Strategic Partnerships · Revenue sharing

What are the things to consider while discussing about partnership opportunity?

SHARIQUE NISAR Aspiring Entrepreneur | Researcher | Analyst

June 16th, 2016

I have been discussing with a prospect who wants to start on revenue sharing. Although, I have a few queries but wanted to understand from industry experts who might have experienced something like this before.

The client is a product manufacturer.

Scott Ling CEO/Founder @InstantAPI - Investor of time and knowledge to BitAngels - Lean/Agile Mentor

June 16th, 2016

I have sold and setup companies in the past that worked through partner and distributor channels - here are a few points, and notes that may be helpful based on mistakes and things that I and my teams have learnt in the past.

1. ensure that rev. share has positive impact on your bottom line.
2. ensure that your re-sellers/rev shares/affiliates also can make money
3. decide if you will be pro-active with the partner channels you are building and to what level - sales closing, support, training, documentation, etc.
4. do not underestimate the time, and the difference in selling this way - for each re-seller there are some assumptions you have to make until you have verifiable metrics to prove otherwise some of these are - how many units will the partner sell in a Qtr./Year, do they make enough to make it worth while for them and also for the additional costs you will incur.
Also note, that most partners rarely deliver results of value in first 1-2 Qtr's in general, and then you get a burst of activity then it dies down - so how you help and work the partner/channel is key to ensuring a good throughput of sales revenue from that partner
Never be afraid to terminate a partnership agreement if it is not working out, ensure you legals have nice exits for both you and your partner - these also sometimes include IP agreements if you are merging your tech into a product they have.

As I am not aware of the nature of your product - for example if your product becomes part of their product most of point 3 is moot.

point 4. is critical however.

hope the above helps, just did a mind dump here.

Benedek Kiss Chief of Business at Attrecto Zrt. - the largest and coolest smartphone solution provider and developer shop of Hungary

June 18th, 2016

Dear Anita, dear All,

1. answering your question: the total cost will also depend on whom you work with. In the US, on average a smartphone software engineer asks for $80-$150 (or more) per hour, whereas in India this can be as low as $20. Note however, that the service- and code-quality you get from a team in India is not the same as you would get on the West Coast, and also, that there are other regions with good skills, like South America, Central-Eastern Europe or Israel.

2. Reflecting to the others: yes, the size and the complexity of the scope is key in terms of total cost, but it also depends a lot on the team (and its location) you work with. Look for someone with good references, good communications skills, acceptable time zone, and some chemistry of course.

Good luck, let me know if we can help.
Cheers, Benedek

Andy Leventhal Angel Investor, Advisor and Strategy at Leventhal Advisors

June 17th, 2016

I agree with Scott's comments. I don't know what the product is but new partnerships in new categories are always harder than you expect. I would do some solid business planning with the partner to get comfortable with who is committing what resources to ensure success. it is essential you have dedicated resources in sales and or account management, sales engineering if this a technical enterprise product, and possibly technical resources within engineering or product development. Products don't sell themselves.

Kelly Kuhn-Wallace Tech startup consultant, founder coach.

June 19th, 2016

I rarely encourage execs to move forward with true "revenue sharing" agreements when the proposed partner is new to them. It's impossible to develop the mutual trust required to partner successfully over two conference calls and a contract! Instead, start small: create a minimum risk, mutually beneficial condition to test the partnership.

Don't forget to include a success metric. Companies often bleed resources for years to the service of underperforming partnerships.

Depending on how your two businesses are structured, you could agree to a mutual mention/link in marketing material, create a promo code, cross-train one salesperson, etc. See what works, gain experience operationally with the partner, and then build a program to support it.

If we have misread the situation and what's being proposed is not two-way (eg. you can recommend their products to your customers, but not versa), you're actually being asked to generate leads for the manufacturer. If you're being asked to use their product exclusively in the installation of yours, that's close to vertical integration. Lots of nuance depending on the use case.

John FRICS Managing Director at Greenfield Advisors

June 19th, 2016

As we say, "the devil's in the details" on things like this. "Partnership" can mean a lot of things, from a loose marketing arrangement all the way to a formal merger. What exactly does your proposed partner have in mind, structurally?

As a general adage, I'm always enamored by what we call "1 + 1 = 3" relationships.

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