How to develop Strategic Partnerships that work
Most strategic partnerships fail. The often publicly stated reason is that there was some “inequity in resources.” That is rubbish. The private reason is that the potential partners did not have clear role definitions.
Great coaches should be able to help you develop successful strategic partnerships. Sadly, too few coaches have enough expertise to explain the following.
I invite you to adapt and forward this post. This formula works.
Let’s imagine that two consultants agree to partner on a consulting project. They each have something mutually beneficial to contribute. And the net result will exceed whatever they could provide individually. In short, they need one another. They need a formula to define clear role definitions.
Typically there are 3 phases in any consulting project: sales, technology/unique solution, and delivery. (Adapt this formula as you see fit for any project or partnership, but try to keep it simple.) Assume that each phase is worth 1/3 of the total value to the consulting project. If the project is worth $90,000 then the sale is worth 1/3 or $30,000, the technology is worth 1/3 or $30,000, and the delivery is worth 1/3 or $30,000.
Example #1: Assume that Matt brings expertise in sales and delivery. Assume that Doug brings expertise in technology and delivery.
So they agree to the following formula:
Matt provides 80% the sale of $30,000 for a total of $24,000. Matt does not provide any direct value for the technology. Matt provides 50% of $30,000 or $15,000 for the delivery. Matt’s total compensation for the consulting project will be $39,000.
Doug provides 20% of the sale of $30,000 for a total of $6,000. Doug provides 100% of the technology for a total of $30,000. Doug provides 50% of $30,000 or $15,000 for the delivery. Doug’s total compensation for the consulting project will be $51,000.
This formula assumes that each consultant will mutually benefit one another and their client.
Your partnership agreements should also assume that they are beneficial to all parties.
Last week I received a proposal to partner in a new venture. I used this formula in the following manner:
Example #2: Tom brings expertise in sales. Sue brings expertise in delivery. Doug brings expertise in technology.
After due diligence and some realistic fact finding, I proposed the following formula for $300,000 gross revenue in year 1.
Tom provides 80% of the sale of $100,000 for a total of $80,000. Tom provides 10% of the technology value of $100,000 for a total of $10,000. Tom does not provide any direct value for the delivery. Tom’s total compensation for year 1 of this project will be $90,000.
Doug provides 10% of the sale of $100,000 for a total of $10,000. Doug provides 90% of the technology value of $100,000 for a total of $90,000. Doug provides 20% of $100,000 or $20,000 for the delivery. Doug’s total compensation for year 1 of this project will be $120,000.
Sue provides 10% of the sale of $100,000 for a total of $10,000. Sue does not provide any direct value to the technology. Sue provides 80% of $100,000 or $80,000 for the delivery. Sue’s total compensation for year 1 of this project will be $90,000.
Call me if you have any questions about this formula. Or read Alan Weiss’ The Million-Dollar Consulting. He has developed this formula and deserves any credit for its success.
Yes, my clients have used this formula. Yes, I have used this formula.
But most people leap into a business “partnership” without using such a formula. Hence, most businesses fail.
Do not become another statistical failure. Hire a great coach. Today.