How to make product partnerships work

Jun 12, 2013

Table of contents:

1. The difficulty in getting traction
2. Partnerships are good
3. Partnerships usually don’t work
4. Become a whole product partner
5. Real life examples
6. How to make partnerships work
7. Conclusion

As more and more competing companies and services launch online, it is becoming increasingly difficult to gain traction and distribution. As the noise of more products increases, the individual signals start to get lost.

There is a lot to be said about having the best product. But one of the most overlooked attributes of a successful product is distribution. Without distribution you have no hope of becoming a success because it doesn’t matter how good your product is if nobody uses it.

The truly successful products will have a deep understanding of distribution as a core competency. The bubble of startup accelerators is increasing the amount of product noise online. However what the majority of these second rate products and companies don’t understand is the critical importance of distribution.

In this post I’m going to talk about one of the best ways of focusing on distribution in order to get your product traction. More specifically, how partnerships with bigger more established companies work, why they often don’t work, what are the pitfalls to avoid and how to make the most of this opportunity.

The majority of all partnerships fail. But if you understand why they often fail, you can put yourself into a better position to make them work and avoid the most problematic situations.

The difficulty in getting traction

Before I get into talking about partnerships, first its important to understand why this is even a problem at all. The problem with online products is, there is a strong grouping at the top where the majority of all attention is focused. As products cross the chasm into mainstream adoption, they become self fulfilling.

You might be able to gain early adopter attention, but it is becoming increasingly difficult to cross the chasm without leveraging the existing dominant players.

The problem is made worse by the sheer number of new products that launch every day online. When you are just one of 50 new products that day, it is extremely difficult to really get traction. This increase in competition for attention is diluting the focus on even the better products.

Fragmentation is an important outcome of this problem. In order to differentiate, products are becoming increasingly fragmented. This is a good thing because it makes gaining that initial audience much easier.

But connecting with that initial audience is becoming more difficult.

Partnerships are good

Partnerships have long been used in just about every industry and so they are certainly not a new thing. The best partnerships offer a number of benefits for each party:

Access to an audience - The first big opportunity is that it allows both companies to talk to each other’s audiences. Product partnerships only usually fit when the products are complimentary. This means that access to this new audience is usually highly qualified.

Added value - When two products enter a partnership, it usually means that the customer will be gaining added value. For example, if you bundle two products or significantly reduce the price of buying both products because it is sold as a package, the customer will obviously gain value because of the lower cost. There is also the opportunity that the partnership will significantly increase the buyer value by creating a better overall experience for the customer.

Bigger company seal of approval - When a new and unestablished company joins into a partnership with an established and influential company, the smaller company’s product will be given the seal of approval. If the customer respects the decision making of the bigger company, that will have a rub-off effect on the smaller company even if the customer has not used the new product.

Partnerships usually don’t work

However, the majority of the time, partnerships just don’t work.

Not equal - The biggest problem is that the derived value is just not equal. It is rare that a smaller company can provide enough value to the bigger company. As companies get bigger, it becomes increasingly difficult to move the needle. The value from the partnership is likely going to be imperative for the smaller company, but not very interesting at all for the larger company.

The bigger company doesn’t care - When the bigger company isn’t getting significant value from the partnership, you will find that it becomes difficult to get them to care about it. Often only a junior person will be assigned to the partnership, which will mean that sign off or decision making will be slow and laborious.

The smaller company can’t handled the influx - If the smaller company does not have a defined sales process and customer service department, they can quickly become overwhelmed with the sudden influx of attention. If the smaller company can’t handle this sudden wave of attention, both companies will suffer because the customer will have a bad experience.

Become a whole product partner

The most common partnerships that fail are when there is really little to no product integration. You often see these as purely marketing partnerships where the actual commitment to the partnership is just a series of marketing messages.

I think the best way to make a partnership work is to become a whole product partner. This means, give away full access to your product through the partnership. By making this bigger commitment, both parties will be more invested in making this work and providing value to the customer.

However, it’s important to maintain your brand through this partnership. I’m not a fan of white labelling software so a partner can just integrate it as their product. When you are powering certain features, you need to ensure that the customer becomes aware of your product. The partnership is likely going to significantly increase the revenue of the smaller company, but exposure as a brand is also something you need to optimise for.

Real life examples

In the short history of the Internet, there are a number of examples of whole product partnerships that have worked incredibly well, and those which have not.

I think one of the best examples of a whole product partnership that worked is when Yahoo licensed Google’s search technology for their portal.

Yahoo was one the biggest online properties at the time and had already established itself as the number one portal on the Internet. Yahoo had built a huge website of content and links. However, when a user searched Yahoo, they would often find that the thing they wanted didn’t appear in the portal.

Over the course of a couple of years, Yahoo would simply license search technology from the leading search engines. This would allow Yahoo users to search Yahoo first, but then the wider internet if a result could not be found.

Google was able to establish itself as a company with the branded Yahoo search results. Yahoo had the opportunity to buy Google at one point, but as they say, “the rest is history”.

How to make partnerships work

So how can you put yourself into a position to make these kinds of partnerships work? Well I think there are a number of things you can prepare from the outset, as well as some things to do during the partnership that will increase the likelihood of things working out.

Build a Read / Write API

The first thing to do is to create a Read / Write API from the product’s inception. You are probably already going to make an API for internal use of your product, so you may as well build out the architecture so that it can be used externally too.

When you can distil your product down into API calls, it becomes much simpler for third parties to integrate it.

Another reason why partnerships fail is if internal teams sabotage the deal. For example, if you make your product extremely difficult to integrate, the technical leader might veto the partnership because it will consume too much of her team’s resources.

By making the actual technical integration of products as simple as just a few API calls, you significantly increase the likelihood that your product will be integrated.

Start with smaller deals

You probably have the ideal partner in mind when you are thinking up ways to significantly increase traction for your product. In your head it probably seems like the perfect win-win situation for both companies.

In all likelihood though, the bigger company is not going to give you the time of day at first.

Before you can start approaching bigger companies and be taken seriously, first you need to prove yourself in the trenches. Find smaller companies that are on the rise as your first partnerships. If you can find these rising stars, you can establish good relationships as you both make your ascent.

Again this comes back to having a Read / Write API. Instead of spending months and months working out how to integrate the two products, or give your partner access to your technology, if you have already established an API you can make this process significantly quicker.

This will also enable you to try many of these smaller partnerships at first. Each partner is likely only going to represent a small segment of your target market. By placing little bets with these partners, you put yourself into a position to grow an audience with a rising segment leader.

Have a bigger target

You should always have a bigger target partner in mind, even from the first day of your company. Ideally there should be an existing potential partner that can significantly increase the revenue and exposure of your product to a qualified audience.

These kinds of partnerships take a long time to cultivate. As I mentioned above, the bigger company is unlikely to gain anything from the partnership whilst your company is still small. If the only outcome of the partnership is that you get exposure, it is highly likely going to fail.

Ideally you should specialise in an area that the larger company is interested in, but not motivated to enter. As companies get bigger they start to generalise their product to appeal to a wider segment of the mass market. By solving a very specific problem, you can license your technology to the bigger company as a branded integrated product.

Whilst this “dream partnership” might take years before it becomes a reality, you should start working on it as soon as possible. This means making your product so that it can be integrated with the bigger company easily, as well as trying to establish personal relationships with key influencers in the bigger company.

Conclusion

Despite how potentially beneficial these kinds of product partnerships can be, you still need to ultimately focus on building your own audience and customer base. If you dream too much about gaining traction through partnerships, you will miss the opportunity to build your own audience.

Whilst partnerships are good, they are no match for having your own relationship with your customers.

Partnerships are highly likely to fail. You can’t rely on them to make your company work or to gain traction for your product. They are only one small piece of the puzzle and they won’t solve the problem of product-market fit, but when they work, they can significantly increase the success of your company.