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The Partnership Trap – Whiteboard Friday

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Posted by AndrewDumont

Partnership is such an ubiquitous term. Each circumstance comes with a broad set of definitions. Depending on the context and company, a partnership can take on nearly every imaginable form. Due to its variety, the topic is something that isn't touched on too frequently.

At Moz, we rigorously evaluate each potential partnership before engaging. The reason we do this is to avoid something I like to call "The Partnership Trap." It's common for early-staged companies jump on every partnership opportunity that comes their way, as a partnership is often shiny and full of opportunity. Understandably, it's difficult to say no. This seems harmless in theory, but each partnership that you pursue requires the most precious of resources — time and focus — which few companies can freely spare.

In this week's Whiteboard Friday, I delve into the different forms a partnership can take, what to look for in perspective partnerships, and offer some tips in picking the ones that you should pursue.


Video Transcription

"Howdy, SEOmoz fans, and welcome to another edition of Whiteboard Friday. Today I'm going to be talking about a little something I like to call the "partnership trap." The reason why I call it a trap is because a lot of companies look at partnerships and they're like, "Oh, that sounds amazing." But then they get there and they realize that they partnered with too many people, or they partnered with the wrong type of company. So I'm going to be talking a little bit about what a partnership is and how to avoid the trap that some companies fall into.
So digging right into it, first let's talk about types of partnership that exist and some examples of that. So there's something I like to call an integration of products or services. A good example of this is what AmEx and Foursquare did. So for example with that partnership, Foursquare partnered with AmEx to provide basically the platform to allow small businesses to offer discounts to people that checked in via Foursquare. So a good example of two companies kind of teaming up together to work on something.
An extension of brand or product. A good example of this is Starbucks and ice cream. So Starbucks provided their brand to an ice cream manufacturer and in exchange do a rev share type of deal with the ice cream provider. So that's a good example of something like that.
And then an endorsement or exchange. So a good example of this is Best Buy with their warranty. So they aren't actually the one that provide the warranty or create the warranty. It's actually a third party company that does that, and Best Buy offers that to all of their customers when they come into the store.
So those are some good examples of partnerships. What are the benefits of partnerships? Why should we partner? There are a few good reasons. The first is shared networks or shared user bases. Speaking generally, it's kind of difficult to put that into the case of a lot of different types of companies. But, typically, the idea is that by partnering with another company, you get to share their network. You get to share their user base, which is beneficial to both sides.
Second point is industry or brand validation. Typically, a lot of startups or smaller sized companies like to partner with a larger company to get the validation of a larger brand. That's another good benefit of partnerships.
And then the third thing would be an outsourcing of a non-core competence. So you can think of this as, let's say for example for us, if we do not see managing our API as a core competence of our business, then we would look to a third party provider to manage that API business. A good example of that is Twitter outsourcing their API data to third parties, like Gnip and DataSift.
So let's talk through kind of a partner checklist. These are things that I like to make sure exist in a partnership before actually going through with it. The first thing and probably the most important thing is that the partnership needs to be mutually beneficial. What I found is that when you partner with companies that you're only getting something and they're not getting something in return, we find that it typically does not end up being a good partnership, because it's like a one sided relationship. You're giving all this, and you don't get anything in return.
One of the key things, even if you're that side that is getting all of the benefit, make sure that there's something in return that keeps the partner there and keeps the partnership strong. Make sure that a partnership is mutually beneficial before you engage.
Second part, this is probably one of the most important ones when it comes to startups and small businesses is making sure that the partnership is in line with the roadmap and the vision of the company. What a lot of small businesses and startups do is they get a big company, Microsoft or IBM or one of these big players in the space reaching out to them, or them reaching out to them. The problem is they end up going down this path that isn't in line with their vision or isn't in line with their roadmap, and they end up spending all of this time and resources and energy towards something that actually isn't that beneficial to their business in the long term.
So make sure to pick your partnerships with that in mind. Think about your roadmap, think about where you're going, and don't partner with people if it doesn't fit in with that.
Next thing, output exceeds input. So when you partner with someone, there's a lot that needs to be done. It takes engineering resources. It takes time from a lot of different people within your company. The problem with that is if the output does not exceed the input, then it's a bad investment.
There's financial modeling that can help and kind of determine what that output should be. But what I typically like to do is keep the ratio of three to one for output and input. The reason for that is what I've found is that a lot of the partnerships that I engage in, what I expect the output to be actually isn't what the output actually is. I try to get the best guess, but typically what you find is that the output is much less than what you expected or hoped for. So I typically like to give myself a little bit of wiggle room and keep that three to one ratio. So that's a good rule of thumb for when you look at the output.
Finally and probably most important, especially for us here at Moz is that cultures are aligned. There's nothing worse than teaming up with a partner that doesn't share the same values as you, doesn't share the same kind of beliefs that your company has. At our company, with our TAGFEE beliefs, if we are not teaming up with a company that shares those same values and isn't aligned with those type of things, we're going to run into problems.
It's definitely the number one thing that I take into account when we figure out whether we should partner with somebody, and there have been many times where we've decided not to partner with somebody strictly because their cultures were not aligned with ours. So that's a key thing to take a look at when you think about who to partner with.
So finally some tips. Whenever you can, try to mitigate risk when it comes to partnerships. Whenever possible, I try to pilot first. What that means is that you basically do a smaller size sample with the company that you're looking to partner with. Actually Square and Starbucks have a great example of this.
So Square and Starbucks teamed up to have Square process payments within all the Starbucks stores, but they didn't start in all of the Starbucks stores. It's only a select number. I believe it was 7,000 Starbucks stores will use Square to process their payments. The reason why they did that is to mitigate the risk of a larger rollout to the entire organization and then not have it work out.
So whenever possible try to pilot a program first before going full scale, just to make sure it works out and make sure that it is the type of return that you were expecting and hoping for. So try to pilot whenever possible.
Second tip, don't heighten legal. Sarah's probably not going to be too happy with this, but I found that a lot of deals die in legal, and a lot of times they shouldn't die in legal. A lot of people put greater importance on legal than actually needs to be placed on it. Then really you're killing something where legal doesn't really necessarily come into play or isn't a huge part of anything down the line. So make sure that you're secure from a legal standpoint, but don't overly heighten the value and the impact of legal. Know that it is a worst case scenario type of piece to an agreement, and try to make sure that you can be flexible in legal to avoid any issues and prevent things from getting done.
Finally, think long term. Most importantly, when you go into a partnership, you've got to think about it as a relationship. You've got to think about it as I am going to get married to this person. I'm going to date this person. This is something that is, or this company would probably be a better way to phrase that, it really is a relationship. You're spending a lot of time with them. You're going to be working with them very in-depth. Your success relies very much on their success. So you have to go into that with the long-term mindset.
Don't do just one-off partnerships just for the sake of doing a partnership. Make sure that there's purpose to what you're doing and you're thinking long term and you're picking your partners accordingly with that in mind.
Cool. Yeah, so that's pretty much it. If you have any questions, let me know, and thanks for tuning in to this edition. Thanks."

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