Partnerships are a fantastic way to make your company stand out. They can make it clear that you’re focused on providing value to your customers by whatever means necessary (even if it means working with another company), that you provide direct value and leverage the utility of third parties, and that you are a serious enough company for people to want to partner with. Combined, these various benefits make it possible to attract new customers and make existing companies even happier with what you’re providing.
The issue isn’t whether you should partner with companies, but what types of partnerships you pursue. On the one hand, partnering with the perfect company can give you all of the benefits above (and more!); on the other hand, partnering with the wrong company can actually drive customers away and leave you wondering what went wrong.
With the stakes so high, it might seem like a risky bet to partner with any companies at all. Fortunately, there’s a simple rule to keep in mind to make sure you only partner with the right companies.
In short: only partner with a complementary company.
What’s a Complementary Company?
A complementary company is exactly what it sounds like. It’s a company that is complementary to your business interests and your customers’ desires. They aren’t directly competitive with you, but they are adjacent to you and in the same industry. If you’re considering partnering with a company, the best way to find out if they’re a complementary is to look for a few defining characteristics.
Have Similar Customer Profiles – As a software company, you probably have a pretty good idea of what your customers are like. With tools like Google Analytics and Mixpanel, you’re able to gather very detailed information on both what features your customers like and what their basic demographic profile is. This information is key when considering partnerships. Since you’re likely using partnerships to grow mass awareness, you don’t only want to partner with companies that have an identical customer base. You’re looking for that sweet spot of some overlap (so your existing customers benefit from the partnership) and some fresh exposure (so new people find out about your company).
Have Their Own Product Teams – Your software development team is arguably one of the most important groups of people at your company. Next to your sales team, they’re one of the biggest reasons that your company will ever achieve any level of success. That’s why you want to make sure that any potential partners have the same chance of being around in five years as you do. It’s a total waste of time and money on your end to invest in a partnership, build out the product integrations, and then find out that the partner company has gone belly-up six months later.
Will Benefit From An Integration – To avoid partnering with a competitive company, look to see how the company reacts to a proposed collaboration. You want someone that sees a clear benefit to partnering with you. Since they’re likely also looking for complementary companies, their reaction can immediately give away their mindset. If they’re hesitant to partner with you because you might cannibalize their customer base, then be very wary – the same exact thing can happen in reverse. Instead, look for people that are genuinely interested in a meaningful collaboration that benefits everyone involved.
Are Recognizable In Your Industry – While you don’t want to partner with someone that can steal your customer base, you also don’t want to partner with someone that is so unknown that no one will care about your newfound coalition. A partnership between Adidas and Bigelow Tea may sound interesting, it would be difficult to see how they benefit each other. Instead, look for companies that people in your industry will recognize. This doesn’t necessarily have to be your customers or company executives, but these people should know the ins-and-outs of your marketplace.
Complementary Companies Don’t…
Directly Compete With You – Hopefully this doesn’t come as too big of a surprise, but it’s important to not partner with companies that directly compete with you. These types of partnerships may seem interesting – “you share so many customers!” – “People will love it!” – but they’re only going to cause hurt down the road. You can look at Twitter and Google’s partnership in the mid-2000’s, or Apple and HP’s partnership on an iPod, or one thousand other examples.
This is one of the more common mistakes companies make, so it’s worth diving in a little deeper. Recently, a startup called Zen99 made the news when they shut down and the founder published detailed articles on what happened and why the shutdown was necessary. One of the key elements he brought up (you can read the whole article here), was that their chief source of user acquisition was one of their competitors.
This partnership may seem promising, but it’s also problematic in the long-term.
Operate a Parallel Product – Similar to competitive products, one of the worst types of companies to partner with are ones that seem uncompetitive but operate along a parallel trajectory. For example, you may operate a company that serves a specific type of user, while another company serves the same user but with different features. You’re both moving on the same trajectory, but not overlapping. While not a big deal in the beginning, it only requires a few degrees of adjustment for your former partner to move into your space and start to serve your customers directly. A well-crafted contract can help avoid this, but it’s possible to always successfully navigate these turbulent waters.
As we’ve laid out, partnerships can be incredibly useful to companies. They provide a new injection of customers, they provide brand credibility in new ways, and they can foster relationships that become more valuable over time. However, don’t let these benefits blind you to the risks. You need to be careful about who you partner with, since you’re essentially giving them the keys to your database. Focus on complementary companies and be very careful of working with any company that seems too good to be true.