How can partnering with other tech companies benefit your business? What are the different types of technology partnerships?
Technology partnerships are mutually beneficial on two fronts: supplying your product and boosting your reputation by association. According to Geoffrey Moore, there are two types of technology partnerships: “strategic” and “tactical” alliances.
We’ll look at both of these concepts below.
Strategic Alliances Versus Tactical Alliances
Technology partnerships are mutually beneficial: you benefit by ensuring that your product is available to your customers, and your partners get new customers without the cost of additional marketing. Partnering with other companies can also help with reputation: securing an alliance with an established, reputable company can give a startup instant credibility with customers.
According to Geoffrey Moore, the author of Crossing the Chasm, there are two primary types of technology partnerships: “strategic” and “tactical” business alliances.
Moore describes a “strategic alliance” as a merger or a formal agreement to engage in large-scale coordination between companies, and cautions that these often seem attractive in theory but don’t work out well in practice. He says they work best between peer companies of similar corporate culture, but even in a best-case scenario, managing them consumes a lot of resources.
By contrast, Moore describes a “tactical alliance” as a simple agreement between companies to cooperate in delivering the whole product to the target customer.
|Alternative View on Strategic Versus Tactical Business Alliances|
Not all authors share Moore’s view on the difference between “strategic” and “tactical” business relationships. Regis McKenna argues that “strategic relationships” with other companies are crucial to the success of high-tech start-ups. In contrast to Moore, he asserts that relationships between small start-ups and large, well-established companies can be particularly beneficial.
McKenna states that “strategic relationships” can take many forms, including joint ventures, equity purchases, agreements to share information or technology, and agreements to manufacture or distribute a product or component. However, he emphasizes that a strategic relationship is not a merger or an acquisition, and asserts that when a large, established company acquires an innovative startup, the merger often kills the startup’s culture of innovation, hindering its development work.
Thus, McKenna’s “strategic relationships” resemble Moore’s “tactical alliances.”
Creating and Maintaining Tactical Alliances
Having warned against “strategic” alliances, Moore goes on to offer advice on creating and maintaining tactical alliances.
When choosing your partners, Moore advises you not to solicit partnerships with companies that would be directly competing with each other. A partner tends to be less willing to cooperate with you if you’re also partnering with their rivals.
(Shortform note: In Good Strategy Bad Strategy, Richard Rumelt argues that the best way to gain an advantage over a competitor is to pit your strength against their weakness. If you look at your alliance from your partner’s point of view, their partnership with you gives them a specific strength, and a rival without that partnership then has a weakness that your partner can exploit. However, if you also partner with that rival, you essentially give a similar strength to the rival, so that, in your partner’s eyes, your partnership is no longer a unique strength. The company partnering with you will then be less motivated and committed to making your partnership work, because their efforts in making it work won’t bring them as much return on their investment.)
According to Moore, it’s crucial that you make sure your alliances benefit all parties, and that the benefits are equitable. In his experience, partners back out if it looks like the partnership would benefit you more than them. However, he also notes that if the partnership favors the other company enough to be equitable, and to motivate productive cooperation, someone at your own company will inevitably think it’s too generous.
(Shortform note: In this situation, you may have to defend the fairness of the terms of the partnership to critics within your own company. In Never Split the Difference, Chris Voss discusses negotiation tactics, including tactics based on the concept of fairness. Voss observes that people’s aversion to unfairness is so strong that it can drive them to make irrational choices or agreements. In this case, though, you could refer to fairness to encourage rational thinking, by arguing that demanding a larger share of the profits might prove demotivating for the partner company, which ultimately will hurt, not help, you.)
Moore also advises you not to rush formalization of your alliances, and to use formalized alliances only as communication channels, not as leverage to enforce coordination. In his view, this promotes mutual trust, which is essential for the alliance to work. He also advises trying to communicate with partner companies at the level of management whose decisions most directly affect your customers. With large companies, this is often the staff at their local sales office, while with small companies, it may be their corporate executives.
|McKenna’s Advice on Maintaining Alliances|
According to McKenna, there are two keys to making corporate alliances, or “strategic relationships” work:
Adequate separation. Both companies retain their autonomy, identity, and culture. He warns that when one company becomes dependent on another, it sets itself up for failure, should the other company eventually decide to switch suppliers.
Adequate communication. There should be a clear understanding up front about objectives, expectations, allocation of responsibilities, and the timeline over which each company will fulfill its responsibilities.
McKenna’s point about adequate separation resonates with Moore’s advice, as well as with his aversion to “strategic alliances” that involve mergers or excessive coordination between companies.
However, McKenna’s point about communication contrasts with Moore’s perspective: Moore cautions not to formalize alliances too soon, while McKenna advises formal delineation of responsibilities up front.
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Like what you just read? Read the rest of the world's best book summary and analysis of Geoffrey Moore's "Crossing the Chasm" at Shortform.
Here's what you'll find in our full Crossing the Chasm summary:
- An explanation of the chasm phenomenon that many new high-tech products face
- How to pilot a product across this chasm to mainstream success
- The problems with the Technology Adoption Life Cycle (TALC) model