How to Build and Cultivate a Strategic Partnership

Discussion with Sales & Business Development Expert Mark Steele

Patrick: Hi, everyone. This is Patrick Henry, the CEO of QuestFusion, with The Real Deal…What Matters Live. I’m here today with my good friend Mark Steele. Mark is an expert on business development and developing strategic partnerships, which I think is an extremely important topic for entrepreneurs. In Mark’s current practice, he works with CEOs in helping them to accelerate their sales growth and build partnerships with the right ecosystem partners.

Mark has been a general manager and head of sales and business development for a number of notable brand companies including Motorola, Gateway Computer, IBM, Qualcomm and Monster, which was formerly Monster Cable. He is a former chairman of COMNEXUS, which is a non-profit that focuses on the telecommunications industry, now called EvoNexus. He’s an experienced board of directors member. Welcome, Mark.

Mark: Thank you, Patrick. It’s nice to see you.

Patrick: Today we’re going to be talking about strategic partnerships. This is an area near and dear to both of our hearts because we’ve driven a lot of business success based on the partnerships that we’ve built at a number of different companies. Talk about your definition of a strategic partnership and how that’s different than a customer relationship.

Strategic Partnerships Versus Customer Relationships

Mark: Think of a pyramid. Think about the apex of a pyramid being an acquisition. Think about the base of the pyramid, the lowest level, being some sort of transactional relationship that doesn’t have long-term value. It doesn’t have a long-term relationship. It’s just a transactional relationship. Everything in between is a different kind of partnership. There are many layers.

Patrick: Can you talk about the different types of partnerships from your perspective?

Mark: If you come up from the base layer, then you might have something as simple as a long-term supply agreement or a long-term customer agreement. That is a partnership, but most people don’t think about that as strategic because it’s an everyday thing. Above that, let’s say that you have a five-year supply agreement with someone who is critical to your future. You want to have certain terms that would enable you to continue to get supply from them even if they were to have financial problems. That requires a sophisticated set of terms and conditions and a contract that protects you. That would be the lowest level of strategic partnership, which is something that’s long lived and has strategic value to one or both parties.

Patrick: How did you become an expert in this area? How have you navigated through this? It’s kind of like two teenagers dating. They don’t necessarily know what to do, so nothing ever happens.

The Relationship Between Successful Businesses and Startup Partners

Mark: When I first started to focus on partnerships and making them work was when I was at IBM 20-some years ago. I watched how IBM abused their small startup innovative partners. It bothered me. When I left IBM and went to my first startup, I worked hard at making sure that our partnerships were more balanced. Then you wonder, how do you do that if you’re a small startup and working with a megabrand? It is possible. Later, having been in several startups and advising startups as a mentor and board member for 20 years, I became acutely aware of how small businesses are essential to large businesses, even if the large businesses don’t admit that.

Patrick: Especially with public companies, there is so much pressure on short-term earnings performance. You really need to do a lot of the high-risk innovation. It’s what I call off-balance sheet. That means using partners that are smaller, more risk-oriented startup companies.

Mark: There is a lot of research that’s been done in the last 10 years that shows that, the larger and more successful a company becomes, the harder it becomes to internally innovate. We could probably have another session just on that. You don’t have to take my word for it. You can look at any number of research papers that have been written on this subject.

Larger companies that are sophisticated and want to keep that innovation pipeline going have specific strategic partnership programs that are not just on the supply side. It’s not just on the sales and go-to-market side. They’re really strategic. They’re thinking, “Where are we going as a company? Where do we have to innovate? Do we have the ability to innovate in that area? If we do, do we have the people? Do we have the right IP?”

That sets the stage for why large companies are strategically partnering with smaller companies. It’s primarily centered around innovation at a lower capital cost and lower risk, if and when it becomes an acquisition. These are tied together in a sequence where it might lead to an acquisition. That’s really powerful.

Identifying A Good Strategic Partnership

Patrick: How do you identify the right person in a target partner company that has the influence to make decisions around entering into a more formalized arrangement all the way up to making an investment and possibly M&A over time?

Mark: There is so much material out there for free. A lot of people jump to hiring someone to figure that out and point them to a partner. A lot of times, those are business brokers. Sometimes they’re commission-only B&D people. I don’t like to work with those people because you’re paying for something that is in the public domain. Let me give you some examples.

If I’m advising a startup pro bono, I tell them, “Here are two or three things you can do for free. It’s going to take you some time.” If I’m advising a company that’s paying me as a partnership consultant, then I will tell them, “You could do this yourself or you could pay me to do this.”

First, if you already have someone in mind, go to their website. Search for their partnership page. That’s key. If they have a partnership page, it tells you that they believe in partnerships. They see value in it. They’re willing to dedicate some real estate on their website to it. Then you can start diving in. Who are they? Are they on the supply side? Are they on the go-to-market side? Are they technology partners? Do your homework.

Second, look at the press releases for all of those companies. Look at the host company, the one that would like to partner with you. Look at their press releases over the last two years. It’s not hard to search those. Look for keywords like “partnership,” “sales” or “supply.” If you found half a dozen partners on their web page, look at their press releases. Now you have all of this free material.

Finally, if you’re looking for an innovation partnership, spend a couple of hours at the US Patent Office site and look for patent filings that originate either from the host company or the partners. Now you’ll get an idea. Are they trying to partner because of a patent portfolio? Those things are all free. They just take some time. For each partner you investigate, you could spend two to eight hours to do what I just mentioned.

Prioritizing Strategic Partnerships

Patrick: Through various elements of my career, running companies and as head of marketing or general manager, we were able to build a number of different strategic partnerships across the whole supply chain. We had suppliers, potential customers, customers and other ecosystem partners. How do you make the decisions around the highest priority and the types of relationships you want to build with those companies?

Mark: That question brings up one of the key aspects of the methodology that I use to explore this. Think of a value chain. We’ve been using value chains for our entire career. Now make it two dimensional. Consider it a value grid. Put yourself in the center. Put the end users of your product, service or technology at the far right. Now you have the beginnings of a chess board. The people that are going to receive the value of what you have, in combination with your partners, are at the far right.

Then start working backwards. Then ask, “Where do those end users get that technology?” It might be internally from some other department in their company. It might be from a buyer. It might be from some kind of sales organization in another company. Then say, “Where did they get that?” You work backwards. Do that for yourself first. Then look at your competitors and do it again. Put it all on the same chart. Then say, “Let’s think outside the box.” Where do your end users and their buyers or suppliers get technology, IP or services that they already combine with theirs to deliver more complex and valuable solutions? That will open up this grid.

Now you can populate dozens of cells in this grid. This is just a brainstorming tool. You’re not going to talk to every one of these parties. You’re brainstorming. I usually do this in a brainstorming session that lasts a couple of hours with a half dozen key people from a client company or startup. When we’re doing with a two-hour brainstorming session, we have something. We can say, “Here in this grid, I have this entity that is supplying and receiving.” You’re in a hot spot.

Patrick, you and I both came out of the telecommunications space. Think about a telecom network hot spot, a node that’s very active. That’s what you’re looking for. You will only find a couple. You’ll find two or three in each market segment. Those are your potential partners. If you didn’t come into this exercise already thinking about partnering with Company X, this brainstorming exercise will give you two or three to think of. If you already thought of one, put them on this chart. Then do a couple more. Think outside the box. Where are the potential partners? Some of those potential partners may not be thinking about partnering. That will lead to how to get them to answer your call.

How to Get Potential Partners to Answer Your Call

Patrick: Let’s jump into that.

Mark: We talked about the research and the free stuff. Yes, it’s four to eight hours of invested time, but you can do it. When you make that first call or email to the target company that you’re thinking of partnering with, this is the most important thing. Don’t make it all about you. Most people make it all about them. They get on the phone. They’re thrilled to be talking to a live human and not voicemail. They talk and talk about themselves and their product.

That is not what you want to do. Based on your research, hopefully you’re talking to a product manager, business development manager or executive. You want to start with, “Here’s the value that I bring to you in your pursuit of additional markets, customers and revenue.” The same things you’re looking for, they’re looking for. If you start the conversation with, “Here’s how I bring value to you,” it means you have to be informed about what they care about. What is their strategy? Where are their problems? Where are they successful and not successful? Where are they trying to go?

You can infer all of that from doing a bit of research. Then you get into the conversation. If you start with the value, then that will bring questions. The person that you’re talking to, if they’re a professional who is serious about partnerships, will probe you with questions. They will say, “How do you help me get additional revenue? How do you help me penetrate additional geography?” Now you can start talking about you, your company, your products and how they fit in. Be prepared to ask them a question or two once you’ve told them a little bit.

Say, “How do you think I could fit into your route to market? How do you think I could fit into your supply chain?” If you’re not sure, you can say, “Who else are you partnering with that is similar to me? What kind of relationship do you have?” On that first call, you’ll only get a chance to ask one or two of those questions. That will be valuable for you to prepare for the next call or a face-to-face meeting, which is your real agenda.

Patrick: That gets to an important point. I’m not saying this about every entrepreneur and startup CEO, but often, they want to close the deal on the first call. It’s a process. It’s like the process for raising outside capital. The purpose of the executive summary is to get a meeting. The purpose of the first meeting is to get a second meeting. It’s about building that relationship. The value chain is so important for identifying the players that exist along that chain and the value aspect of it. Can you talk about that? How do you identify the value for a particular target?

How to Identify Relationship Value

Mark: I love your analogy. I have used that same process in sales and business development when interviewing people as well as raising money. You need to think, “What is my objective for this call, meeting or email?” A lot people send out emails and don’t think about the objective. If you do that, then it will force you to answer the question, “What is my value to them?” If you spend 60% to 70% of your time thinking about your value to them, then you have to do the same kind of research that we do when we’re doing a sales call. What is the customer’s problem? What is the customer’s strategy? Where are their problems? Where can you solve their problems?

You need to think like a salesman, but double it. You have to think, “Not only am I selling myself and my product to this company that I want to partner with, but I’m turning it around and helping them see why we should partner with each other.” It all comes down to value. As you pointed out, the value could be an innovative product, a service that goes with their product, IP that enhances their product or customers. Maybe I have customers in a segment that they don’t. We’re not competing. Now I can pull their products into my customers. That’s called a route-to-market partnership. Maybe they have customers that I don’t have. Now they’re part of my route to market.

Now I can supply my products to them. By doing your research and formulating a couple of really important questions, you’ll understand how you add value to not only the partner but their customers. If you can’t put that down on paper, then please don’t pick up the phone. Please don’t send that email. Please don’t go to that meeting. You need to have at least two or three things where you can help that company grow faster, lower their cost, shorten the time to market or penetrate new markets geographically or segment-wise. If you can’t do one or more of those five things, then you’re wasting their time.

Patrick: It’s the concept of being mission and objective driven, and having clarity around that. Otherwise, you can’t measure if you’ve been successful or not.

Mark: Exactly. One of the other things that I advise startups about is not to let that partnership be the end. That’s the beginning. All of the things that we just talked about have to result in a partner management process to make sure that you’re getting the value that you want and they’re getting the value that they want. There had better be a contract behind this. The terms of that contract had better reflect that value that you’re both adding. Otherwise, you just had a lot of preparation and research for nothing.

Patrick: Put your board member hat on. When you’re approached by a CEO and they say, “I want to pursue this partnership,” what are the things that you look for in that context?

Taking the Fear out of Partner Relationships

Mark: Conveniently, I’m on the board of Urban Translations, which is an innovative startup in the hospitality space. I’m also on the board of Hunter Industries, which is a 40-plus year-old company in the irrigation space, and now the lighting space. They are in the multi-hundred-million dollars private company.

When I’m talking to startups or small companies, here’s the counterintuitive thing. Many of them are afraid of being trampled. They’re afraid of being abused by this big partner. They’ve heard bad stories about how Microsoft is going to take their IP or how Verizon is going to swallow them up and spit them out. There is Wal-Mart, which is famous for destroying their partners by driving the price down so low that they can’t stay in business. Many startups begin this conversation with fear. “Partnering with that company scares me.”

It’s good to have a little fear. If you do the work that we talked about and think about the value that you bring to them, you shouldn’t have any fear. I’m sure that you’ve run into this with fundraising, Patrick. Many startups are afraid. They come on bended knee to the person with the check saying, “Please, please, please.” They should be thinking, “What value do I bring to this investor?” It’s the same with a partner. You want to bring value and be confident about your value. This is the most important thing for those listening who are in small companies.

You need to leverage the assets of the big company. It will take you $100 million to establish that brand name. It will take you 1,000 salespeople with feet on the street nationally to penetrate the market that you’re trying to get. You can’t afford the money, the capital or the time to do that. Why would you reinvent the wheel? If there’s a partner out there that has those assets, and that you can convince will get value from you, you have their value. It might be their existing salesforce or customer base. It’s like a very sophisticated sales process. You want to make them understand how you bring value to them. Don’t go into it with fear.

The second most common objection that I run into is more with mid-sized companies. They say, “I tried to partner in the past and I didn’t like having to split margins.” When I hear that, I say, “Tell me about the margin splitting.” They would go through it. I say, “It sounds like you didn’t do a formula to assess the value you bring to the partner and what they bring to you, so that you could establish the margin split that would work for both of you.” Then they say, “Oh.” They went into some sort of channel relationship. They split too much margin, or they split the right amount of margin, but didn’t ask for the right amount of value. It all comes down to value. Is it a transaction that makes sense for both parties? If it does, then it can be long lived and strategic.

Patrick: That’s a very common question that I get with the companies that I advise as they’re building out their salesforce and attempting partnerships. It’s the difference between a manufacturer’s rep versus a stocking distributor versus a value-added reseller. I like how you boiled it down. It’s all about the value that they provide. You need to make those tradeoffs and negotiate from a position of strength. You want to say, “I’m going to add a lot of value to you as well.” Maybe you get a smaller percentage than what you’re asking for, but the overall dollar amounts can be massive.

How to Master Referrals

Mark: Let’s talk about a really simple example that people screw up. Referrals. You hear people say, “I’m going to refer customers to you, but I want 20%.” I have a simple formula. It starts with 5% for a couple of actions and it doesn’t involve a business card. It’s introducing me to someone in person or on the phone. That’s 5%. Then there is 10% for a little more and 15% for even more. For 20%, you’re going to be with me all the way through the sales process. You’re not selling. I’m not paying you commission.

I’m selling but I need to be able to call you at every stage of this sales process. If I hit an obstacle, I’m going to call you. You’re going to help me figure out how to overcome those obstacles. The bid is mine. The sale is mine. I will pay you 20% for being my wingman. Why would I pay you 20%? Because you know that customer. You’ve been supplying him for 20 years. You know how he likes to buy. Referrals are just one kind of partnership. I see it messed up so often, usually with people offering too much for too little.

Patrick: That’s great insight. Do you have any closing remarks on this topic?

Mark: We talked about preparation. That’s key. That’s one of my pet peeves. Prepare, prepare, prepare. Use this value grid. Think of a value chain and then make it two dimensional. If you’ve done all of that, and you love the result, do it again for another market segment. Maybe it’s an adjacent market segment. Then do it a third time. Then stack those up so that you have two or three of those two-dimensional value grids. Now you have a nice Rubik’s cube. When you stare at that Rubik’s cube, you’ll see the hot spots. You’ll see the activity and who is adding value.

We talked about leveraging the assets, and for a big company to use a small company for innovation. That’s my formula. If your listeners will think about those elements, do the research and preparatory work before they make that first cold call, then they will raise their odds for success. They’ll have a much more valuable partnership.

Patrick: Those are great tips. Hopefully the entrepreneurial audience appreciates these insights. This is where the rubber hits the road. People want to talk about some of the bigger strategic things, but this is the difference between making money, driving revenue growth and stalling and not getting things off the ground.

Mark: I agree. For those of you listening, if you feel like you’ve stalled out and you need something to get your innovation back, then go back and listen to this again. There’s your formula. That’s how to approach it.

Patrick: Thank you, Mark. I appreciate it.

This article originally appeared in the QuestFusion blog.