Building a Partner Ecosystem, Part 3: The Business Case for Partnership Development

Partnership development strategy is essential for long-term robust product growth and market expansion.

Having documented some of the vast diversity of potential strategy partnership opportunities a technology company can explore, let’s switch our focus back to building the business case for investing in the development of a partner ecosystem.
In order to understand how essential a partner ecosystem can be to your company’s growth strategy and path to market dominance, it is best to establish a comprehensive framework. This framework will link the benefits each type or category of partners adds to your company’s strategic and operational strength, and allows us to go further to evaluate the business impact each partnership can have and prioritize partnership development efforts.

Advantages of Building a Partner Ecosystem

Obviously, sales and marketing partners can extend your company’s organic distribution systems, significantly reducing market entry and development costs (this is particularly important for businesses that have natural geographical limitations). In many cases, particular sales channels are the ONLY channel through which a technology can be sold to the end customers, which make some partners an indispensable part of a company’s strategy.
Building sales channels and alliances with established, market leading vendors can also have indirect benefits on overall marketing performance, as the partnership gives your company’s brand and product increased exposure in the market, and offers a “halo” of credibility and confidence for the company, itself.
From a competitive strategic perspective, some partnerships are essential as a defense mechanism, as is the case when a partner can either ally with your company or your direct competitor. Locking that partner into an exclusive relationship can circumvent your competitor from exploiting the same benefits, and reduce the direct competitive pressure on the distribution channels.
However, we also have to be cognizant of the reverse effect — when your company gets locked into a partnership (typically with a larger, more established partner) that can prevent the establishment of partnerships with other, more value-adding partners that are competitors to said partner.
Creating an alliance with a market leading player in the market is a soft, common move to position your company for potential acquisition by the partner. The partnership is a way to explore the potential synergies, align go to market strategy, and reduce informational asymmetry, all of which reduce potential future transaction costs and uncertainty when the larger partner considers acquiring the company.
Even if a company is not planning for an early exit through acquisition by a larger player in the market, as the company scales its revenue up, it starts getting into scale-related impediments such as the vastly diverse product and servicing requirements of an increasingly broad customer base, as well as more stringent customization and on-boarding requirements from enterprise customers.
Even pricing of the product vs. the associated services, which are essential in enterprise sales, can be extremely complex and contentious. A sufficiently large, growing technology company also provides a nice signal that there is a good market opportunity, which makes it an attractive target for competitors, both more scrappy startups that are competing from below and predatory adjacent technology vendors who want to get into a new, lucrative market.
Incorporating some of these potential competitors in win-win partnerships can address those operational challenges, assuage the competitive pressure, and strengthen your company’s presence in the market with your products and allied partners.

Benefits of Building a Network of Third-Party Vendors

Building these technology partnerships is just the first step in the more strategic stage of building a network of third-party vendors, ranging from large technology firms to independent software vendors and individual software developers that build products that enhance and extend your company’s current platform. This can potentially transform a best of breed, point solution into a whole comprehensive, flexible platform that has much more market power and resilience.
A network of developers, just like the network of services providers discussed in my previous post on services partners, can be an extremely valuable external asset that gives your technology staying power and a vast source of innovation. A plugged in network of third-party vendors is also a tremendously valuable asset in the consideration of any potential acquirer in an exit scenario.

Going Global

Lastly, given the increasing trends in IT spending growth overseas, technology vendors will have to look ahead and start planning for international expansion if they are to maintain their growth trajectory and ward off global competitors. They will need to cultivate foreign distribution and services partners to develop new markets and navigate the different business and regulatory environments in each of those new geographical locations.
In my next post in this series, I will explore how to research and develop a list of the most important prospective partners in a given market segment.

VP of Finance

Tien-Anh joined UserTesting as the VP of Finance after extensive financial and strategic experience at OpenView Venture Partners, where he was an investor and advisor to a global portfolio of fast-growing enterprise SaaS companies. At UserTesting, he leads the finance, business intelligence and legal teams to provide the operations and resources critical to our mission.
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