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F2F #12: The problem with partnerships

Partnerships are great... for someone else. i guess. Or so I've heard.

F2F #12: The problem with partnerships
Photo by rc.xyz NFT gallery / Unsplash

Looking back to the almost eleven years I've been running MarsBased, I see that I haven't been able to strike any meaningful partnership with pretty much anyone.

Partnerships are complex and require dedication. Through messing up consistently over a decade, I have learnt a few things that I wish I had known ealier on.

Sure, you can find a specific example or situation you've lived that proves I'm wrong in a specific point, Joachim, but I think my points will be generic enough to apply to everyone above a certain company size.

#1: A lot of partnerships are undercover client work

The word partnership, more often than not, hides undercover client work. It is a discount in disguise.

A lot of "in partnership with X" announcements are just "we paid a small fee to X to do this so we didn't have to do it" because, in part, they also pay in exposure.

#2: Partnerships that don't affect P&L aren't worth it

It could be worse than being underpaid. You could be totally unpaid.

No pain, no gain. If you're not paying the other part, you aren't incentivised towards taking any action. Likewise, if the other party isn't seeing any immediate incentive, they will prioritise other areas of work to bring in money into the company, thus abandoning the partnership.

P&L, or Profit and Loss, refers to a financial statement that summarizes a company's revenues, costs, and expenses over a specific period, typically a month, quarter, or year. This statement is crucial for assessing a company's financial performance and health.

This happens a lot in "cross-selling" products or, even worse, "cross-promoting" stuff. We had a fair share of cross-promotion partnerships that brought little to zero money into either party, so of course, you cut your losses early, move on, and never seek to renew it because it was worthless right off the bat.

#3: Don't force partnerships

I have had many cases of failed partnerships with people I liked because I wanted to work with them, so I suggested to partner on a basic level to get the ball rolling.

For instance, I loved Ironhack back in the day. We are a development company and they trained new cohorts of developers. I also liked the guy running Ironhack in Barcelona, my now-good-friend Marc Collado, so we decided to strike up a partnership. We drafted a few basic items to get the ball rolling: cross-promotion of events, discounts in each other's offering and a recurring meeting to brainstorm more things.

Because the partnership was pretty insubstantial - because it was mostly centered around nice-to-haves instead of focusing on core items or KPIs - , it never became our priority #1, so both parties learnt the hard way that the partnership was rubbish.

We were just too impulsive: we wanted to work together at any price but it didn't work.

Luckily, I managed to keep my friendship with Marc alive and invested in one of his companies six years later and now we have been running a joint podcast called Foc a Terra for three years.

#4: Buy first, partner later

Testing the waters with a forced partnership to see if things work out is the worst way of validating the strength of a relationship. Look at the example of Ironhack.

I learnt over the years that it's better to test the waters being a client for a few months, if not years, before actually defining a strategy and partnering up.

Over the years, we've been clients of many micro-agencies like Atico3, Swwweet or CapsuleCorp. After working together in a few projects, we've decided to strike partnerships of reduced price, first priority and other substantial things. In fact, there are plenty of examples out there of companies getting acquired by their biggest client after a few years.

It's a similar advise to "don't become business partners with your friends, become friends with your business partners instead".

In fact, we have had two of our biggest clients approach us to acquire our company in the past. They bought our stuff, saw it was good, and decided they wanted more, but we were not interested in selling.

#5: Your best client is your best partner

We have somehow interiorised that clients are bad because they're evil, greedy, bossy and they complain about everything while demanding low prices.

On the other hand, somehow we have idolised partners as the best company to work shoulder-to-shoulder with, for reasons unknown to me.

For me, partners have mostly been distractions. They get in the way. They require special treatment, special contracts and they can't seem to conform to our way of doing things.

I'd rather take good clients than partners, any day. In fact, I just got off the phone with one of our best clients, historically, a Swedish company called Prototyp.

We started working for them in 2016. They asked how much was our hourly fee. At the time, it was 60 euro per hour, "Fine. We will pay 65.". They wanted to be our best client. In doing so, they turned out to be a great partner. While we've never laid out a partnership contract, we know that they always strive to pay us a higher fee than we request because then we will never be tempted to stop working for them to take a higher-paying client.

In fact...

#6: Most partnerships are self-destructive

It is well known that when you work for a certain supermarket brand in Spain, as a provider of food, they sell you the idea of increasing your revenue drastically. They start buying massive amounts of your product so you scale up your business to incredible levels.

However, you're doomed: you've become their slave. In most of the cases, they become your largest customer and you end up having a dramatic dependency on them. It becomes worse when they demand you to lower your prices and you're force to do it because they're 90% of your revenues.

I understand that, like in every contract, there are trade-offs. We used to offer discounts on our hourly rates in exchange for longer contracts.

For instance, we'd do 60€/h on a regular rate, or 57€/h for 6 months of contract of 55€/h for 12 months (numbers are orientative). That's fair.

However, we found out that sometimes clients would end the contract before that and we never got to claim the price difference.

That's why it's unfair to give discounts upfront.

We also terminated our relationship with NTT Data because they changed their outsourcing contracts and demanded a mandatory rappel and a substantial reduction to our hourly fee in exchange for their big volumes of work.

A rappel clause, also known as a rebate or volume discount clause, is a provision that outlines a special type of discount granted to a customer based on the volume of business conducted over a predefined period1. This clause is designed to incentivize larger purchases and foster long-term business relationships.

Thanks but no thanks.

Help the other partner to grow and you will grow with them. Otherwise it's a bad partnership.

#7: Partnerships contracts are a snapshot

But they shouldn't.

Partnership contracts - and, heck, contracts in general - should be a living thing. Most contracts are a snapshot of where we're at right now.

While most people are willing to renew contracts, particularly if things work out great, it's very difficult to change clauses or provisions because it's as painful as drafting a new contract: it has to undergo legal review again, get approvals by X amount of committees, and require one fuckload of signatures by big bosses.

To avoid that, try forecasting where you want to be, instead of signing only the current status of the relationship. Snapshots will anchor you to one stage of the relationship.

Try describing potential scenarios of growth and how the margins will fluctuate following increases/decreases and try to be as accurate and flexible possible around likely scenarios in the future - particularly the optimistic ones so the contract cannot cap your growth.

To be on the safe side, you might want to include the equivalent of a stop loss, but that's usually covered by the severance clauses in any standard contract.

#8: Don't fall for the big name

Most bigger companies will lure you into partnering with them with even bigger promises of revenue share, client leads and whatnot.

What they don't tell you is that they have signed the very same agreement with hundreds of similar companies. You're just a number to them.

You can smell these contracts from afar: why would Amazon Web Services partner with a 20-people company like us? Or Shopify? They don't need your business specifically. They need 200 like yours, so you're just another pebble on the beach.

Another way to discover asymmetrical deals is to find out who's the person you're talking to. If you're the CEO, demand to talk to the CEO through the entire process. If they bait and switch, delegating to an associate, you've fallen for it: you're small fish.

In short, I've done it again: I haven't been able to give you a solution, but I've listed the problems, so maybe you can identify them as well. I hope it's useful anyways.

And now, onto the update part!

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