Product Partnerships (pt. 1/2)— The Making of a Partnership

I realized the other day that I’ve spent a lot of the last few years building products in partnership with other companies. I’ve led teams that shipped products with Stripe, Hubspot, PayPal, Amazon, BMO, WePay, and Elance; and am currently working on a few more.

Product partnerships bring unique challenges to companies and to the teams executing them. Products built internally are already tough to get right, but products built in partnership are doubly so. If your team is about to embark on one, get ready to stretch.

The reasons are simple: when you build internally, you can build what you want and when users give feedback, you can freely iterate. When you build in partnership, what you build is subject to your partner, and when users give feedback your ability to iterate is hamstrung by the partner’s technical dependencies, capabilities, and differing priorities.

As a PM executing product partnerships, your stakeholder universe will double, and the complexity of execution squares. You now have to consider two sets of users, two company visions, and two product teams in every decision you make (with obvious preference for your own).

In part 1 of this post, we’ll take a high level look at product partnerships: why companies partner, how they form, building alignment, and the politics of partnership.

In part 2, we’ll dive deeper into how a PM should execute on a product partnership.

Why companies partner

One word: acceleration.

Good partnerships arise because they create short cuts for both companies to achieve their goals. It’s close to the classic “win-win”, except that product partnerships need a third win for the customers.

The strategic intent for most partnerships fall into two broad categories, where a company wants to either:

  1. Expand their product into areas that are outside of their core competencies (because those areas are still integral parts of their customers’ workflows)
  2. Tap into distribution from the partner’s customer base (because of its sheer size or because the partner’s customers are a great fit with the company’s product)

Most partnerships will fall into a 2x2 matrix with the above goals on the axes. Here’s a look at that matrix and a few examples.

Stripe and Lyft:

Stripe powers Lyft’s payments. Stripe gets distribution, Lyft gets payment utility outside of it’s core competency. In the long term, Lyft could build its own payment processing and capture more margin, but Stripe defends against that by providing even more utility.

Spotify & Uber:

Spotify users can listen to their music when they take any Uber. This is a great example of trading distribution through a great use case. Almost universally, people like to control the music when they drive, so Spotify becomes the music platform for choice for Uber’s millions of users, and Uber becomes the ride service of choice for Spotify’s millions.

FreshBooks & Hubspot:

After closing a client deal using Hubspot, users can easily invoice their client in Freshbooks. Both companies make their product more valuable for the end-to-end workflow of it’s users without having to leave their core competencies.

IBM & Apple:

Apple kicked off its enterprise mobility program by partnering with IBM to build hundreds of industry specific mobile apps. This is a case of a partnership that drives both distribution and product expansion. It’s out of Apple’s core competency to make good apps for enterprise, and they don’t have the distribution into the enterprise that IBM represents. IBM has the domain expertise to make good apps, but doesn’t have the mobile platform to distribute it.

Regardless of whether the emphasis for the partnership is product expansion or distribution, partnerships that last have one thing in common: they deliver customer utility. Marketing ‘partnerships’ on the other hand, where companies essentially trade customers and cross-sell products, are short term and tactical at best (and aren’t what this post focuses on).

Now we know what types of partnerships tend to succeed, how exactly do they form?

Where partnerships are born

Ideas are cheap, and because of that there are a lot of partnership opportunities out there. It’s quite easy to imagine a fruitful partnership between almost any two companies; with such abundant choice, which ones make it to launch?

In my experience, partnership formation is more opportunistic (right place, right time) rather than strategic. To illustrate this, in no particular order here’s a quick list of things I’ve been a part of:

  • Your exec meets their exec at some event. They hit it off, start pontificating about the future, see a shared vision or culture, and declare “we should do something together, have your team reach out to mine”
  • Their biz dev (BD) person sends an inbound request to discuss and vice-versa and it so happens the other side currently has the bandwidth to talk
  • An employees leaves from one company to the other on good terms and uses their former network to seed a partnership from the inside
  • As a precursor to an acquisition, where the incumbent ‘partner’ is actually doing a stealth interview, and it evolves into just a partnership in the end
  • VCs broker deals with each other on behalf their portfolio companies
  • Company A independently builds app on company B’s platform and there is traction, company B notices it and wants to integrate more tightly.

As you can see, partnership formation is chaotic and heavily relationship driven (as most things are).

I often wondered why has this been the case; why such an organic mechanism instead of intense planning and strategic partnership maps from MBA textbooks? After all, product partnerships can be huge commitments of resources.

I think an analogy lies in the world of dating, before dating apps existed. Back then, even if you knew the qualities of the date you were looking for, finding someone was really hard. You could go to the bar every night, but your chances of finding someone that fit those qualities, liked you back, and was ready to date, was low. It wasn’t surprising then, that most relationships came from introductions from friends and family, who would ‘back-channel’ the needs of both sides, and then match make.

Likewise, partnership formation tends to be organic because finding a partner with the right qualities, who wants to partner with you, and is ready to partner, is low probability.

Partner dating might be tough, but marriage is harder. Now that you’ve found your partner through some serendipitous experience, what’s next?

Building Partnership Alignment

All good partnerships are built on strong, continuous alignment between companies. Alignment means knowing: what each side expects from the other, how important the partnership is to the other’s strategy, which teams will be working on it, and when they can start.

After a partner has expressed interest in working together, book that first meeting (in person if possible) with the sole focus of driving alignment. Here are some questions you can ask to drive it.

Learn about each other to get the right context

  • How did [company] get to where you are today?
  • What is your culture like?
  • What is your vision and how has it changed over time?
  • What are your top strategic goals for the next 12–36 months?

Get very clear on what success looks like

  • (literally) What does success look like to you?
  • Describe a successful phase one product.
  • What metrics would you be looking for?
  • What impact does this need to make to be interesting to you?
  • For those inside [company] that don’t believe in this partnership, what is their rationale?
  • Where could the partnership go if phase 1 is successful?

Gauge their urgency

  • When are you hoping we can launch?
  • We’d love to get started next week (optional), is there a team already ready to work with us?
  • Awesome-conference is in June, should we try to co-launch at that event?

Driving alignment will require more than a single conversation with the partner PM or biz dev person. You need to drive it at many levels: the teams, executive stakeholders, and lawyers on both sides all need to reach a consensus. And he earlier you do this the better. Aligning early ensures a healthy relationship that will prevent blockers, and even partnership deaths down the line. It can also raise the red flags early, preventing a partnership that would have otherwise wasted resources.

Partnership Politics — Big fish, Small fish

Power dynamics are very real in the partnership world. 9 times out of 10, there is a clear big fish and a clear small one, and it’s imperative that you recognize which one you are.

The small fish is friendlier. (Icons c/o FreePik)

The principle dynamic to be aware of is who has more to gain relative to the scale of their company. Find this and you find where the leverage is. Typically, the small fish has much more to gain, and therefore the big fish has most of the leverage.

How to act when you’re the big or small fish is highly situational, but in my experience from being on both sides, there are certain guidelines.

Big fish, small fish guidelines

Same sized fish guidelines

These are the partnerships with the greatest risk of failure because each side believes they’re the big fish and collaboration can take a second seat to hubris. Here are some things to get ready for:

  • Get your negotiating hat on because both sides have equal leverage
  • Invest 10x more in driving alignment on what success looks like and continually remind both sides of the benefits you’re collectively working towards
  • Establish a regular cadence of exec level engagement. You will need high level buy-in to get through the tough times and be able to keep the other side honest
  • Don’t give away your leverage until you’ve received your benefit

How to quickly ruin your partnership

When you’re the big fish — Be a jerk because you have the leverage. This is the biggest mistake you can make, and I’ve seen it happen a lot. You’ve basically got the other side willing to do much more than you to make something happen, and you’re squandering that leverage by gambling that their emotions won’t get the best of them and make them walk away from the partnership out of spite

When you’re the small fish — Let the partnership linger. Go fast and push the other side to launch as soon as you’re ready. They will not have the same urgency as you so you need to drive

When you’re the same sized fish — Let hubris stand in the way of compromise.

You should probably ignore all the above, most of the time

If the above feels overly Machiavellian, your instincts are correct. Most of the time, you should ignore these and just work in full, blissful trust with your partner. This is the right mindset 95% of the time.

However, in almost every partnership I’ve worked on, that 5% always shows up - and that’s when it’s good to be prepared.

The Perfect Product Partnership

When done right, partnerships add a ton of value to both sides. Your company’s willingness to partner and ability to execute them can make a big impact on your trajectory towards achieving your vision.

Remember that at the end of the day, human relationships make partnerships work: invest in building trust, alignment, and empathy with your partner, and you’ll reap the rewards.

If you’re interested in the nuances of executing a partnership as a PM, continue reading Product Partnerships: Part 2 — How to be a Partner PM.

Oh, and Shopify is hiring.