As the readers of my blog know, I’m a strong proponent of corporate partnerships. I believe with a good partnership in place, each company can focus on their core competencies while relying on the partner to complement their product or service line, accelerate their market expansion, or help in areas of weakness like customer care, distribution, or geographic expansion. In hard economic times, the need for partnerships becomes more acute – as the market becomes more and more selective, business weakness becomes amplified, and the need to provide the most complete and the best solutions pushes companies into partnerships or downright M&A. In a nutshell, companies look for relationships with “synergy” (ugh, that yucky word from the 90s, but it captures the essence so well – I’m open to other words, let me know what you got!).
I’m on record comparing business relationships to dating . Hostile takeovers aside, the reason business relationships work is because people on both sides spent time to select the right “match”, communicated the desired outcome in detail, and put a lot of energy into integration after the fact. Here’s a factoid I’ve shared in the past: 50% of M&As end in failure, closely matching the US divorce rate. Obviously not everyone gets it right.
Let’s take a look at Cisco. The king of acquisitions has swallowed up no less than 81 companies since 2000. The key to their success: proper selection, and masterful integration. I doubt if Cisco would claim 100% success rate with all their acquisitions, but it is no surprise that Cisco’s revenues have been on an almost straight upwards trajectory over the years. On the other end of the spectrum is eBay with very few M&As or partnerships. One acquisition was Paypal which was an excellent choice (I mean, seriously, they must have been blind not to see that one). Another one was Skype which was a perfect example of poor “synergy” – exactly, what were they thinking? (eBay recently sold off the majority shares in Skype)
For small and mid-sized companies, M&As may be a far out idea, but the need for corporate partnerships is even more pronounced than for larger corporations. With limited resources, these companies need to focus on their core competencies, and having a solid partner either in distribution, product line or geographic expansion, becomes necessary. Over the course of my career, I’ve developed or maintained several corporate partnerships. They all were “synergistic” in either product line or service offering. With the exception of one that ended quickly, they all generated more revenues for both companies. They all required careful selection, tight integration, and constant attention in order to succeed.
Perhaps I was lucky to have been involved with successful corporate relationships, but I think at a high level, specific contributing factors were involved in their success. I’ll list some of them here. I’ll be the first to say it’s easier said than done, but these are the absolute basics to make a business relationship work.
Ownership. Someone (or an organization) needs to be in charge of making sure relationships are a success. It doesn’t mean they do all the work, but they’re in charge of bringing the right people together to make it happen. Without ownership, things fall apart.
Needs definition. Define why a relationship is necessary, e.g., product line expansion, service offering strength, distribution, geographic expansion, IP acquisition, etc. Do you need a relationship for market acceleration, market expansion, or new market entry? This is where your selection criteria crystallize.
Selection. This is one of the most important steps in the process and needs careful attention to industry sector, product line, geographic expansion, etc. You may develop more than one relationship in the same area. And, oh, by the way, the other side should want to “be in bed” with you too.
Communication. Once you’ve selected a potential partner, hash out everything you can think of prior to the contract being signed including roles/responsibilities, financial obligations, integration process, consequences of anything that can go wrong, and…. exit strategy.
Integration. This is when the real work begins with personnel assignments, rolling out the relationship internally, training, re-organizations, etc. This is where most relationships fail to realize their potential. Plan thoroughly. Implement diligently.
Maintenance. You’re never done as long as the relationship is alive. Keep monitoring the success of the relationship. Things change over time, and you may reset and restarts certain parts of the relationship.
As I mentioned, this is a very high level and basic list of steps to take in developing corporate relationships. I’d love to hear about what other criteria you have faced that contributed to success of corporate relationships. What doomed them? Bring on the discussions!