I’ve started reading Martin Casado’s post on tech partnerships, and summarizing some key takeaways. I wish I had read these posts earlier, as I would have had a much better framework when managing product partnerships myself – rather than feeling my way through, would have been a life saver to avoid all the pitfalls he points out.
Partnerships never work
Tech partnerships also have downsides that more often than not outweigh the good: in reality, they can require a tremendous amount of resources, give away your secrets, damage your relationship with your customers, commit you to onerous terms that may poison your company for future strategic relationships. I made this mistake many times and had to pay the full range of those consequences; I write this post from the position of extreme skepticism and paranoia exactly because partnerships are so appealing to first-time tech founders. So I hope in this post to cast a bit of shade — and hopefully save you time I wasn’t able to save myself.https://a16z.com/2018/04/11/tech-partnerships-startups-pre-chasm/
Partner Classifications and Types
[By “technical partnership”, I mean specifically a partnership with a company whose primary business model is selling a tech product — in contrast to partnership with the channel whose primary business is reselling and value-added services around someone else’s product. Partnering with AWS, Google, Microsoft, Cisco, VMware, Salesforce and other products startups, for example, would all be technical partnerships, while VARs, resellers, consultants, integrators, and distributors are not.]
I found helpful this basic definition of partnerships and the distinction between technical partners and channel partners– in many of my other roles I’ve run into conflicts between different teams who conflate the two. In my experience there is a third class of partnership centered around lead generation that I like to call referral partners, i.e. other companies that get you into opportunities.
Partnerships with other startups
Casado points out that partnering with another startup, while it may double your addressable market, will also double your risk. In addition to that, he makes a case that any startup who has time to partner with you isn’t seeing enough traction with their core product:
In the early days of Nicira, we tried to partner with all the new OpenStack companies. Now, a decade later, only one of the nearly dozen remain, and they are the one we never had meaningful partnership discussions with. I guess they were busy building a business.
Partnerships with Large Companies
Casado makes the point that Large companies are there to pillage startups for their ideas. Having worked at Verizon, I have been a part of this many times – bringing in a vendor to evaluate their technology (using unilateral NDAs of course), asking lots of questions, and then building in internally on the cheap with internal dev resources who then move on to something else and don’t support what they built. Internally this typically looks like a build vs. buy battle between a product/operations team (who wants to buy the high quality vendor/partner ) and an internal tech/engineering team (who is looking for a new high visibility project to build ). Regardless of who wins, it is challenging for the large company to rally around, and the partnership gets set up for failure before it even starts.
A good mental model to use before entering a partnership is to assume — If what you’re doing is strategic, you’ll kick off a build vs. buy decision. If what you’re doing is not, it won’t be prioritized — and is therefore highly unlikely to be resourced sufficiently enough to get anything done. Either way, the outcome is not favorable for the startup. If you’re lucky, you just waste resources, and there’s no gain. If you’re not, you create a competitor with special access to your company
This is a summary of the different types of partnership models. Though I do wrestle a bit with classifying these as tech partnerships – seems that some of them are definitely channel-like (especially the joint GTM/indirect model) which Casado excludes in his opening.
Nicira and Palo Alto Networks Case Study
Of all the partnership models, this is the one I’ve seen work the best. Nicira (once acquired by VMWare) had a strong sales partnership with Palo Alto Networks, for example. But this model tends to be best suited for more mature market situations, and they certainly only work with real commitment from both sides. The majority of our joint direct go-to-market efforts failed; a number devolved into messy squabbles with the customer fighting for strategic control or wallet share, or finger-pointing over deployment issues.
The Field matters
Partnerships are won and lost in the field. Behavior will always follow business, and will be dependent on whether your partners are making money by partnering with you. I believe one of the many reasons VMWare was so successful was that for every dollar VMware made, the partner ecosystem made eight
Based on all the land mines Casado points out, I feel that it is essential it is to have a partnerships/BD lead who can think through all of these different models, assess the risks, build a strategy, and execute that strategy in a disciplined way. It is even more essential to have strong leadership that can provide the framework and guidance to the partnerships person to be successful.