You’ve decided you want to build a new solution with another company. Conceptually, you and the partner agree on what each company will bring to the table. Now, you need to define the solution and each company’s contribution at a deep enough level to negotiate a contract.
Start by anticipating execution challenges
We can guarantee you one thing — during the duration of the contract, something meaningful (macroeconomic environment, market dynamics, company priorities, the solution itself, the sales model) will change. No one can accurately anticipate what will happen in the future, but you can position your company and your partner to pivot effectively.
|More alliance value is realized when execution challenges are well-managed1
Below are the most common execution challenges in joint development partnerships:
- Technical: The initial vision for how the solution will work doesn’t prove out, and the teams struggle to find a new technical path forward.
- Stakeholder support: You and your counterpart are still onboard, but one (or both) of you struggles to get, or maintain, access to sufficient resources for development, because the people who control those resources:
- Question the market potential of the joint solution; and/or
- Believe what's being asked of them is not commensurate with what they, specifically, are getting back (low ROI vs. their goals and priorities).
- Commercial model: As the product and/or go-to-market approach evolve questions are raised about whether the initial commercial model (allocation of cost and revenue) is still appropriate – and these questions then lead to decisions that hinder the success of the initiative (i.e., reducing development investment, deprioritizing marketing, explicitly or implicitly sending messages to Sales to focus on other things).
- Customer response: Initial customer response and/or sales do not meet the expectations of one or both companies, and the partners disagree about how to proceed.
- Business strategy: A new major problem or opportunity (independent of the partnership) make one company’s internal priorities shift. As a result, you no longer get the mindshare, resourcing, and/or financial investment required to build the solution and get to market.
Nearly every partnership we’ve worked with has experienced at least one of these challenges.
The best way to deal with them is to document the key assumptions about how the joint solution will be built, marketed, sold, and serviced so that when things change, it is easier to zero in on what might need to change in your plan and figure out how best to deal with it.
The things you need to document fall into four buckets:
- Assets and investments (e.g., data, technology, manufacturing capacity)
- Product development capabilities
- Sales and marketing activities
- Product implementation and support activities.
Assets and investments
Work backward from the outcomes that you and the partner aim to deliver for clients to catalogue your current theories about the specific assets and investments that each company should contribute to the joint solution.
Keep in mind that the positive attributes of an individual asset should also be tempered with its market value and the availability of substitutes. And, because the joint solution’s cumulative ability to meet customer needs defines its market worth, unique contributions, even if they provide small improvements, may be the key differentiator between the joint solution and a competitor’s offering.
(Our Company, Partner)
(price(s) typically charged to
Potential substitutes; market price of substitute
(estimate of relative value/weight of the asset within the joint solution)
(describe ways in which this asset adds more to the product vs. potential substitutes)
(describe ways in which this asset constrains the value of the product)
Also, transparency into (or even rough estimates of) each partner’s substantial investments required to support the joint solution can enable an on-the-merits conversation about compensation for those investments. (In many cases, it will be more appropriate to address these items through front-loading of revenues to one partner and/or one-time, lump sum payments, rather than a change in the long-term revenue allocations.)
|Owner / Contributor
(Our company, Partner, Joint)
|Joint Solution Component (e.g., hardware, software, hosting services, manufacturing capacity)
|Incremental capital investment required
(outline any substantive investments required to develop or implement this specific product)
Product development, sales and marketing, and product enablement
Map out all the activities related to product development, the sales cycle, and product enablement along with each partner’s relative role and contribution.
|Component of joint solution
|Our company role and relative contribution
|Partner role and relative contribution
e.g., defining specifications, developing a conceptual design, creating and testing a prototype, designing technology infrastructure
|Sales and marketing
e.g., prospecting, sales meetings, contracting, POCs / customer validation, Sales team education & training
Document the high-level benefits and costs of each activity from both partners’ perspective when working internally as this is background that impacts what each company sees as an appropriate financial arrangement
Some factors to consider include: the investment in time and resources that is made to do the work, the extent to which that work relies on unique capabilities at either partner (e.g., does one partner’s product development contribution depend on access to proprietary algorithms that are not easily duplicated or replaced?), as well as the residual benefits that accrue to each company because of the work they are doing (e.g., rights to IP that can be utilized for other purposes).
In some cases, these elements will balance across the different components, having very little net impact on the right financial arrangement between the partners. In other cases, significant contributions from and/or significant ancillary benefits of work substantially affect how costs and revenues ought to be allocated.
You can often summarize the above items in a 1 – 3 page working document that you then file away for future reference. Then, when you run into roadblocks, use this document to quickly diagnose the root cause of your challenge. Has anything changed? If so, what do you see as the implications? How can you most efficiently align leaders on both sides around a new path forward?
1Vantage Partners global benchmarking study completed in 2015, comprising 493 survey responses from individuals representing more than 230 companies, plus interviews and case study analysis.
This piece is part of our Fintech and Financial Services series.