While using a chainsaw...?

There is nothing like 2 3-hour sessions using a chainsaw to cut a pile of wood in the Texas summer to focus your mind on something - something other than cutting hard, aged oak!



I have spent a great deal of time over the past 3-4 years with my friend and colleague, John Soper of New Paradigms Marketing Group, talking through the various phases of the Alliance Spectrum and when and how various transitions occur (or can be made to occur) during the discovery, formation, management and endgame (or rebirth) of each alliance. One of the most important transitions to understand or control is when negotiations begin and end, understanding how to determine those points, and what to do to optimize your desired outcome.



Some would say negotiations start explicitly when one party presents business terms, starts drafting a contract, or sends one of those "we never change it" standard form agreements to the other party. At least then, I say. In fact, in my view (and I think John shares this view), a good approximation for determining the starting point of negotiations is to find the date when the two companies first sat down together to identify a joint value proposition for the relationship. At that point, with quick minds at the table and a solid understanding of the technologies and business parameters involved, each side has the opportunity to start the negotiations and gain advantage. Identifying ways that fit your company's strategy where capabilities might fit into your partner's strategy, laying out key facts, market realities, technical or market capabilities that set the direction for the alliance from the start. And, most importantly, doing so while establishing the new value created for the other party. As I said, quick minds are needed as one usually doesn't enter the meeting with enough information to predetermine those points. You may not even enter the meeting realizing that you are about to start negotiations.



Missing the opportunity is not deadly. But, for a small company the ability to direct the joint value position in the most positive light for your company at an early stage can be the difference between success and failure in forming the alliance, and in maximizing the benefits. It doesn't always happen then, but you can make it happen then by choosing your team carefully, and being well prepared.



So, next time you walk into a meeting or a call with a potential partner, it might be the one. Make sure you are prepared, and have the right people with you to seize the moment!



So, where do chainsaws come into this? Well, I really have been pondering this blog the last two days while cutting a pile of wood into logs for this fall. But, it also occurred to me that it is a wise strategy to approach each cut as if it could be the one where the blade slips, and one that has kept me safe for 15 years of happy sawing!



Carpe Diem! Until next time.



Michael

Barney? What's he got to do with this?

As you set alliance goals and develop the relationship, you must consider the type of relationship that you and the potential partner seek, ranging from a simple joint press release to a strategic alliance focused on managed services or outsourcing, to value-added reselling, OEM and beyond.

The joint press release is fondly known as a "Barney" relationship because of its superficial nature, but it does have its place in the spectrum. As an aside, I have found that companies who overuse Barney will tend to lose credibility with analysts and press, making that strategic alliance press release harder to pitch.

As you walk across the Alliance Spectrum, you can explore a range of co-selling/marketing alternatives with both products and services. Further to the right on the Spectrum you will find revenue sharing and OEM deals, joint ventures and, of course, the exit: mergers and acquisitions.

As you engage your partner, I encourage you to share expectations about where each firm would like to start, and where you would like to end up on the spectrum. Many leading technology firms now have formal programs that are designed to evolve from a co-selling model at the start to a value-added reselling or OEM relationship as both partners gain experience and success. This makes good sense, and I applaud those who have recognized that truly strategic alliances evolve over time.

Under the Alliance Spectrum you will see a typical distribution of work between the partners. While the distribution of work varies from what is shown here, I have found it important to be clear about precisely who is going to do what. Who is going to build the product or the integration between products? Who is going to market the solution, and sell it? Who will provide customer support and other services? And so forth... From experience, I have found that companies name these types of relationships differently: For example, some companies use the terms "Strategic Reselling" and "OEM" to mean the same thing, and others use them to mean something quite different, so it is crucial to discuss in fundamental terms who is going to do what in order to determine how the relationship, and the contract terms, will develop. Failure to do so can result in misunderstandings and unmet expectations.

So, don't get caught expecting an outcome based on the "name" a relationship is given; talk to your partner about the distribution of work, and how your alliance might evolve across the spectrum so you have a clear picture about the value each is adding to the relationship over time. From there, you can set expectations, and determine how to allocate revenue, cost and margin to each in the term sheet.

Next time I will explore the corporate development arena, and how your eventual exit impacts how you act today, even if it is years away. If you like the game of Chess, we will have some fun!

Until later,

Michael