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Be smart about partnerships

One of the most important elements we came to learn as a business was to be an expert at what you do, and stand on the shoulders of others who are experts in areas you are not. Chad and I learned that with each other...he was an excellent programmer who had trouble with the business end, and I was business-minded but couldn’t create the first line of code. However, over time we learned that concept was also important when applied between businesses.

Business partnerships can be a good thing, but the truly great ones are tough to come by. They need to be symbiotic, that is, a 1+1=3 relationship. A “partnership” where you’re asking someone to promote your product, or someone is asking you to promote their product, usually don’t really work, because the time spent promoting someone else for a revenue share is usually time better spent simply promoting your own product. It’ll look nice to put their logo on your website’s “Partnerships” page, but the pizzazz dies down in time if it really doesn’t generate for both parties.

A client of mine had one truly great partnership among the eight or so he established. The agreement called for him to close leads that came from another business who managed a closely-held email opt-in list that he had established over ten years. The other company had a weekly email blast that looked like a New York Times newspaper layout, and it was very well received. He charged for the headlining slots, and my client cracked a deal with him: If he didn’t sell his headlining slot, put my client’s ad in there, add a lead tracker, and my client would close them to the tune of a 15% recurring commission for the other company. My client committed to him that if by chance they happened to be independently courting a client who appeared on his lead list, he’d attribute the lead to his revenue share. It was a great deal for everyone. The other firm filled my client into a top slot he didn’t sell that week, didn’t have to do a thing regarding sales, and earned 15% in perpetuity from my client’s SaaS model. My client received leads for a fraction of the price of his direct sales team.

Something occurred to me just as he was about to sign this agreement, something that I've since realized is a giant problem seen often in revenue-share agreements, especially if they’re based on recurring sales. What happens if my client sells the business to either a) a competitor of his current partner or b) someone who simply doesn't want the deal anymore? I realized he needed a parachute out of the deal that was fair to both him and his partner in the event of a) or b). I literally ran into his office and told him not to sign the agreement as is, and that we had an important amendment we had to add. My client and I worked on an intricate formula that gave any potential acquirer a choice to keep the deal as is or pay the other company a multiple of monthly revenues. We presented this to the entire partnership, tweaked numbers until everyone was comfortable, and signed an amendment to the original deal. Glove save.

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