The Chicken & The Pig - The Critical but Elusive Art of Making Strategic Alliances Work
February 10, 2016
Strategic alliances are commonly regarded as critical to the success of small as well as large tech companies. Yet, the failure rate of these initiatives is disturbingly high – some experts claim it to be as high as 80%.
The reasons vary, from misaligned goals to unclear strategy, and from wobbly commitment to poor execution, but what is very clear is that they cost dearly in terms of wasted effort, sunk cost and, worse, opportunity cost.
The remedy is not complex in concept, though interestingly it does require an outsized degree of thought and action leadership, strategic rigor, role clarity, strong governance, and committed execution, particularly on the part of the smaller partner.
“Anybody who has ever worked on a strategic partnership knows about the difficulty and challenges. At one point, I had a team that spent nearly one year just working through the agreement to form a strategic partnership. And forming the partnership actually turned out to be the easy part. Trying to manage and develop the partnership on a daily/weekly basis was much more difficult. .. In a recent study conducted by The CMO Council, 85% of respondents viewed partnerships and alliances as essential or important to their businesses. In today’s more complex world, where expertise is often gained through strategic relationships, this isn’t surprising. However, what was unexpected was that although strategic partnerships were rated as important, almost half reported high failure rates (failure rate of 60% or more).”
– Kimberley Whitler, Why Strategic Alliances Fail: New CMO Report, Oct 20, 2014, Forbes
After thinking long and hard about this rich and troubling topic, I thought it best to treat this article is a tragicomedy in two acts. The tragedy is that so many companies experience profound disappointment with their most critical strategic alliance initiatives despite the acknowledged importance of these undertakings; the comedy, such as it is, lies in the degree to which each party misreads the other’s intentions, misleads their partner, or generally thinks and acts out of emotion rather than reason. The results can be so deflating that if you didn’t laugh you’d have to cry. Act I sets out to describe the problems and their root-causes; Act II attempts to lay out a “playbook” for doing alliances right. My frequent exposure to strategic alliances in tech relates mostly to initiatives between startups, restarts, ‘tweeners, and global players. This experience tells me that the failure rate is probably as high as 90%, if you gauge each initiative against its often ambitious but not always well thought-out goals. Since one fundamental problem is the unfortunate practice of using the term “strategic” too loosely when describing market-focused alliances, I’ll provide a working definition of what a genuine strategic alliance looks like in Act II.
Note to readers: If you feel that “wallowing” in the problem and its causes is not for you, either because (a) you’ve recently experienced this drama and the memory is too raw for you to bear reliving it so soon, or (b) you’re willing to suspend disbelief and prefer to read about how to ensure successful outcomes to joint strategic initiatives, feel free to go straight to Act II.
I’ve chosen the Chicken & Pig theme as the title of this piece because it points to one critical imbalance that is difficult, though not necessarily impossible, to surmount. As former tennis star Martina Navratilova (among many other sources) is reported to have said: “The difference between involvement and commitment is like ham and eggs. The chicken is involved; the pig is committed.” To my mind this quip perfectly describes the predicament faced by every smaller, less established company (let’s call them SmallCo) when they partner with a larger, more established player in the market (BigCo, for our purposes here). Most often SmallCo badly needs the alliance to work in order for them to punch above their weight in the market, so they often commit themselves, or even over-commit themselves, to making it work – at least, that’s how it feels to them. In contrast, BigCo routinely signs partnership agreements with younger companies as part of their normal portfolio management strategy. Keep in mind that major corporations normally have maturing and even declining franchises still generating profits but jeopardized by new models, so they need to find innovative new technologies on which to build new growth businesses. Most of the time, management realizes that they don’t have the entrepreneurial chops or patience to innovate successfully in-house, in terms of germinating material new businesses – especially those that involve new business models. In the B2B world you need look no further than IBM, Oracle, Cisco, SAP, GE, to see what’s happening as a result of the surge of newer cloud-based and mobility-driven technologies and business models marketed by the likes of Salesforce, Workday, Netsuite, AWS, and Apple. Indeed, since BigCo is not yet sure about which “new new thing” is most likely to result in the next billion dollar business for them, they hedge their bets by undertaking “strategic alliances” with a number of different companies in one super-category or in several different categories.
Today this phenomenon is repeating itself all over the market – in mobility, security, analytics, cloud infrastructure, Paas and Saas, and in other hyped categories such as big data and IoT. The alliance craze is also increasingly prevalent in some major niche categories and markets such as healthcare services, environmental health and safety management, and agribusiness tech.
Ironically, the seeds of disappointment are usually sown right at the beginning. For starters, each side wants something different: SmallCo is enamored by the idea of getting on BigCo’s price list, having a much larger sales force to promote its products, and gaining access to BigCo’s installed base; in contrast, BigCo needs to find new sources of innovation in order to build new growth businesses to replace mature or declining product lines. BigCo could acquire its way into promising new categories but generally prefers not to do so until they see some degree of predictable revenue and can determine which new category they most need to commit themselves to. Thus, bigger companies do much of their “future-hedging” in the period between forming one or more “strategic alliance” and deciding to acquire one or more leading players in the product categories and markets that they judge to be most critical for their future growth. Recently, Cisco has been making aggressive acquisitions in IoT and cyber-security, IBM continues to do so in big-data related analytics and security, and SAP has made aggressive acquisitions in cloud-based HRM, e-commerce, and travel and expense management. By way of a slightly different example, Monsanto, a major global player not usually considered to be a tech company (though like ABB, GE, Dupont, and Dow it is increasingly tech-centric), has in the past 3-4 years made acquisitions in sugarcane and breeding technologies, genomics-based pest control, and climate-focused data science.
These contrasting corporate agendas become treacherous as soon as one side treats the new relationship as “going steady” (or getting betrothed) while the other regards it as “dating different people”. So often, SmallCo mis-reads BigCo’s interest, while BigCo prefers not to enlighten SmallCo’s management team about their real objectives, which are often little short of corporate espionage. To cut to the chase: “SmallCo, you’re not dating the prettiest girl/guy in High School, you just know her/him, so don’t get carried away”. That said, another common phenomenon is that BigCo’s alliance team actually does fall in love with the alliance initiative as passionately as SmallCo’s has done. The snag is that their bizdev budgets and resources can be reduced or removed at a moment’s notice, especially if BigCo experiences significant head-winds such as reduced profits, a stock price dip, or a change in leadership.
To aggravate matters, as the initiative gets started one or both sides celebrates the wrong things – for example, loud press releases, expensive trade show exhibits or other marketing boondoggles ahead of making joint calls on prospects or closing deals with new customers – or makes inauthentic statements that an outsider would quickly know not to be true (“we’ve trained BigCo’s sales force and they’re already out selling the product”, or “we’ve identified a hundred-million dollar pipeline in just three months, our sales cycle looks like shortening dramatically”). Also, SmallCo almost always over-estimates the brand value of the alliance (besides, everyone and their uncle is announcing strategic alliances with your favorite BigCo partner, for goodness’ sake!). Worst of all, when things begin to go off track in the partnership – promised resources fail to materialize, major deals take ages to close, or don’t close at all, or financial commitments are not fulfilled – neither partner is willing to walk away even though any impartial observer can see that the writing is on the wall. In the whirl of the early fling between the parties, no one stopped long enough to acknowledge how hard it might be to make the alliance execute on its ambitious objectives. And when either or both alliance teams have toiled indefatigably to make the alliance a success in the market with as yet little or no return, it can ironically feel even harder to call it a day.
The accumulation of disappointments reminds me of remorseful lines from two different songs on Pink Floyd’s 1983 album, The Final Cut:
“You believed in their stories of fame, fortune and glory.
Now you’re lost in a haze of alcohol soft middle age
The pie in the sky turned out to be miles too high.
And you hide, hide, hide,
Behind brown and mild eyes.”
– Pink Floyd, Paranoid Eyes
“Was it you, was it me, did I watch too much TV? Is that a hint of accusation in your eyes?”
– Pink Floyd, Post War Dream
When things do eventually go wrong, recriminations often ensue. Members of the aggrieved team or teams (often both sides have their own disappointments and grievances to deal with) move through the predictable stages of grief – denial, anger, bargaining, depression, and finally acceptance. All because of the Chicken and the Pig syndrome – one party committing resources with great urgency while the other hedges its bets and seems not to share quite the same sense of urgency, is an early predictor of failure. In these SmallCo/BigCo alliances, the size/mass difference between the companies tends to further accentuate the misalignment problem. Besides being in awe of the opportunity to work with its larger partner, SmallCo expects that BigCo can and will allocate resources aplenty to the initiative. They fail to appreciate that even in large companies, resources for new initiatives are never easy to come by, not only in quantity but quality and relevance. For example, BigCo might have a large sales force, but are they product-focused or solution-focused, transactional or consultative, and in any case should we expect that the entire force, or a significant part of it will engage effectively? Furthermore, SmallCo hopes that the executive sponsor in BigCo will streamline BigCo’s less agile decision-making because of the attractiveness of the joint initiative. But (once again) they completely ignore the likely reality that BigCo is, well, dating lots of people. And to put a further nail in the coffin, the bureaucratic and risk-averse culture in BigCo clashes with the entrepreneurial risk-taking mentality of SmallCo’s CEO and management team.
So, what often happens is that the first side to blink quietly withdraws some of the “committed” resources from the joint initiative. Within one to two quarters, the partners are engaged in late-night email and phone squabbles, often talking past each other as they follow their respective agendas. Once the bloom is off the rose it becomes extremely difficult for both sides to resist the temptation to pull all resources off the initiative and go their separate ways.
Unrealistic? Exaggerated? For the vast majority of initiatives, I don’t think so. After two decades of working on strategic alliances for startups as well as major players, I have concluded that if the “pig” in the equation (i.e, SmallCo) doesn’t manage somehow to create a compelling and sustainable case for concerted action in equal measure, the alliance is destined for failure.
Now for the part where we review the playbook for making these fragile undertakings succeed. In light of the considerable odds working against both sides, you’ll see that in most cases SmallCo’s leaders should expect to contribute disproportionately in a few key areas in order to orchestrate the right response from their larger partner. This is in addition to playing their own role to help the alliance gather and sustain momentum on the way to a successful outcome.
First, let’s agree on what exactly qualifies as a strategic alliance: Since the term “strategic alliance” is used so liberally, resulting in misalignment, disappointment and worse, we should agree on a definition. In the context of market-focused alliances, which is our main context here, this is my working definition: Any alliance between two (or sometimes more) partners that is designed to enable both partners to serve one or more sets of target customers differently and better together than they would do separately or via other routes to that target market, and in so doing achieve an increase in revenue, profitability, or valuation that moves the needle for both parties. Moreover, both sides should agree on a timeline to success that typically spans a minimum of four quarters and a maximum of twelve quarters. In other words, no one should expect overnight success from something called “strategic”, which should only apply to something special that at the outset is discontinuous or disruptive, or both. Other more tactical partnering arrangements certainly have their place, but if they’re not strategic in their intended impact and expected timeline, then they should probably be treated and resourced more like standard marketing programs.
Second, SmallCo must from the outset establish itself as an equal partner despite its much smaller size and brand. The most effective way to achieve this is to exert thought and action leadership to build the case for action and shape the strategy and execution plan for the target market initiative. SmallCo needs to neutralize the size difference between the two companies. Since SmallCo is often infinitesimal in size compared to its partner (take any startup vs. Oracle or SAP, for example), it needs to literally punch way above its weight through the quality of its insights on the market opportunity and the differentiation of its offerings. By leading its intended partner to identify a set of highly desirable target customers that is suffering from a painful and unresolved business problem that can only be addressed through the efforts of both companies operating in tandem, SmallCo’s team can command the respect of BigCo’s alliance team and senior management. Leading the horse to water in this way is absolutely vital in order to eventually achieve, in effect, an unnatural level of commitment from BigCo. Keep in mind that BigCo is constantly playing the hedging (or dating) game vis-à-vis a variety of other alliances, some strategic, others tactical, but all demanding their attention. So it’s not natural for them to “over-invest” in one alliance initiative. Playing this outsized leadership role is the only way for SmallCo to correct the initial size imbalance that exists between the partners.
The new joint market strategy needs to specify precisely how the combined whole offer will be differentiated against the alliance’s closest competitors, as well as the core marketing programs that will generate qualified opportunities, the composition and expertise of the joint sales team, the pricing of the alliance’s whole offer, which party will prime each deal (this may vary depending on which company has access to individual prospects or customers, and thus orchestrates the sales process in each case), and how implementation, training, and support will be operated. In a nutshell this strategy definition task requires deeper thinking and more thorough validation before launch than most alliance teams practice today.
Governance, resourcing, enablement, and execution issues that cannot be ignored. SmallCo must ensure that its larger partner provides equivalent resources to contribute to the strategy development process, and throughout the initiative thereafter. Besides taking the initiative to lead the strategy definition process (a critical action in itself), SmallCo’s team has an opportunity to exercise action leadership by defining a proposed governance model for the joint initiative, including whom the team reports to, leadership and reporting structure within the team, how the team will operate on a daily basis, enablement of both partners’ team members through training, sales tools, and on-the-job experience, actual commitment of resources, goals of the initiative, incentives and measurements, and a suitable review cadence with senior management on both sides.
The joint initiative execution team should ideally operate under one leader, reporting to an executive sponsor from each parent organization. It should also be operated as a dedicated core unit on full-time assignment, leveraging virtual contributors from both organizations on an as-needed basis. Furthermore, this temporal joint organization should be granted unusual latitude to achieve its mission. To support the initiative, the SmallCo/BigCo executive sponsors may decide to install a venture-type board to oversee the initiative for its entire duration. SmallCo must remind its larger partner that less is more, and deep is better than broad in terms of resources, activities, and programs. So, less marketing deliverables, focusing on critical ones like relevant customer references, problem/solution-focused white papers, a business-focused diagnostic assessment, a problem/solution based customer journey map. Each of these deliverables should provide depth. This means that conventional marketing collateral and programs such as customer-logo based references, salesy videos and webinars, vendor-generated “value scans”, and product demos, should be de-emphasized. Throughout, each side must assign top-quality performers to the joint sales team, which should always begin in sell-with mode. The sell-through strategy, where sales opportunities for the joint offering are pursued end-to-end by sales teams from one or other of the partner organizations, only becomes a practical proposition once the combined alliance team has refined a repeatable playbook in the course of a dozen or so successful customer engagement cycles, and has proven sales tools and enablement programs to offer.
Goals and incentives to ensure sustained alignment: Continuing the theme of equivalency, the combined team should have equivalent goals and incentives, within the context of the initiative as well as vis-à-vis their respective host organizations. This is a little tricky to pull off but by no means impossible provided that the prize is sufficiently attractive. Both companies should acknowledge that the target market initiative will most likely generate sunk costs before it can produce an exponential, rather than linear, revenue growth curve on its way toward eventual profitability. One way to facilitate this is to assign similar entrepreneurial, contrarian types, to the initiative who will more easily coalesce around entrepreneurial goals, incentives, and compensation. BigCo might think that they have less of these entrepreneurial resources than their younger partner, but in my experience this is not necessarily true, especially in middle management and front-line roles. In any case, the team executing the joint initiative should be empowered to contract and/or hire any critical specialists such as business domain experts or customer success architects that it cannot identify or recruit from within either of the partner organizations.
Accountability and measurement: The joint alliance team should propose target outcomes, including sales and revenue objectives, and interim milestones, such as number of target customers the team will be prospecting, opportunity qualification criteria, committed numbers of active prospects, revenue growth expectations, etc. Key metrics long the way should include number of deals of an agreed size (using a minimum/maximum deal-size guideline for each step on the customer’s Stairway to Heaven), share growth within the target segment, and number and quality of radiating references. Each side should agree a single point of contact to represent their host organization, and executive sponsors from both sides must commit valuable slices of time to the initiative including making sales calls whenever needed. The primary external role of executive sponsors is to operate as visible and committed sponsors in front of prospects and customers, to help open up new opportunities and assure customers about resources wherever needed. Their primary internal role is to ensure that all organizational and resource-related obstacles in their respective organizations be removed whenever the joint team bumps into them. Besides holding the joint team accountable for its achievements and/or short-falls, sponsors should be held accountable for playing their roles effectively, rather than being allowed to not show up as often as promised due to “more pressing” commitments elsewhere.
One Big No-No to Avoid
Above all SmallCo’s team should never consider BigCo to be their customer unless they are an actual end-user for SmallCo’s products and services. This is a trap that I’ve seen countless SmallCo’s fall into. For example, a large wireless carrier might woo a smaller mobile security partner with the promise of licensing SmallCo’s software in large volumes for their millions of consumers and business customers. Almost invariably, these promised volumes are predicated on the alliance succeeding in forming a new market for the carrier’s services, with SmallCo’s offerings embedded in them. This makes BigCo incontrovertibly a channel partner, and thus definitely not an end-customer who will pay for the products or services. Failure to acknowledge this distinction will mean that SmallCo’s management team will wildly over-invest its resources to try to win BigCo carrier’s business, while the carrier lets them do it without as yet investing much of their own resources. Apart from the considerable wasted time and resources, this misguided effort places SmallCo in a vulnerable position, the opposite of the thought- and action-leading one that they should shoot for. In sum, customers are customers and partners are partners, and ne’er the twain shall meet in terms of their distinct roles: one pays to use a product or service, the other contributes resources to help form or penetrate a market.
If burdening the smaller/junior partner (our proverbial Pig) with the obligation to exert way more than its fair share of the thought and action leadership feels unfair, what can I say? It is this way because, at the outset, no matter who propositioned whom, the Pig is more committed than the Chicken. More of their future prosperity is dependent on the success of the initiative than BigCo’s prosperity is. And although SmallCo often goes all in on the relationship, while expecting guidance and resources from BigCo, this is most often a misguided approach. What SmallCo needs to do is act as quarterback, offensive coordinator, and head coach to get the initiative firmly on its way. This leadership is vital to catechize and galvanize BigCo into a sustained level of deep collaboration. This unnatural-seeming obligation also helps to explains largely why high-impact strategic alliances are so hard to pull off. But when they do pan out, lo-and-behold there are at least two winners: the Pig has established themselves in the market and now has a sustainable growth business; and the Chicken has identified a promising growth business to add to their portfolio of nascent to mature offerings. Hopefully, as a result of this same process, customers are winners too because they might never have been made aware of the new offering, or found courage to adopt it, if it weren’t for the combined efforts of the two strategic allies.
Addressing all Pigs (so to speak): Whether your business is a security software startup partnering with a large wireless carrier to help make cyber-communications more secure for their joint customers, or an IoT Saas company combining efforts with a major power and automation multinational to provide sensor-based analytics to enable large industrial businesses to capture real-time insights into engine or machine performance, or even a crop production technology provider joining with a major ag-chem multinational to help farmers increase their crop yields, the traps are the same and the onus on the smaller partner to perform an outrageously smart and tenacious leadership role is essentially the same.