing more deals: Synergy, a Framingham, Mass.-based lighting consulting firm, partners with several of its customers, energy service companies (ESCOs), to make joint presentations. "ESCOs historically haven't sold the benefits of good lighting," explains Dan Gould, Synergy's CEO. "They're usually just selling energy savings, which is purely a financial sell. By participating in presentations for new projects, Synergy makes sure potential clients are aware of other benefits of a lighting retrofit, such as increased worker productivity or increased sales for retail spaces. By involving our team, we present the entire project in a much better light no pun intended so the closing ratio is higher."

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