Little Companies Should Worry About Early Customers Before Big Company Partnerships

Here’s a common dream for many small company executives:

“If I can just convince Big Company to resell my product or service, their customers will love my product and I will make tons of money…”

Then you meet the representative at Big Company responsible for partner relationships and with a huge smile she assures you that everything you ever wanted and more will come true.

20140421-083240.jpg
Source: used according to Creative Commons License

What I’m going to say in this blog should be obvious to anyone who has been around the block in the business world. Somehow, it seems that many small company executives forget when the reseller fantasy takes hold in their brains that Big Company’s partner representative is not your friend. At the very least, your company is nothing to them. At worst, they may see your company as their way to make their revenue quota for the next quarter.

Your little company will remain nothing to Big Company until you have multiple mutual customers using your product and Big Company’s products. I frequently tell would-be partners of big companies that they should focus first on the hard part of creating a few satisfied mutual customers and not to worry about becoming an official partner until they reach that point. Otherwise they could waste a lot of time and spend money that doesn’t return immediate revenue benefits.

To understand why, you need to remember that large companies are complex organisms. The complexity is that while Big Company might have certain strategic directions, a specific team might have a different goal that is tangential or even seem counter to the strategic goal. Possible partner rep goals typically include:

1. Develop or grow a strategic partner program based on numbers – which often gets your little company a logo on Big Company’s partner web page and a mention in a press release, and not much more.

2. Generate revenue via a partner channel – which often starts with you paying for use of their infrastructure and services to paying revenue pre-commitments.

“Wait! I will give Big Company more revenue through marking up my product or helping them sell more of their product.”

Here is a story of mismatched priorities you can find in big companies that can work against everyone’s long term interests. I once knew of a market-leading IT infrastructure company whom we’ll call MLIT, which had many happy mutual customers with a big enterprise software company that we will call BESC. While negotiating a partnership where BESC would resell MLIT’s products in a typical solution configuration for mutual customers, BESC asked MLIT to guarantee minimum revenue of a couple million dollars by making an upfront payment. MLIT was in a position to say “screw you BESC, you need us more than we need you.” In the end, the 2nd place runner up in the market did pay a pre-commitment to BESC to be resold. The customers generally liked MLIT’s product better so all BESC really got was the pre-commitment payment in a quarter they needed the reenue, but otherwise nothing changed for anyone except 2nd place was out a couple million dollars with no better sales opportunities.

Not all partner reps are looking at your little company like a snack. Most are trying to look for capable partners for their own companies. Just saying you are great, or having a slick PowerPoint pitch is not enough. So Big Companies put up barriers to see how capable and serious your company really is in terms of paying an alliance fee or proving your ability to deliver both in business and in product.

“But, but, but… If I can just be their partner then I can deliver”

Many of the would-be partners I spoke with thought that the big companies I worked for would start bringing clients to them. In certain cases where a company’s sales team receives a commission for reselling your product, maybe so. Otherwise it’s more likely only if the customer demands of Big Company that they work with your product – in other words they are already your customer – or, your product fills some gaping hole that Big Company’s competitors exploit.

In your potential partnership with Big Company, what are you really hoping for?

1. OEM / supplier – they bake my component into their product and pay me a royalty: then you should be bugging their R&D engineers and product managers. The alliances team will get in your way and try to extract revenue from you.

2. Association – exchange website logos, press releases, and maybe some general co-marketing. Cheap to achieve but will only impress less savvy investors and snow your early customers for a little while until they start looking for value from this partnership on paper.

3. Cooperative sales & marketing – this requires a lot of coordination in the field. You have to get to know Big Company’s reps, have clear lead sharing and follow up in place, your own business development team deployed, and preferably mutual customer references to call upon to be successful.

4. Reseller agreement – this is often a result of being successful with case #3. It’s also a shift in business model that needs to be carefully considered. I know of one little company that laid off most of their sales force as a result of a fruitful reseller channel with a couple big companies. I know of another small company that had an OEM agreement, and a reseller agreement with a big company, and ended up with channel conflicts, missed quotas, and confused customers when their own enterprise sales force tried to upsell the same mutual customers.

In summary, if you have the capacity to be a good partner and you carefully choose the right partners and relationships, your alliances can truly augment your business. However concentrate on directly building your customers first. These early happy customers will show which partners are the right ones and provide you the leverage to create the right kind of relationship with big companies on your terms.

Comments

  1. Great advice. While partnerships between a little guy and large companies can work, the little guy must understand its business and how the relationship will work before signing up for any relationship.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: