#34: (Re-sent): JVs, Channel Partnerships, and Growth Tactics (Part 1)
A high-level primer on joint ventures, channel partnerships, tactics to make them work well, and cautionary points before pursuing them.
**The prior version of this letter sent with a weird typo thanks likely to crappy airplane internet**
“Can you believe they scaled from $200k to ~$5m in less than 18 months?”
Usually when I hear quotes like this — and boy do I hear them oddly frequently — I call bullshit. It is enormously difficult and unlikely to actually scale a revenue base like this, and yet it happens. How do companies do this? This letter will start answering how it happens. I’ll plan to write Part 2 at some point in the next few months, but for now…
Section 1: Two pathways to growth (customer-solution fit; JVs & partnerships)
Section 2: Definitions of Joint Ventures and Channel Partnerships
Section 3: How to Drive Success in JVs and Partnerships
Section 4: Bottom-Line Takeaways + Partnerships Aren’t A Magical Cure for Fundamental Product Problems
**Section 1:**
There are so many pathways to this kind of growth, but I want to highlight two in particular.
1. At the customer problem level, this can happen when a team gains a crystal clear view of an as-yet-unsolved issue for a potential customers, and then delivers a solution that delivers such quick and repeatable benefit (value) that they are willing to pay for it over and over again. **Customer and solution fit**
2. At the go-to-market level, this can happen when you uncover another company that somehow enhances either your product’s value, your ability to gain customer attention + access, usage or (ideally) both. **The Partnerships function** is a powerful way to leverage an ecosystem around your company to drive growth
But critically, a Partnerships function without a compelling underlying product isn’t going to drive growth. The two must exist simultaneously and inextricably (weird grammar here, but go with it)
**Section 2:**
Over the years, I have definitely conflated “joint ventures” with “channel partnerships.” Frankly, the two terms are interchangeable to many people, but I do not view them as the same thing.
Note: If you’re newer to these disciplines, read this section. If you already know it, skip to the next section.
Joint Ventures are the most intense form of partnership. In a joint venture, a company might have resources from every major corporate function (product, engineering, sales, marketing, legal, finance, IT, people, etc.) engaged tightly together. Many Joint Ventures feature two distinct companies allocating large sets of people to work on a new endeavor full-time. Example: two cell phone carriers establishing an independent corporate entity to provide a targeted cell phone service to a specific market. Maybe they don’t want to take on all the risk themselves, so they spread the risk (AND gain expertise) by partnering with another company that is also interested in capturing a part of a market.
Channel Partnerships are a actively managed collaborations between two (or more!) organizations. A company can have many channel partnerships, and doesn’t *necessarily* dedicate meaningful FTE (full time employee) time to each partnership.
An example of a channel partnership is when one company, let’s call them Spiller & Co., produces a coffee management software platform. The coffee platform they’ve produced is loved by the customers they have, but they don’t have the funds or expertise on staff to effectively market and service their platform over time. What do they do to grow?
They “partner” with a software reseller, Maven Inc., that has relationships with many coffee and tea companies around the world. Spiller & Co. provide the software at a discount to the public price of their software ($10 per user per month for Maven instead of the typical $20 per user per month, pupm). So, for every license that Maven sells to their wide network of customers, they will keep the difference. To drive sales volume, Maven offers the software at $18 pupm to their top customers, and therefore keep $8 pupm. Which means if they successful can sell Spiller’s software to, say, 20 companies who collectively have 50,000 users, that’s:
500k per month in revenue for Spiller & Co., and
400k per month in revenue for Maven & Co.
Together, these two companies collectively generate $900k in revenue every month, or ~$11m per year…and software tends to have very high margins (the money you sell the product for minus the money it took to develop the product and get it to market), which translates into higher net income (in accounting parlance it “flows to the bottom (line)”)
In some cases, Spiller & Co. might pursue partnerships that are more about Servicing customers versus selling software, because maybe S&C only has money to hire one sales person and one customer service person per year, but they ***want*** the power of an entire field force of sales and service people… **Instead of taking all that risk of hiring your own people,** companies oftentimes choose to setup a partnership with another service provider to supplement their own on-staff capabilities
Example: Spiller & Co. sells software to customers, **but** the customer wants to have more intensive technical support for all of their employees who will use the product. Said customer is willing to pay $200k to have on-demand technical support from a dedicated team. But Spiller doesn’t have this team on staff… so they sell to the customer alongside an IT support consulting firm. **Spiller sells software, but they provide a business opportunity for a consulting firm to make some $$, and the customer gets what they want**
(If you think I got any of this wrong, please leave a comment letting me know! I’ve worked in the space for a while, both in a manufacturing products and software product context, but continue to sharpen my understanding every day)
**Section 3:**
What Drives Successful JVs and Channel Partnerships?
So, you get the fundamentals of JVs and Channel Partnerships, but what do you do to make it a winning part of your business strategy? I’m going to share a first draft of some takeaways I’ve gleaned from spending a lot of time in this space over the years (although, to be clear, I’m still learning A LOT here; friends of mine like Ty Lingley, Ally.io’s Head of Partnerships and one of our Partner leaders at my current organization can go far deeper than I can!).
Take the time to agree to this being a priority for both businesses, and get specific on how many resources will be invested by each party (“give-gets”)
Co-develop clear objectives and metrics, and schedule review meetings well into the future where all key people will meet, review process, and make necessary changes
Take the time to map out and segment where a product or service will be sold, and then invest the time to tailor your value points / story to speak to each segment
Make sure to invest time in market / customer research. Markets move fast, and JVs/partnerships of any kind can’t just architect a shared value prop / go-to-market plan once and then walk away. It needs to be iterated on to ensure how they’re going to market reflects the realities of the times
For JVs in particular, it can be helpful to sometimes set a target duration for the venture. Not all business collaborations are meant to be a forever thing. I’ve seen several cases where companies do a “3-year partnership to develop X product/IP and learn about a new space)
Do not skimp on legal cleanliness — make sure you involve your respective legal counsel to craft documented agreements and be crystal clear on things like revenue share
Make sure incentives are aligned to drive attention and ingenuity on both sides of the partnership. This typically means incentivizing members of a sales force going out to talk to customers, and it typically means that rewards kick in when the partnership drives a certain amount of revenue or product usage
A trend over the last five years in particular has been to focus on end-product usage and not just revenue. There are hundreds of articles on this, and over the last decade of my career ***usage*** has always been a very important metric of success
I’ll add more / correct myself in six months when I write about this again :)
**Section 4:**
So, back to fast growth. What’s the takeaway here?
To quickly gain access to and engagement with a wider set of customers than you currently have access to, consider investing in channel partnerships. Like anything else in life, you have to do your diligence to make sure to find the right partners. Not all channel partnerships are created equal
Joint ventures tend to be a more intensive commitment and usually aren’t the answer to fast growth; they can, however, be a powerful way to enter an altogether new market. **Oftentimes, JVs are a precursor to a merger or acquisition — it gives you a chance to almost “test drive” what it’s like working with a team or organization**
It’s critical to set clear objectives and metrics (key results) for your partnership, and to establish management mechanisms (steering committees, monthly check-ins, strategy refinement workshops, etc.) to help make sure your organizations are progressing towards achieving goals
Don’t do a “set it and forget it” motion with your shared goals — refine them, and make sure to bring in real, validated learning from customers and the market to adjust how you go to market together
Most business leaders I know are ultimately focused on two near-term objectives: customer acquisition and revenue. So many of us (myself included!) are fighting this battle day in and day out. It usually feels like a slog, because it is one, but it doesn’t always have to be so freaking hard. I have found both JVs and Channel Partnerships to be a way to drive faster growth, and as a way to learn about many different sub-markets (geography, types of customers and their needs) at a very fast pace, all while getting more people onto the same team, rowing in the same direction. Especially for younger companies, this can be a critical lifeline in the pursuit of early wins. But as a closing note to Part 1 here, just because these pathways exist, doesn’t mean they’re a magic bullet for growth.
They are NOT a magic bullet, and to make it work it you need to prioritize it, which means investing time (which means not investing time elsewhere). You also needs to have a core/fundamental product that is ready to be adopted “at scale.” Which leads me to the final point: many companies would be better served by getting to know their customers more deeply, and carefully refining their product development and baseline sales & marketing capabilities than going through channel partners or JVs. My perspective on when to pursue one of these paths versus looking more inward for growth is coming in Part 2, because candidly I’m still answering that question myself!
If you have any perspectives or good reading on this, I’d love to hear it. I am always curious, and always learning.