Partnerships don't work*
*Like you think they will. A comprehensive guide to startup-focused partnerships, things to consider and how to make them work.
Before we get into it, I wanted to wish a huge happy 2024 to everyone! 🫶
Hoping everyone had a nice break, and wishing for many wins this year. I’ll be ramping up both the newsletter and the podcast through 2024. I’ll be experimenting with new formats as well, so please provide feedback. Keep your eyes peeled if you’re a TikTok user, as a storm is coming… more on that soon.
Have you listened to the podcast yet?
EP1 with Adam Cheyer is out now – he discusses selling Siri to Apple, shares his winning ideation framework, and sprinkles in million-dollar lessons throughout. A must-listen for any entrepreneur!
🎙️ New episode with Fred Schebesta dropping next week 🎙️
Let’s talk about partnerships 🤝
They can be a lucrative growth channel, or they can suck time and capital faster than a model marrying an oil tycoon. There is kinda’ no in-between.
Commonly, I hear something along the lines of:
“… if we partner with {{company_name}}, we can get them to offer our product to their customer base and we’ll share the revenue with them.”
Sounds great in theory. But, answer these questions before pursuing:
Are you avoiding ‘selling’? If ‘yes’ → get back to selling.
Do you think this is simply an easier growth channel? If ‘yes’ → you don’t understand partnerships. Stay tuned.
Do you have the resources to pull off a successful partnership? If ‘I don’t know’ → it’s a no.
Who gets more upside, you or the partner? If ‘you’ → back to the drawing board. That’s not what they’re about.
Partnerships tend to be an attractive and enamored topic of strategic conversation in any early-stage startup. Mainly because of the idea that it will drastically accelerate your credibility, sales, or product over actually doing that work yourself. In essence, a shortcut.
Let me tell you why that idea is more than likely a waste of your time.
There are a few reasons early-stage startups pursue partnerships. Typically being:
Improve brand credibility
Building an authoritative and trustworthy position in the market by piggybacking off credible brands with strong recognition – this can work and has many times, but is pretty shallow. Make sure you have a personal relationship with the mentioned brand, otherwise, the credibility may fall flat when it comes to actual conversions.
Demonstrate traction for investors
Similarly to brand credibility, you’re using partnerships as a channel to attract investors with market credibility and ‘traction’. Please for the love of god, only use legitimate partnerships here. Do not put AWS (or any other mass platform partner) as a partner on your deck. Investors know – they see these logos on every deck they come across and immediately see it as a stretch to demonstrate traction.
Access distribution for growth purposes
The most common partnership ideology of them all… partners that help you get customers. Also the most toxic kind, and what this post will primarily be focused on. This is mostly where early-stage startups pursue more mature startups or larger companies to leverage their customer base for growth purposes.
Support parts of the product/service
The best kind of partnership – where there is a legitimate need. This is all about plugging holes where you cannot yourself. For example, you may want to partner with a development agency to implement your software for larger clients because you don’t have the internal resources, but you have the demand. It’s a win/win where you get the product revenue, and the partner gets the service revenue.
Let’s understand the typical partnership journey. It goes a little something like this:
Have the idea to partner for {{insert reason that benefits your startup}}
Craft your clever approach to get in front of them
Go back and forth on ideas, collaborate, and have far too many meetings together
‘Umm’ and ‘ahh’, then commit to a trial because you’ve had too many meetings now and want to “test the waters”
Announce on social media
Nothing…
Those first two stages can typically take 6 months or more.
The other common type of partnership is when a larger company approaches you – 9 times out of 10, they want something you have and will use their established brand to get what they want. Of course, you will pursue it. Because well, it’s enticing.
Down the line, you’ll more than likely realize it was a big waste of time and a distraction, rather than a source of growth. Given that time and focus are among the most important commodities a founder has, this can be incredibly damaging for your startup. Sometimes fatal.
Good partnerships take months, sometimes years – likened to enterprise sales. It’s a delicate 4-way seesaw balance of trust, sales, execution, and effort.
Ok, that’s a little exaggerated, but you get the idea. Most end in disappointment for several reasons:
Treating them as a silver bullet to your distribution/growth problems
Attempting partnerships pre-PMF
Attempting partnerships before maturing sales (understanding who your customer is, building playbooks, etc.)
Not qualifying partners in the same way you’d qualify customers
Not providing enough resources to make them work (time, effort, people, and capital)
Enough of why they don’t work… Let’s get to the good stuff and look at how you can create partnerships that do work for early-stage tech startups. We’ll go through:
Types of partnerships
Types of incentives
Things to consider & avoid
Tools & tech stack
Types of partnerships
There are multiple types of tech partnerships, but not all of them are relevant to your startup. You should take the time to understand each type and see if they align with your strategy. As you grow, it’s common to have a combination of all four. But, at the earlier stages you likely don’t have the capacity for one, so choose carefully…
#1 – Channel partnerships
Think of channel partners as extensions of your sales and/or onboarding teams. They are designed to resell, manage, and/or deliver your product. Ultimately boosting your product sales. We’re talking:
Resellers: Indirect or direct selling partners that win you new business and/or provide “value-added” services to the end customer.
Agencies: Partners who manage campaigns and/or the implementation of a product.
Integrators: Partners that audit, lead, and manage improvements to a client’s tech stack and business processes. Similar to agencies, but more like consultancies.
A classic example of a good channel partnership is Google’s early relationships with AOL and Yahoo, which fueled Google’s distribution into the millions.
📈 The juice:
Two-thirds of B2B businesses describe their channel programs as only somewhat effective, while 20% say that their efforts are not very effective or worse.
Avoid white label solutions early on – owning the customer relationship is the most important part of validating and growing your startup
You should generally try to avoid exclusivity, unless absolutely certain it will pay dividends
#2 – Tech partnerships
Tech partnerships, otherwise known as “integration partners” are when companies integrate their products. You’ll commonly see startups put Stripe, AWS, Google, etc. as “partners” on their pitch deck – this is not really a tech partnership, and is more so you participating in a tech companies partner ecosystem. See below.
An example of a good tech partnership is the Adobe ←→ Klaviyo deal, where both products are deeply integrated in Adobe’s Experience Cloud.
📈 The juice:
The biggest tech partner challenge is keeping the partnership active and mutually rewarding.
Trust, runway and credibility are among the most important factors when engaging in tech partnership discussions.
#3 – Strategic partnerships
Arguably the hardest type are strategic partnerships – often completely bespoke partnerships where two (sometimes more) businesses establish multi-department agreements that align efforts and outcomes through brand, resources, products and/or expertise.
A great example of this is Casetify’s collaborative product partnerships, where they’ve been able to identify, establish and grow many partnerships that benefit both sides of the coin. This is rare.
📈 The juice:
More than half (60-65%) of strategic partnerships fail, with common reasons including unrealistic expectations, failure to agree on objectives, and lack of trust or communication.
Strategic partnerships on average take 6-18 months to complete – this can be longer than your runway.
#4 – Ecosystem partnerships
Whilst this could technically fall into one of the above (typically strategic or tech), I’ve split this off into a separate category as it’s gaining momentum. Ecosystem partnerships are realistically a network of businesses that serve the same or similar audiences and leverage co-marketing and indirect sales strategies – typically partner discounts, trials, etc.
An example of this is the AWS Partner Network (APN).
📈 The juice:
The partner ecosystem model is expected to drive a $60 trillion economy by 2025.
While promising, it also comes with challenges. 37% of startups are unable to get their ecosystem partnership program off the ground, and struggle in the face of core business challenges.
In nature, the above types of partnerships can generally fall into 1 of these 4 quadrants. Ranging from bespoke and lengthy one-to-one partnership efforts, through to templated and systematic one-to-many efforts.
Aligned with your goals, you can get a grasp of the beginnings of your partnership strategy and what the desired outcome may be. Generally speaking the blue quadrants are the ones you want to play in. But, remember:
You should not spend several months chasing and building a bespoke agreement with a potential partner if the upside is brand awareness alone
You should understand the resourcing and time commitments that are required to pull off a successful partnership
If an opportunity comes your way, you should think long and hard about whether it’s a distraction or not
Types of incentives
Now that we understand the types of partnerships, let’s look at what they can look like and what sort of incentives are involved. “Commission” is usually the first thing that comes to mind, but there are a number of other options on the cards when it comes to partnership negotiations. These are:
Co-funds including Marketing Development Funds (MDFs), Co-Op Funds, and Solution Development Funds – Where both parties provide a split of funds for development, marketing and/or go-to-market activities.
Rebates & performance incentives – Where funds are set aside and released upon achieved targets or milestones. Essentially to motivate partners. Often paired with commissions and/or rev-share models.
Commissions & rev-share – Typically through channel or strategic partners where commissions are paid or revenue sharing is provided for sales activities.
Discounts, loyalty & referrals/affiliates – More prevalent among ecosystem partnerships where partners offer small-value offerings to overlapping or similar audiences.
Things to consider & avoid
We’ve looked at the types of partnerships and incentives, while briefly touching on the stats (the juice), but let’s take a look at some of the most important considerations or areas to avoid when it comes to executing a successful partnership.
#1 – Have a strategy
Before you start reaching out to potential partners, it’s important to have a clear understanding of your goals. What do you want to achieve with a partnership? What kind of partners are you looking for?
Once you have a clear strategy, you can start targeting potential partners who are aligned with your goals and values.
Here are some questions to consider when developing your partnership strategy:
What are your specific goals for the partnership? Do you want to increase brand awareness, expand into a new market, or develop a new product or service?
What kind of partners are you looking for? Do you want to partner with other startups, established businesses, or nonprofits?
What are your strengths and weaknesses? What can you offer your partners that they can’t get on their own?
What are your expectations for the partnership? How will you measure success?
#2 – Partnerships require people, time and energy
Not one or the other – all three. Partnerships are just as hard as enterprise sales. They take people to manage, time to build trusted relationships and clear communication to get right. Don’t underestimate this.
#3 – Qualify partners like you qualify customers
You know your ideal customer profile (ICP) right? Well, it’s no different for partners. A bad partner can be worse than a bad customer. Understand what your Ideal Partner Profile looks like, and why. On top of that, you should ask yourself:
Do they have a good reputation?
Are they financially stable?
Do they have a strong track record of success?
Are their values aligned with your own?
Do they have a complementary business model?
Can they offer you the resources and expertise that you need?
#4 – Product & partner readiness
Is your product ready to bring on a partner? Have you sold it sufficiently without one? Do you understand the ins and outs of your product? Have you put together the resources and materials for partners to be successful?
You must first understand what position your product is in, then understand what processes, assets and resources it may take to ensure that partner is going to be successful.
#5 – Active partnerships are successful partnerships
It doesn’t stop once the deal is signed. You need to then keep the partnership active, communication constant , and performance lively. You likely need a partnerships manager – Joe, your sales guy won’t juggle both at once… successfully.
Tools & tech stack
Now, the key here is to keep it light and manageable. Honestly, you can get by with using spreadsheets or Notion early on – and you probably should, if not to prove it out. But, if you’re a systems guy like me, here are some good tools:
CRM of choice (I like Hubspot) – mainly to simply manage the deal flow and communications.
PartnerStack – A fan favourite for finding, activating, tracking and rewarding channel or ecosystem partners.
If you’re curious about exploring partnerships for your startup, here a couple of notable mentions of who is currently getting it right within the Aus (* & US) startup scene:
Esteban Calvo from Instant Checkout (Co-founder Liam Millward)
Geena Massara from Checkmate* (Co-founder Harry Dixon)
All in all, partnerships are a big & scary bet for early-stage startups – they can cause an early death. Make sure you understand your intentions leading in, your goals, what type and what’s required. Don’t blindly jump into the partnership abyss thinking it’ll solve your problems, and accept the realities in front of you. Don’t end up on the dirty side of those statistics.
Godspeed 🫡
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For the love of startups,
Tim