Key Partnerships

Key Partnerships - Some activities are outsourced and some are acquired outside the enterprise. Key partners are the organizations and people needed to accomplish delivering the value proposition to customers.

Businesses do not need to be good at everything, they just need to know people who are.

Companies forge partnerships for many reasons , and partnerships are becoming a cornerstone of many business models. Companies create alliances to optimize their business models, reduce risk, or acquire resources.

• Who are our Key Partners?
• Who are our key suppliers?
• Which Key Resources are we acquiring from partners?
• Which Key Activities do partners perform?

Key partners often provide capabilities, products, or services that the startup either can't or would prefer not to develop itself. Think about Apple trying to sell the iPod without the record labels producing the music content. The partners literally made the business model revolutionary and made the iPod more than an MP3 player.

The key partners hypothesis names the essential partners your company will require, along with the "value exchange" with each one (as in "we give them money, they send us customers").

Apple's iTunes Music Store, which opened 10 years ago this Sunday, exists for one major reason: Napster.

By late 2002, the file-sharing service that had peaked with 80 million users was no longer in business. The Recording Industry Association of America had sued the company successfully for copyright infringement, and the courts forced Napster to shut down. But the power of Napster would live on for years afterward, as more sophisticated, harder-to-kill copycats, from Kazaa to LimeWire to BitTorrent, began to take its place.

The world's biggest record labels, fearing the power these services gave to consumers, did everything they could to virtually "lock" CDs and online music files, using watermarks and other digital rights management, so they wouldn't spread like free MP3s.

Steve Jobs, Apple's founder and chief executive, saw Napster, MP3s and the Internet a different way. By late 2002, he believed music fans clearly wanted to download songs they liked in an affordable and easy way rather than driving to Tower or Best Buy or some indie record store to buy them on $15-to-$18 CDs. But during this period, the record industry had no affordable, easy and legal option allowing this to happen.

He began to contact executives at the major record labels, some of whom were arriving at the same conclusion: music downloading could be piracy, sure, but it was also impossible to ignore, a crucial new way of doing business. Jobs arrived at Warner and showed Vidich and a small group of Warner employees a beta version of iTunes. "It was going to be their storefront, the first thing that consumers saw," says Vidich, today an advisor and board member for several tech companies, including ReverbNation. "I remember thinking, 'This is so simple. It works. It's great.'

In the long run, Warner became the first partner for Apple. Without this partnership, Apple would not be the company we know today.

Source: http://www.rollingstone.com/music/news/itunes-10th-anniversary-how-steve-jobs-turned-the-industry-upside-down-20130426

1. Strategic Alliance - Partnership between non-competitors.

Strategic alliances can often shorten the list of things your startup needs to build or provide to offer a complete product or service. For physical products, alliance partners might provide product training, installation or service, peripherals or accessories, whether they're sold under your startup's brand name or not. Alliances can also be used to broaden a startup's footprint, making its product more available in geographies where the startup itself can't support sales or service.

Example: Starbucks agreement with Barnes and Noble is the most notable strategic alliance you would be aware of. Starbucks provides the training and coffee for Barnes and Noble who increases Starbucks footprint.

2. Joint Ventures - Partnership to develop new business.

Generally happen later in a startup's life, but can be important once the startup has established its own identity and brand. Dell and HP sell lots of software and products made by others, but seldom do so until they're confident the product has significant consumer demand. Think of these as longer-term opportunities to investigate as part of your customer discovery process.

Example:Google TV is a great example of Joint Venture. Unfortunately, Google TV has been largely unsuccessful but remains a Joint Venture none-the-less. Google created software to make TVs become smart while Logitech and Sony built the hardware.

Windows and Intel. Windows builds CPs that need chips to help run the computers software. Intel provides chips in partnership with Windows to alleviate Windows needing to develop their own chips.

3. Coopetition - Strategic Partnership between competitors.

Similarly happens later in a startup's life, as a rule. It's a form of working with a direct competitor to share costs or market together. New York City's "fashion week" is a good example of coopetition to coordinate fashion show schedules so they top buyers can attend all the key showings.

Hulu is a great example of coopetition. Hulu is network TVs attempt to compete with other streaming services on Netflix and Amazon. Hulu makes regular TV content accessible at any time. The company is jointly owned by the following:

• Disney - 30%
• Fox - 30%
• Comcast - 30%
• Time Warner - 10%

Why would the networks get together? 1. This gives each network another revenue stream. 2. It makes their branded content more accessible.

College Football's bowl system is the best example of why competitors make agreements to work in partnership. To understand this concept, you need one basic knowledge base. What's better than 5 competitors? The answer is 4 competitors. What's better than 4 competitors? The answer is 3 competitors and so on.

The following conferences are guaranteed their champion gets to play in the following bowls no matter what their record is:

• Atlantic Coast Conference (Orange Bowl)
• Big 12 Conference (Fiesta Bowl)
• Big Ten Conference (Rose Bowl)
• Pacific-12 Conference (Rose Bowl)
• Southeastern Conference (Sugar Bowl)

This coopetition guarantees that non-major schools have a very tough time getting into the bowl championship series and ensure the major conferences always have a team in the game.

4.Buyer-Supplier Relationships - Partnership between supplier who produce parts to a buyer who builds the end good.

These can mean life or death for a startup. Imagine how tough it would be to churn out millions of iPhones without Foxconn, the massive Apple manufacturing partner in China, or to make Ben & Jerry's famed Cherry Garcia without an uninterrupted supply of delicious cherries. Suppliers can be instrumental to any company's success, but tight, flexible partnerships can be absolutely critical. Many startups outsource a variety of "back office" functions, ranging from warehousing and fulfillment of physical goods to HR, payroll, benefits and accounting. These outsource suppliers act as extensions of the company that leverage the suppliers' expertise to improve the startup's efficiency and cost structure.

Example: Foxconn produces the nuts and bolts for the iPhone.

5. Traffic Partners - Partnership to drive traffic to another business from your existing client list.

Traffic Partners deliver people to websites and mobile apps several ways:

• on a "cross referral," or swapping, basis
• on a paid-per-referral basis
• by using textlinks, on-site promotions and ads on the referring site
• by exchanging e-mail lists

Example:

• Zynga, the online gaming juggernaut, is overwhelming dependent on its partnership with Facebook, the only place where Zynga's popular Farmville and other games are played. Without the partnership, Zynga would have little traffic or revenue.
• YouTube got much of its early traffic through a partnership with Google, so much so that Google bought the company
• Salesforce.com drives traffic and revenue to web/mobile sales CRM applications through its AppExchange
• Mobile apps get much of their traffic from dot.com partners

1.Optimization and Economies of Scale

The most basic form of partnership or buyer-supplier relationship is designed to optimize the allocation of resources and activities. It is illogical for a company to own all resources or perform every activity itself. Optimization and economy of scale partnerships are usually formed to reduce costs, and often involve outsourcing or sharing infrastructure.

Example: Ram is a truck line produced by Chrysler. Most heavy duty trucks come with a Diesel option and Ram decided to use Cummins Corp for their Diesel engines. Cummins is widely considered the leaders in diesel and clean engine technology. Ram realized it was cheaper to use a proven engine rather than develop their own.

2. Reduction of Risk and Uncertainty

Partnerships can help reduce risk in a competitive environment characterized by uncertainty. It is not unusual for competitors to form a strategic alliance in one area while competing in another.

Example: Blu-ray is an optical disc format jointly developed by a group of the world’s leading consumer electronics, personal computer, and media manufacturers. The group cooperated to bring Blu-ray technology to market, yet individual members compete in selling their own Blu-ray products.

3. Acquisition of Resources and Activities

Few companies own all the resources or perform all the activities described by their business models. Rather, they extend their own capabilities by relying on other firms to furnish particular resources or perform certain activities. Such partnerships can be motivated by needs to acquire knowledge, licenses, or access to customers.

Vocabulary

• Key Partnerships