STRATEGY

Beware of Shady Partnership Pitches

When faced with a partnership proposal ask these questions to determine if the deal is truly a strategic partnership or a sham.
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There comes a time in the life of every young company where the idea of seeking strategic partners arises. Entering into symbiotic relationships with other companies can be a great marketing strategy. If the partnership works, both companies will enjoy the benefit of one another's customer bases while better serving the customers' needs themselves.

But businesses must always be mindful of strategic partnership wolves dressed in a sheep's clothing.  Of note, some marketers like to call doing business with their company a "partnership opportunity," playing on a business's interest in entering strategic partnerships. They call or email you stating that they would like to discuss these "partnership opportunities" to lure you in. So you set the call up.

Now, if you have any experience in sales whatsoever about two minutes into the call you start smelling something fishy. Between all of the sales buzz words being used on the other end of the phone suggestion this "partnership" is starting to sound a lot like a marketing pitch. Finally, you politely interrupt the person on the other end and bluntly ask "Are you trying to sell me something or are we talking about a strategic partnership?" At this point the salesperson knows they have been discovered but they try and persevere saying something like, "We partner with all of our customers to...." And there it is. They look at you as a customer and not a partner.

At this point, just to confirm before ending the call, I will typically ask something to the effect of, "So where in this do we get to pitch our services to your customers?" Silence for a few moments is the typical response. After the salesperson knows that they have been caught they will always try and salvage some vestige of an attempt at the sale. But, in my experience, relationships initiated under a pretense of deception, whether personal or professional, never go far. I thank them for their time and end the call.

Another "partnership" opportunity that we have been seeing more of lately is what we like to call wealth-transfer pariahs. In short, an organization contacts you offering to partner with your company by re-selling your services to their customers, at a discount of course, under the guise of a strategic partnership. Initially it sounds pretty good. They are going to bring you an entirely new consumer base and, in turn, they are merely asking for a percentage of your sales to those consumers.

But be very cautious about any such offer. You must ask yourself are they offering your services to an entirely new class of consumer, one you had not marketed to before, or are they using you to empower them to compete against your company? Did you follow that?  Did you get what I'm saying? Here's how it works.

They approach you and say they would like to partner with you by re-selling your services to their consumers. You say great. They say we need to offer your services at a discount to our consumers. You say sounds good. So you tell them they can sell your $100 service to their customers for only $60. They say great. And suddenly you notice they are advertising in your space to your consumers re-selling your services for $90, $10 below what you offer them for. So what has just happened? You have empowered them to undercut you in your own marketplace. Effectively, you have just made them your partner in your business and you are paying them $40 for every sale you use to charge $100 for.

Don't think it is happening? Just last week we were approached by a company trying to enter our space. We quickly ascertained their (we'll be polite) "business model." How?  One simple request: "We will be happy to enter into the strategic partnership you propose provided that our agreement has a provision that you cannot enter our existing marketing channels." That effectively ended our conversation with this wealth-transfer pariah.

So how do you sniff out one of these wealth-transfer pariahs when they come to you offering to re-sell your services? Just ask them that question right up. It will save you a lot of time.

With these admonitions in mind, how do you determine if a strategic partnership is right for your business? Use these simple strategies to evaluate offers and ongoing relationships to make sure there is a business justification for the relationship:

1. Be Direct

When evaluating a potential strategic partnership be cordial but direct: What's in it for my business? What's in it for yours? If the answer is one-sided, this is a marketing pitch and not a strategic partnership discussion. As stated before, be very leery of any marketing pitch that starts off under false pretenses. If they can't be straight with you from the onset is this someone who you really want to do business with? But assuming there is a potential synergistic relationship between your two companies it is worth evaluating further.

 2. Cost Benefit Analysis

Too many small companies get wrapped up in the idea that someone wants to partner with them and forget the bottom line: what is the expected cost in time and money by this partnership and what is the expected gain? As with any new marketing venture a new partnership, if structured properly, will consume resources. It may be your time in setting it up. It may be the cost of web designers adding pages to your respective sites so that cross-ordering can occur. Whatever the cost, it must be justified in the end. As such, do not be simply flattered by the opportunity and run into the same blindly. You must conduct a cost versus expected benefit analysis to see if the partnership makes sense.

 3. Benchmarks

Benchmarks. Benchmarks. Benchmarks. As with EVERY marketing program you must set benchmarks so that you know if the same is working and if the benefit of the strategic partnership justifies the cost. Hopefully the partnership leads to increased revenues or other strategic benefits for your company. But if the costs associated with participating in the partnership are not justified by the benefits received you must, like any marketing program, be prepared to end the relationship.

IMAGE: Shutterstock
Last updated: May 4, 2012

MATTHEW SWYERS | Columnist | Founder, The Trademark Company

Matthew Swyers is the founder of The Trademark Company, a Web-based law firm specializing in protecting the trademark rights of small to medium-size businesses. The company is ranked No. 138 on the 2011 Inc. 500.

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.



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