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The Proper Care and Feeding of Revenue Partners

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You’ve had a couple dinners and a few phone conversations; there is chemistry and a further relationship looks promising. But, how do you really know if that next step is worth taking? Advanced Internet Technologies has talked to, literally, hundreds of companies about partnership possibilities. By partnerships, I mean the type that produce revenue, not vendor agreements. As the IT industry matures and customer demands evolve, the growth of a services company like AIT depends on our ability to bring greater value to our customers and to develop new sources of revenue; partnerships are an integral component of that strategy. But, how do you really know if the company on the other end of the line will be a good fit?

During AIT’s 8 years, we have refined a methodology for distinguishing between genuine opportunities and inquiries targeted at gaining access to our customer base. To be sure, painful lessons have been learned but one hallmark of a successful company is to not repeat mistakes. The AIT partnership doctrine serves the purpose of 1) minimizing the chances of a bad choice being made and 2) minimizing the damage, just in case. An approach of very healthy skepticism based on experience; not everyone who wants to be your partner is your friend, and not everyone who is your friend makes for a good partner.

Our partnerships are governed by a philosophy called DIRE. Putting DIRE into practice, D is for Dominate, which is less intimidating than it sounds and primarily speaks to value proposition. Does the other company offer name or brand recognition? What sales channels can they help you gain access to?
AIT hosts more than 190,000 business domains, has thousands of Value Added Resellers, and is a two-time Inc 500 company. That means our value propositions include a healthy customer base and robust reseller channel, both of which are constantly searching for additional products and services to offer their customers. Combined, they can act as both customers and sales force for a viable partner. Add to that AIT’s financial and institutional credibility as a serious company, and our firm foothold in a growing industry sector, and you have several powerful selling and negotiating points.

“I” stands for Interest, the ‘so what’ that forms the basis for continued talks. Does the other company know anything about what your business does? Is what the company does complimentary to what you offer? Ideally, you offer related products or services to the same target market. For example, one recently-formed partnership is with a provider of pay-per-click advertising on search engines. There is mutual benefit in working with them: the SE company gains a new customer channel plus AIT co-markets the offering; our customers gain by having access to affordable marketing help for their web sites; and, AIT gains by giving its customers one more reason to remain loyal and by creating a revenue stream that would not have been otherwise realized.

The successful partnership, of course, is the one in which both sides bring something of value, leading to next step: R, for Reciprocity. Is there any aspect of their business that competes with any aspect of yours? Is buying or borrowing the partner’s product/service more cost-efficient that building it yourself? In the perfect world, both businesses are complimentary and you can each sell to the other’s customers. In the semi-perfect world, one of you has something that the other’s customers need and the buyer gets a cut of the revenue. In the world to avoid, a potential partner is too closely aligned to your core business and will likely become a competitor.
One partner offers merchant accounts that online stores use in order to process credit cards, a natural tie-in for AIT to offer its customers who use their web sites to make sales. This company wanted an exclusive agreement, and one that had a non-compete clause in it. It wasn’t long before their repertoire expanded to include hosting, making the non-compete a very dangerous part of the agreement. Eggo, the waffle-maker, recently went into the syrup market, which its own commercials depict as a no-brainer of a decision. Now, imagine that you’re Log Cabin or another syrup maker, and you had a co-marketing arrangement with Eggo. How valuable would that deal now be?

Be wary of any deal points in which ownership of the customer, exclusivity, or length are issues, bringing up “E” for Escape. Is the potential partner in a hurry to close a deal? Is there an upfront or setup cost? Any partnership agreement must have a clause that allows for reasonable termination in case the deal sours, or if cooperation becomes competition. Some years ago, one company dominated domain registration, and mindful of both its monopoly and the coming of de-regulation, this company offered providers like AIT long-term partner agreements. AIT also anticipated de-regulation, and modified its agreement to a month-to-month basis while creating its own accredited domain registration company. That company has since added web design and hosting, making them a direct competitor and confirming the importance of the escape clause.

Partnerships have become a fact of business as companies look for ways of developing new customers and giving existing clients more reasons to stay. They’re also a catalyst for serious self-analysis: being sure of who and what your company is, and equally important, who and what it is not. A little introspection is vital in determining how to responds to current trends and how to be pro-active in planning for what your customers will expect next. So after those initial dinners and late-night phone calls, make sure you follow through with details like due diligence, checking of references, and using the Internet for research. Just as the right partnership can be rewarding, the wrong one can be disastrous.


About the Author

Alex Lekas is the VP / Corporate Communications for AIT http://www.ait.com , a provider of hosting and Internet services to more than 190,000 business domains around the world.

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Article Published/Sorted/Amended on Scopulus 2006-06-05 23:34:37 in Marketing Articles

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