Strategic Partnerships: Best Practices And Pitfalls To Avoid

Illustration of man shaking hand of woman on monitor.

By Itay Sagie

Strategic partnerships are formidable tools in an entrepreneur’s arsenal, capable of accelerating growth, adding credibility to your offerings, and opening doors to new horizons. However, when mishandled, they can spell the slow decline of your business.

Types of strategic partnerships

As a start, let’s explore the fundamental types of strategic partnerships and their inherent pitfalls:

Product partner: Product partnerships involve a collaboration in which two companies merge their technologies or resources to create an advanced product beneficial to both parties. This type of partnership can yield innovative solutions that neither could achieve independently. A potential pitfall here is intertwining your intellectual property with your partner’s, making it challenging to disentangle in case of an acquisition.

Channel partner or marketing partner: These allies help you expand your market reach by distributing your products or services through their established sales and marketing channels, typically receiving a commission per successful sale. Be cautious of exclusive partnerships, as excessive dependency can stifle your growth, posing risks to future investors and acquirers.

Strategic partner: My favorite kind of partner, strategic partners offer substantial synergy and the potential to reshape your company’s commercial trajectory. Such partnerships can potentially lead to acquisition. In some instances, a large product partner can evolve into a strategic partner over time. However, be mindful that overly publicized partnerships might deter other large strategic partners who don’t wish to bolster their competition.

Common partnership pitfalls

While each strategic partnership type carries its own unique benefits and pitfalls, let’s expand to additional overarching pitfalls to keep in mind:

Overcommitting resources: Entrepreneurs often make the mistake of investing excessive time, money and effort in their strategic partnerships.

While commitment is crucial, it’s equally important to maintain a balance and not put all your resources into a single partnership. Overinvesting can lead to financial strain and divert management attention from other critical aspects of your business.

To avoid this pitfall, establish clear boundaries and allocate resources wisely. Remember, a sustainable partnership should enhance your capabilities, not drain your resources.

Unpaid engagements: It’s common for potential partners to express interest in trying your product or service. While it’s an exciting opportunity, proceed with caution regarding unpaid pilots or engagements. Instead, insist that they pay for your product or service.

This approach contributes to your cash flow and validates the value of your offering. A paid trial and customer demonstrates the commercial viability of your product. It sends a strong signal that your solution is valuable and worthy of investment. So, before embarking on a trial with a potential partner, discuss the financial aspects to ensure it’s a mutually beneficial arrangement.

Legal hazards: Seek expert legal counsel to include rollback clauses in your partnership agreements, allowing for reversals or terminations of the arrangement. This is crucial for potential mergers and acquisitions.

Avoid exclusivity, limit financial exposure through indemnifications, and ensure the partnership does not constrain your growth potential or expose you to unnecessary risks. These legal safeguards can prevent potential roadblocks in your path to growth and acquisition.

Further reading:

Itay Sagie, a guest contributor to Crunchbase News, is a seasoned lecturer and strategic adviser to startups and investors, specializing in strategy, growth and M&A. You can connect with him on LinkedIn for further insights and discussions.

Illustration: Dom Guzman

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