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Strategic Partnerships 101

Tech Startups Need Strategic Alliances

Strategic partnerships are alliances between two or more independent companies to combine their respective resources, capabilities, and core competencies to generate mutual benefit

Effective partnerships allow software teams to…

  • Quickly access capabilities they don’t have in-house
  • Break into new markets
  • Gain a competitive edge
  • Create new and noteworthy products
  • A lack of effective strategic partnerships means software teams…

  • Have a harder time gaining users and clients
  • Miss out on connecting with new audiences
  • Fail to achieve the rapid growth needed to scale effectively
  • Partnerships should be seen as an essential part of your go-to-market strategy. But before determining the best partnership strategy for your company, it is necessary to understand what partnerships look like in practice.

    Strategic Partnerships 101 covers the fundamentals of WHY companies make strategic alliances, HOW they commonly structure them, and WHAT value these partnerships bring to the companies that build them.

    What Can Partnerships Do?

    Partnerships Can Build Something New

    Integration Partnerships

    Integration partnerships involve one partner integrating their product into another partner’s product. Through integration partnerships, one or both parties are able to add additional value for their users by providing expanded features. Oftentimes, partners also gain access to each other's users and followers through cross-marketing of the integrated product.

    Example: Binance’s integration partnership with Simplex allowed them to provide a fiat onramp to 15 new currencies. Learn More

    Project-based Partnerships

    Project-based partnerships involve partners coming together to develop a new product or service using their joint skill sets and resources. Project-based partnerships can take the form of informal collaborations, joint-ventures, consortia, or even decentralized DAOs and DACs.

    Example: The Melloddy Consortium was created as a project-based partnership between 10 pharmaceutical companies. The consortium leverages machine learning models to aid in drug discovery using the data resources of its partner companies, while protecting proprietary data using permissioned DLT technology. Learn More

    Partnerships Can Improve Your Reach

    Marketing Partnerships

    Marketing partnerships involve partners uniting to market each other's products to one another's audiences. Marketing partnerships result in expanded audiences for parties involved, and can be an effective way to enter new markets.

    Examples: Referral agreements, co-branding partnerships, mutual user discounts, etc.

    Partnerships Can Expand Your Resources

    Resource Partnerships

    Resource partnerships involve multiple companies sharing internal resources to the benefit of both parties. Resource partnerships can be very diverse, and can range from employee sharing agreements and outsourcing contracts to more complex agreements surrounding the sharing of physical assets like computer hardware or office space.

    Resource partnerships can be effective ways to reduce costs of doing business by sharing information, contacts, assets, human capital, software subscriptions, and more.

    Examples: BlockShop DC is a partnership in which blockchain companies unite to share office space. This partnership has resulted in reduced operations costs for all parties involved. Learn More

    How Are Partnerships Structured?

    In order to execute effective, secure, and accountable strategic partnerships, companies must formalize their relationships contractually. This breeds the question, how are partnerships commonly structured? Partnerships can take many different forms based on your (and your partners) legal jurisdictions. Despite these jurisdictional differences, most partnerships fit into one of four categories; non-equity alliance, equity alliance, consortium partnership, or joint-venture.

    Non-Equity Partnership

    Non-equity alliances are what most people first think of when they think of “strategic partnerships”. Corporate Finance Institute defines non-equity alliances as partnerships “created when two or more companies sign a contractual relationship to pool their resources and capabilities together” in some form without equity changing hands.

    If you are exchanging marketing assistance, sharing developer talent, providing advisory support, collaborating on an integration, or jointly building a product alongside another company, you are engaging in a non-equity alliance.

    Key Characteristics: Resources are shared in some form during this kind of partnership. No new entity is created during this kind of partnership. No equity changes hands during the relationship.

    Example: VMware and AWS entered a non-equity integration partnership in 2018 to expand VMware’s user access and provide AWS with a new virtualization feature set. Learn More

    Equity Alliance

    An equity alliance is a partnership between two companies where one company purchases an equity stake another. Equity alliances can range from one partner taking a minority stake in another to partners engaging in a total acquisition.

    Key Characteristics: Equity changes hands during the partnership.

    Example: IBM acquired PwC in 2002 through an equity partnership. Both entities continue operating as separate brands, and gain the benefits of sharing intellectual property, funding streams, and other resources. Learn More

    Consortium

    Consortia are collectives of entities that collaborate to the benefit of the group at large. Relationships between stakeholders within consortia are often outlined via contractual arrangement or governed using distributed ledger technology.

    Key Characteristics: More than two stakeholders are involved. Stakeholders secede some degree of autonomy to the group at large in order to receive benefits of participation.

    Example: Mediledger, a blockchain-based consortium of pharmaceutical manufacturers, wholesale distributors, logistics providers, and retail pharmacies, was created in 2019 to improve pharmaceutical logistics. Learn More

    Joint Venture

    Joint ventures are partnerships that involve the creation of a brand new entity; Company A and Company B come together to form Company C. Joint ventures can be “50-50 ventures”, where each party owns 50% stake in the jointly owned company, or “majority-owned Ventures”, where one party owns a majority stake in the jointly owned company.

    Key Characteristics: A brand new entity is created as a result of a partnership.

    Example: In 2016, GlaxoSmithKlen and Alphabet formed a joint partnership that resulted in the founding of Galvani, a new leader in bio-tech. Learn More

    Building The Best Partnerships

    “Partnerships never go out of style. Companies seek partners to gain access to new markets and channels, share intellectual property or infrastructure, or reduce risk. The more complex the business environment becomes—for instance, as new technologies emerge or as innovation cycles get faster—the more such relationships are essential.” ~ Ruth De Backer, Partner, McKinsey & Company

    The quality of your strategic partnerships is a direct determinant of your scalability

    The effectiveness of your partnerships often determines whether you achieve rapid growth or experience painful stagnation

    Simply having partners does not mean you are deriving value from your partners. Effective partnerships have clear objectives, expectations, aligned goals, and are aligned with a company’s best-fit partner profile.

    The characteristics to look out for in your best-fit partners can vary depending on your internal capabilities, client base, needs, culture, location, and other key characteristics. Partners must see mutual benefit in collaborating; that means you must be in tune with the characteristics and needs of partner prospects as well as you are in tune with your own resources and desires.

    Once you’ve engaged a best-fit partner in an alliance, you must ensure to upkeep the relationship to the standards agreed upon and continue to instill trust in the relationship.

    Best-fit partners with trusted relationships are proactive at seeking out mutually beneficial collaborations, reliable for meeting the objectives of your joint work, and eager to help your company succeed.

    Poor-fit partners with a lack of trust waste your team’s time at best, and cause irreparable damage to your company or brand at worst.

    Spending the time to understand your company’s go-to-market strategy within the context of strategic partnerships will empower you and your team to build the relationships that take your growth to the next level.

    If you have any questions on how to set up your existing partnerships for success, how to analyze your “haves” and “needs”, or where to get started when it comes to strategy, connect with our team for a free consultation.

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