The Return on Investment from Partnerships

The Return on Investment from Partnerships

  In recent industry reports (e.g., State of Partner Ops and Programs ), researchers found that 77.6% of all organizations and 92.6% of enterprise companies have invested in partner programs. However, the book “The Art of Strategic Partnering: Dancing with Elephants” by Mark Sochan, states that “60-65% of strategic partnerships fail due to misaligned objectives and ROI expectations”.

 If partnering is such a good idea, then why aren’t more companies seeing positive returns from these investments? The answer I have found is that most companies don’t run their partnerships as full-fledged businesses.

 ·         They don’t create joint business/go-to-market plans that the senior executives of each partner monitor and measure regularly.

·         They don’t develop joint business processes designed to optimize the relationship between the partners.

·         They don’t allocate significant resources – human and financial capital – to generate expected returns.

 Siebel Systems was a traditional enterprise software company – it created the Customer Relationship Management (CRM) category – before cloud computing and Software as a Service (SaaS) business models were in vogue. From the beginning of 1996 to 2000, Siebel grew from around $2M in annual revenue to nearly $2B annually. Its largest growth constraint was the lack of implementation resources. So, the company deliberately biased a partner program for Systems Integrators (SI). Siebel won the Forbes Magnetic 50 award for the best high-tech partner program and Harvard Business School wrote a case study featuring its partner strategy. Oracle acquired Siebel Systems for about $6B in 2006.

 C3.ai (NYSE:AI) is a contemporary enterprise software company that uses SaaS and usage-based business models. Its technology innovation includes a “model-driven” architecture that dramatically reduces the complexity, brittleness, and time to build reliable and performant enterprise AI applications. C3.ai’s primary constraint on growth has been CIOs and CTOs who want to build enterprise AI applications “from scratch” by “bolting together” cloud-based microservices (e.g., Kafka, Tensorflow, Cassandra, Spark and others). This approach has led to significant budget and time overruns and a general lack of internally-built and commercially operational enterprise AI applications. As a result, C3.ai tailored its partner strategy to work with Hyperscalers such as AWS, Google Cloud, and Microsoft Azure to help convince companies they would be better served by working with C3.ai and the hyperscaler of their choice to achieve their enterprise AI application objectives. Consequently, C3.ai developed co-marketing, co-selling and training programs to align hyperscalers with C3.ai’s internal and partner go-to-market teams.

 To develop a successful strategic partner strategy, I suggest that you consider two basic issues: 1) How do you remove constraints on growth?, and 2) Which companies can you partner with to reduce those constraints?

 The CEO should always lead the partner strategy development session(s) with the entire executive team in attendance. By doing this, the senior leadership – across all functions –will understand the importance of partners and their role in making it happen. Once you identify your growth constraints and the companies you feel can help you mitigate them, you should be able to quickly develop a target partner list and a strategy to engage them.

 I suggest this is how all companies, private or public, should formulate a partner strategy and partner program: design it so that it has the ability to remove constraints on growth.

 The Role of the CEO

For strategic partnerships, the CEO should always make the initial call and arrange a meeting with the highest-ranking executive possible. This task should never delegated. If the partnership isn’t important enough for the CEO to be involved, it isn’t important. When Siebel and C3.ai were small and relatively unknown, it was more challenging to engage executives of larger companies, so we started lower down in the target partner organization and worked our way up using our initial contact(s) to secure more senior meetings. In some cases, private companies have Board members who can make introductions at the right level in the target partner prospect.

 With larger companies, small companies can be a great “off-balance sheet” R&D option: technology that can help the larger partner defend their market and/or expand into new industries or markets and drive new revenue. For smaller partners, where joint technology/services are complementary, a partnership typically offers both companies the ability to share expensive go-to-market costs (e.g., split the cost of joint marketing and selling campaigns).

 Joint Business & Go-to-Market Plans

For every strategic partnership we entered, we wrote a joint business plan that was reviewed and approved by the senior executives of both companies. We always volunteered to write the business plan so that we were confident it contained the elements we knew were necessary to make the partnership succeed, including joint quarterly and annual revenue goals, target industries, target accounts, and target geographies. By controlling “the pen”, we controlled the partnership dynamics.

 The business plan called out the specific number of joint sales calls our account teams were required to make each quarter and the companies we wanted to meet with. It identified which sales personnel in both companies would be held accountable for these meetings and specified any training – technical or business – required by both sales organizations when the training would be delivered, and by whom.

 The business plan always called for a joint Market Development Fund (MDF) with specific contracted dollar amounts to be spent and funded jointly on agreed-upon programs (e.g., Adword campaigns, podcasts, and webinars featuring both partners). This contractual obligation is critical. You need executives to secure the capital to fund the partnership up front. Otherwise, the go-to-market teams will spend their time “tin cupping” their way through their respective organizations attempting to secure funding for co-marketing programs. In most cases, existing Marketing staff will resist these requests, considering them distracting and dilutive to their budget and objectives. Instead, by having an MDF that the partner teams control, they bring additional capital to the Marketing organizations and are viewed more positively.

 Joint Business Processes

We included a section on Business Governance in each partner business plan. This section formally documented how we mutually agreed to log sales activities (e.g., using a Partner Relationship Management system), capture and share leads between account teams, approve and manage expenditures from the Market Development Fund, perform sales training, generate commission payments, participate in key industry events, and any other business processes required by the partnership.

 One of the most important terms in the Business Governance section was the requirement for the senior executives, from both companies, to agree to meet regularly – this usually meant quarterly – to review the objectives and accomplishments of the partnership. The people from each partner who were assigned to manage the partnership worked with their counterparts in sales, marketing, training, etc. to prepare presentations for the executives discussing where goals had been met, shortfalls had occurred - and remedies for the executives to review and approve or suggest alternatives.

 I cannot overstate the importance of these regular executive meetings to formally review the business objectives of the partnership. People pay attention to where executives invest their time. If the executives of both companies do not make the partnership a priority, then it is more than likely their employees will not either. And executives can quickly make organizational and operational changes – and allocate resources depending upon results. If they do not participate in the partnership reviews, the partnership can quickly stall and the business objectives along with it.

 Partnership Staffing

Another mistake made by most companies is that they hire just a few partner, alliance or business development executives/managers and expect them to manage 10s, 100s or even more “strategic partners” and deliver any significant revenue and/or market share impact.

 In the partnership agreements we created, we designated by name – not just “dedicated” (everyone is dedicated!) the people responsible and accountable for achieving the objectives of the joint business plan. In many cases, we assigned more than one person full-time to each strategic partner. With IBM, we had more than 25 full-time alliance managers. With Accenture, we assigned more than 40 alliance managers around the world to the partnership. These weren’t salespeople – they typically held MBAs from tier-one universities and were chartered to be the “mini CEO” and manage all aspects of the relationship – sales, marketing, tech development, etc. We measured and rewarded our alliance managers (using quarterly and annual bonuses) based upon their ability to achieve the formal objectives stated in each partner business plan.

 One of the side effects of managing these relationships was they required a significant amount of manual reporting and coordination – handling MDF, commission payments, etc. Today, a new category of application software has emerged called “Partner Revenue Operations” or PRO. Used in conjunction with a PRM system, PRO software would have been extremely valuable to our teams.

 Conclusion

The strategic partnerships at Siebel helped to identify and drive nearly $1B of Siebel’s $2B annual revenue before we sold the company to Oracle in 2006. Partners funded nearly all the company’s demand generation activities because Siebel Marketing designed most of its demand generation programs so that they could be executed jointly with a partner. This approach opened a significant amount of budget for pure branding initiatives.

 At C3.ai, using Market Development Funds, strategic partners helped to identify $10Ms in annual contracts, underwrite the development of the Enterprise AI category C3.ai had crafted, and scale so that we could execute a successful IPO. And our partners agreed to let us engage and train 1,000s of their sales resources on our products and services so we would be able to dramatically increase our global sales capacity.

 When we were small private companies and relatively unknown, we “stood on the shoulders of giants” leveraging the brand credibility of our larger partners and able to engage companies that would have been reluctant to work with us had we gone to market on our own. Our partners also brought significant resources to bear that we didn’t have at the time – e.g., marketing, sales, support, and implementation – so we could better achieve our revenue and customer success goals.

 It is never too early to develop a go-to-market strategy that actively engages key companies as strategic partners. However, if you want a significant return on investment from those relationships, you must invest in partner-based infrastructure and processes. The aphorism, “There is no free lunch”, was never more appropriate. 

 About Bruce Cleveland

 Cleveland has been a senior technology executive in Silicon Valley companies such as Apple, C3.ai, Oracle and Siebel Systems where he led engineering, product management, product marketing, corporate marketing and business development functions. Most recently, he served as the Chief Marketing Officer for C3.ai (NYSE: AI) helping the company to successfully create a new category (Enterprise AI) and complete its IPO.  

Over a 15-year period, Cleveland was a general partner in two venture firms. His portfolio of investments consisted primarily of very early-stage startups with little to no product or revenue when he first invested. These include companies such as: C3.ai, Doximity, Marketo, and Vlocity. Each of these companies went on to either a successful IPO or an M&A event with valuations exceeding $1B. 

He is the author of Traversing the Traction Gap a prescriptive guide that helps startups, investors, and product teams in mature companies to go from Ideation to Scale. He teaches the principles in his book from time to time at leading universities such as Stanford and Columbia.

Among many investment and operational functions, Cleveland developed and ran partner programs for Siebel Systems [NASDAQ: SEBL] - acquired by Oracle for $6B in 2006 - and more recently for C3.ai [NYSE:AI] as its CMO when both were small, private companies. Both companies elected to invest in developing and investing in partner programs at an early stage as a key strategy to successfully and cost-effectively scale.

 You can learn more here -  https://tractiongap.criya.ai/ - or contact Cleveland directly at bruce@forzagroup.com .