A lot of startups have a hard time acquiring users from scratch. One channel is to access the distribution of others through integrated partnerships. The initial thinking always seems simple:
"Partner XYZ has tens of millions of users! If we can capture only [enter some really small percentage] that would be huge for us!"
It all sounds great, but there are many hidden traps. Traps that I am all too familiar with. I grew one of my previous startups, Viximo (now part of Tapjoy), from 0 to millions of daily active users through partnerships. While that sounds like a success, there were many painful mistakes along the way which I am hoping to help you avoid.
In this post you will learn:
- The benefits of B2B2C partnerships
- The 5 traps you need to watch out for in B2B2C partnerships
- When you should consider a partnership
- How to successfully execute a B2B2C partner strategy
What are B2B2C Partnerships?
I want to take a moment to clarify what I mean by B2B2C partnerships. I am not referring to direct deals to place a sponsored banner, piece of content, or other advertisement that directs users to another site in exchange for money.
For the context of this post, a B2B2C partnership is when you sell to other companies, integrate your product into their product (in some way), in order to reach consumers who are generating the revenue (via ads or some form of payment). Most of these relationships involve a revenue share between the two companies.
- Udemy’s integration with Techcrunch to form CrunchU: http://techcrunch.com/crunchu-course-listing/
- Match.com’s integration with Yahoo to form the Yahoo Dating section: http://yahoo.match.com/
- Quora’s integration with Forbes to display to content: http://www.forbes.com/sites/quora/2012/12/14/is-growth-hacking-nonsense/
- Kayak’s integration with USA Today to power their travel section: http://usatoday.kayak.com/
B2B2C Partnerships Are Attractive On The Surface
Partnerships can be attractive at first glance for two primary reasons:
1. The allure of having immediate access to millions of users with a hope that it leads to a step function increase in users/revenue.
2. Instant credibility of working with big partner [insert company name here] brand.
But before diving in, consider a few things:
The Many Traps In B2B2C Partnerships For Startups
Any company that has a large enough user base to make a partnership worthwhile will always move slower than you or what your company needs. In the early days of a startup, when speed is everything, this can have a very large negative impact.
Partnerships are typically massive distractions. Selling, negotiating, and then building for partners always consume a more resources and time then you originally think. It is a distraction from your focus on building for the end consumer.
3. Loss Of Control Over Your Own Destiny
With B2B2C partnerships you aren’t able to operate on your own schedule. For every decent sized change that impacts the end consumer experience you will need your partners buy-in and be partially reliant on their schedule.
Side Story: At Viximo we once had a partner delay the release of a feature for two months that immediately increased the revenue of the partnership 20%. The reason? They couldn’t decide if they should use an image of a smart phone or feature phone as an icon.
4. Divided Attention Between Two Customers
With restricted resources, serving one customer is hard enough. But in a company that is built off of B2B2C partnerships your resources are divided even further trying to please 2 customers; your business partners and the end consumer.
5. Priority Mismatch
In the eyes of your business partners that have an established business, your company is an experiment. If the partnership fails, the impact on their business is likely small. The impact to your business is likely much larger. What is top priority to you will likely be far from top priority to your partner.
The Right Time To Grow via Partnerships
The allure of access to an instant consumer base, revenue, and credibility can easily shadow the hidden traps. Growing through partnerships becomes a question of when is the right time? Timed well, B2B2C partnerships can accelerate the progress of your company.
The ideal timing is…
1. Post Product Market Fit
I would argue to never consider B2B2C partnerships prior to Product/Market fit. The iteration cycles with these types of partnerships are so slow and resource intensive that they could easily kill your business before you are able to find what works with your end consumer.
2. When You Have Leverage
Leverage is important in limiting the traps listed above. It will help you get the deal done quicker, dictate the integration, and be in control of the relationship. If you have little leverage, be prepared to be yanked around.
3. Low Dependency
Your company is at a stage that if the partnership tanks, it won’t tank your company with it.
Executing B2B2C Partnerships
Getting B2B2C partnerships right is not just about timing, but executing smoothly. When your product is integrated and impacts the user experience for someone else’s customers, the details matter.
There are four stages to executing growth partnerships.
1. Evaluate The Market (Macro Opportunity)
2. Evaluate The Partner (Micro Opportunity)
3. Closing The Deal
5. Post Integration Management
Evaluate The Market
To evaluate the opportunity of growing through partnerships I recommend walking through these questions:
1. Is it repeatable?
Is the type of integration/partnership repeatable across multiple partners? Or is this a one off deal?
2. Is it meaningful at a macro and micro level?
If the partnership is repeatable, how many potential partners are out there? How big are those partners? On a macro scale, what is the size of the opportunity growing through partners? On a micro scale, what is the size of the opportunity for each individual partner in relation to the effort? The best growth people know where their time is best spent.
3. Who is the ideal first customer?
Your first partners are the most important ones. They will set the tone for each additional partner. Don’t start with the largest partner in the market (unless you are going to do a one off exclusive). The ideal first customer is someone that is large enough to provide meaningful impact and credibility, but small and flexible enough that they aren’t going to be a giant pain in the ass to deal with.
4. Why shouldn’t they build it themselves?
In some way shape or form, the most common question you will get in the sales cycle is “Why wouldn’t I do this myself?” Having a very clear answer (backed with data if possible) is essential. You want to take this question off the table as soon as possible. The answer typically involves:
a. It would be too expensive form them to do it themselves
b. It requires resources/expertise that they don’t have in house
c. It would take too long for them to do on their own vs partnering with you
d. You have proprietary content, technology, etc that they can’t get anywhere else
Evaluate The Partner
1. Is it meaningful at a micro level?
In the previous step of evaluating the market, you sized up how meaningful the growth opportunity was at a macro level. On a micro scale, what is the size of the opportunity of the individual partner? Find a metric that helps estimate how much the partnership could produce.
At Viximo we looked at DAU of the site and DAU/MAU. A site that had high MAU’s but low DAU’s (indicative of low engagement) produced poor results.
2. What is their culture?
Do they have a culture that emphasizes design? Engineering? Customer Support? You can typically find this out by poking around their site, reading press about the company, and reading their blog. Certain cultures will likely be better fits for your product. It is also an opportunity to tailor your pitch to match what they care about.
3. What are they like to work with?
High maintenance? Experimental? Try to find other companies that have partnered with them in some way. Contact them to find out what their experience has been so you know what you are in for.
Closing The Deal
1. Tie Your Pitch To Clear Revenue or Savings Numbers
Your pitch needs to easily equate to things that lead to additional revenue or concrete savings for your partner. Bottom line, revenue and cost savings closes deals.
The biggest mistake I see (and have made myself) is selling increased engagement. You are doing yourself a dis-service. Make it obvious for them and show how the increased engagement leads to more revenue.
2. Build Case Studies
After the initial pitch, the first thing a potential partner will ask you for are a few examples of customers. This can be tough. Potential partners will want to see data while none of your existing partners will want to share it. Find a way to anonymize the data. Make sure you have the right to use this data in pitches.
3. Avoid Exclusives
Every smart Business Development executive will ask for an exclusive. You want to avoid any type of exclusive (even if it seems narrow) at all costs. Exclusives are dangerous for two reasons:
a. They limit your growth opportunities
b. The can put hand cuffs on your company in a business environment where either party may evolve in a different direction.
4. Try To Get Money Up Front
You want your partner to have a vested interest in the deal. Otherwise the effort they commit to making it work will be minimal. The best way to make sure they are committed to success of the partnership is get them to pay some money up front for the time you put in for the integration.
5. Integration Deadline
Put an integration deadline in the contract that forces a penalty for not completing the implementation by a certain date. It is easy to lose momentum after a deal is signed. But remember, a signed deal with no implementation is worth nothing.
The most critical part of B2B2C partnerships is the integration. Deals are worthless unless properly integrated. The integration period is also the first time teams from both sides will be working together. This time period early in the relationship sets the tone for the partnership.
1. Make the integration As Easy As Possible
For every extra step required in integration, your chances of signing deals and implementing correctly goes way down. Engineering time is highly guarded as the most constrained and valuable time of any technology company. In addition most larger companies plan their roadmap months in advance. Getting them to change it is extremely tough, nearly impossible, if it requires more then a couple days of engineering time.
To play my own devils advocate, easy integration also has a downside. The easier it is to implement, the easier it is to rip your product out or test you against your competitors. At Viximo during the social gaming boom, numerous CPA offer companies like OfferPal, Sometrics, Gambit, SuperRewards, etc. came onto the market in a very short period of time. Their products were very easy to implement and rip out. Social game developers started to implement 3+ different solutions at once, A/B testing them against each other. The CPA offer market was a race to the bottom as margins in the business started at 50% and dropped below 10% in a matter of months.
2. Build An Implementation Team
Having a dedicated implementation team helps ensure:
a. Implementations don’t get stuck in limbo
b. The relationship gets started on the best terms possible
c. Distraction to your core engineering team is minimized
At Viximo, we had one primary integration manager. He was a cross between being technical enough to dive into code, and the skills to manage the business relationship. At times we also put engineers on site at our partner’s offices as a way to help close deals, and place pressure on the integration time.
3. Visually Plan The Integration
The biggest reason a partnership can fail is that there isn’t a clear understanding of what needs to be done in the integration to produce successful results. Verbalizing details about an implementation is one thing. But people interpret and envision words very differently. Having visual mockups/comps give each party something more concrete to discuss and follow which ultimately decreases implementation time, and increases partner happiness.
Post Implementation Management
Once the implementation is complete, the relationship has just begun. Here are my recommendations to successfully manage the partnership on an ongoing basis:
1. Establish A Point Person On Both Sides
There should be one point person for each party. All communications should either flow or involve that point person otherwise there too much room for confusion.
2. Set Up A Regular Meeting Rhythm
Set up regular meetings with the point person on their side to review progress, goals, and metrics. This accomplishes a few things:
a. Provides a regular outlet for your partner in case they are unhappy with anything. Worst case scenario is that the unhappiness builds to the point where they schedule the conversation to discuss.
b. Allows both parties to batch communications, rather than sending/receiving them piece meal .
c. Keeps the relationship moving forward.
3. Nurture The Partnership
Face time still goes a long way. Do some of your regular meetings in person. Also spend time with the other party outside of work over dinner, drinks, etc. Or, involve your partners in some of your company events.
4. Continue Upselling
Land and expand. Don’t forget to continue up selling your partners to deeper integration, more co-promotions, higher visibility, etc.
5. Eliminate Surprises
Part of the UI going to change? Hour of down time for updates? Account manager changing? All of this is going to happen to happen over time. They might be small changes to you, but always make sure you communicate these changes ahead of time to your partners. Surprises only have the potential to deteriorate the relationship.
I hope you learned something from this post. Subscribe to my email list to get early access to my essays.