This article appears in Customer Think online.
So, your team has found the perfect, looks-great-on-paper strategic partner for your next business venture. Before rushing in, ask yourself: Remember Kraft and Starbucks?
That collaboration appeared to make a lot of sense too at first, back in 1998. Kraft, a major food manufacturer, had all the resources to distribute Starbucks packaged coffee to grocery stores across the country. Then, in 2010, Starbucks wanted to expand into the single-serve, K-cup coffee business, but the contract with Kraft prevented Starbucks from doing so.
So Starbucks sought to get out of the contract – eventually paying Kraft $2.75 billion.
And so it goes for many seemingly perfect business partnerships. Each year, millions of corporate alliances are forged with carefully selected partners that possess the expertise, talent and brand appeal to bring a project to life. But do they first meet certain metrics that provide the insights into the value they derive?
Evidently, many businesses fail to evaluate such measures beforehand: Half to 80% of all business partnerships fail in the first few years, according to the Harvard Business Review.
So, ask yourself: Is this worth a billion dollars?
The “yours, mine, ours” revenue effect. Let’s start with the top line, in two parts. First, analyze the revenue composition of your partner’s products on their own; then of those products combined with your own (the multiplying effect). You’ll need the following measures: your partner’s historical and seasonal sales data; typical sales cycles (how long it takes for customers to purchase and repeat); risks of cannibalism from the combined products; and test-market analyses. Factor in external influences such as inflation and interest rates. Microsoft is a great example of the multiplying effect: More than 95% of Microsoft’s 2021 commercial revenue came from its network of partners – 300,000 in all.
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