Here's how the building is constructed. When IBM legal market specialists go to see potential clients, they mention the partnership with Barrister when the customer asks about software. And they have the option of calling in Barrister salespeople to explain all the technical details.
Barrister's software does not have to be part of the sale, and there is nothing in the partnership agreement that stops the law firm from picking any of the other legal software packages out there. But Barrister's is the one the IBM salesperson is likely to recommend. That endorsement, says Hammond, is like getting the Good Housekeeping seal of approval.
Conversely, when Barrister salespeople make calls, they explain they still have their proprietary machines -- there is nothing in the partnership agreement that precludes Barrister from selling its own machines -- but they can add, "and of course, as an IBM authorized reseller, we can make you an all-IBM shop." If the customer wants to go that route, Barrister buys computers from IBM, adds its software that runs on IBM machines, and hands over the bill. (While Barrister resells the IBM AS/400 minicomputers it buys from IBM at a profit of about 30%, that markup is standard in the industry. That eliminates the temptation of the law firm to buy the machines itself.)
So both sides win. IBM gets to move more machines, and Barrister increases its chances of making a sale. Instead of offering just its proprietary machines, it now has an alternative -- IBM.
But while the arrangement is clever, you'll notice it's not a joint venture. There's no joint board of directors, no joint marketing decisions, no exchange of equity.
"That's the way it should be," says Bruce Peterson, executive vice-president of SEI Corp., a Wayne, Pa.-based financial-services company that sells trust software to banks and is in its second year of a partnership with IBM. "They are a wonderful ally. It's far easier to close a sale when you mention IBM hardware is part of the deal. But we have a good reputation and value our independence. Right now, I don't see the need to take the arrangement any further." Hammond agrees: "We are the market leaders, and IBM gets to benefit from our 17 years of experience. Actually, it's a better deal from IBM's perspective."
Despite the salesman's bluster, it is clear the deal is a wonderful one for Barrister. Since last July, when the partnership went into effect, Barrister has sold 12 IBM-based systems and 2 of its own to new customers. Says Hammond: "Without IBM, we would have probably just sold 4 of our systems."
That's good news, of course, but the arrangement isn't perfect. For one thing, Barrister is making less money on each sale. When a law firm buys a Barrister-only system, it typically pays $125,000, $75,000 of which is gross profit. Although the cost of a comparable IBM-based system is more -- about $175,000 -- the profit is less, since Barrister doesn't make the hardware that is part of the deal. "But we didn't have a lot of choice," says Hammond. "Besides, once the system is installed, we get to do the maintenance work and the training."
Another potential problem is the partnership closely ties Barrister's image to IBM. While nothing keeps Barrister from changing hardware vendors, a switch would blur the company's image in the marketplace.
True, says Hammond. But, "if you are going to ride somebody's coattails, whose are better than IBM's? I have no reservations about this deal. We held out and just sold our own equipment for a long time, and we kept losing money. This is better."
TAKING CHARGE
If partnership sounds like a good idea, here's what to keep in mind
There are two nice things about dealing with giants. First, they have deep pockets. Second, if you are friendly with them, there is less of a chance that they'll squash you like a bug.
If the idea of working out a partnership with a company far larger than your own sounds appealing, here are a few things to keep in mind.
* Deal only with Goliath. If you are going to enter a partnership, do it with the industry leader. By teaming up with a lesser ally, you run the risk of Goliath running roughshod over you both.
* Go slowly. Sure, a partnership arrangement could lead to Goliath investing in your stock -- IBM now owns 8% of Metaphor Computer Systems Inc., a Mountain View, Calif.-based hardware and software house with which it entered into a partnership a couple of years back -- or even a merger. But that's long term. Short term, make sure you're compatible. Build in guaranteed review points, maybe once a year, to double-check the arrangement is still working.
* Make sure you're not forgotten. Spend a lot of time writing Goliath memos about what new programs you have and what's in development. Goliath will have a much larger sales force than you do. If you want them to include you in their presentations, they'll have to remember that you're there.
* Be separate but equal. Say it over and over to yourself: "This is not a joint venture. This is not a joint venture. This is. . . " If it were, odds are you -- as the far smaller company -- would not have an equal say in calling the shots. Think long and hard before you decide to make the partnership anything more formal.
