Product Management is already a complicated profession but it certainly can be a very satisfying one; it challenges you in many ways and gives you opportunities to find creative ways to solve problems. And the most successful product managers are ones who continue to grow because of their ability to forge relationships and partnerships along the way. Which brings me to an important yet a seldom-discussed topic…how can product managers grow their revenue, fill gaps in a product portfolio, and deliver customer value through partnerships?
It all depends on how the organizations are structured and if they have a dedicated business development organization. However, the smart product managers are always scouting for opportunities to grow their revenue while providing value to their customers. Product managers have to straddle the line between managing their portfolio and dealing with the market dynamics. Since a product manager is essentially running a business, solving the build-buy-partner conundrum can really make or break a product line.
So, how do you solve the Build-Buy-Partner conundrum? Let’s look at the basic reasons when one considers each option.
One leans towards Building a product or solution because:
- They have superior technology…perhaps it is patentable or the company is a leader in the field.
- The problem they are solving is core to the business and that’s something they have to own.
- Depending on the market segment, there is a need to own the intellectual property.
- In-house strengths or available investment gives a product manager the flexibility to build over time and in an incremental fashion.
Most companies that build are ones who have had tremendous success in innovating. Innovation does not happen suddenly but takes a lot of time and investment. It is also about the culture, the people, processes, and most importantly, access to funds and resources to invest in the required technology.
Why should one consider Buying a solution/company?
- A gap in the portfolio is core to the business and with out it, the long-term viability is questionable.
- The technology is critical to the business and for growth. Sometimes, need for intellectual property is critical to the business.
- It is time critical for the company to own the solution and enter the market quickly with the solution.
- Critical skills may be non-existent in the organization to build it in the time frame it is required to do so.
- Organizations acquire market share by buying an organization/solution. It is critical to get this right because a significant overlap in the two businesses or solutions may not give you the expected return on investment.
Sometimes thought leaders within an organization take a nuanced approach to buying a company. Instead of outright buying a company, there has been a trend within organizations to invest in new organizations through an equity partnership or through product investments. In most circumstances, many junior level product managers do not have this luxury, however, if you are a senior executive, let’s say a VP or SVP of Products, you probably have the authority or luxury to make these investment decisions. This is a great opportunity to get the access to a new company or solution without the risk.
When does Partnership make sense?
The quickest and most efficient way to achieve speed-to-market is to find an appropriate partners that can help you achieve that. Compared to the other two options, partnership allows an organization to:
- Get to the market very quickly. This of course depends on how long it takes to execute on the partnership and the terms/conditions of the arrangement; however, this is normally a win-win situation for customers, partners, and the company.
- Minimize any risk associated with the buying or building.
- Create a compelling market differentiator against competition. In many instances, the partnership is implemented to either fill a gap in the portfolio against the competition or introduce new capabilities in the market.
- Enter specific markets that need a specific functionality. This is an interesting reason because sometimes the cost of buying a solution or building a solution is not a financially feasible option. Therefore, to address a specific market need, a partnership fills that need without significant financial investment.
While partnership is a very good option for many reasons, its success is typically determined by the nature of the partnership, which can take multiple forms.
- Go-To-Market or Marketing Partnership: this typically does not require significant commitments or monetary investments from either organization, but can quickly generate a lot of goodwill and momentum in the market. Depending on the agreement, this normally requires a referral fee from one company to the other for being an exclusive partner or solution.
- Reseller Agreement: This requires Company A to resell a solution from Company B. Compared to a marketing partnership, the terms and conditions are a little more complicated since there is more money involved in this. For example, if company A resells a solution from company B, company B pays company A either a flat fee per sale or a percentage of revenue for that sale. For customers purchasing solution B from company A, the support for the solution is still expected to be fulfilled by company B. In other words, Company B is paying Company A for the privilege of using it as a sales channel. From a customer perspective, typically, company B is still on the hook for supporting the solution/product. From a sales channel perspective, some training is required so that the Company A’s sales teams can better position this to it’s customers.
- OEM Model: This is the most complicated of them all but also has the potential to be the most profitable. In this scenario, Company A licenses the solution/product from Company B and embeds this into it’s own solution. From a customer’s perspective, the functionality is seamless and well integrated into Company A’s product. The financial terms and conditions for this arrangement between the two companies either are based on a revenue share model or a flat fee model. While company A still acts as a sales channel for Company B, the support model for this arrangement is managed by Company A. This also requires significant investment in sales enablement for company A. Since Company A is bearing the risk and cost, the financial agreement, in this situation, is typically in Company A’s favor.
Partnerships are a very efficient way to fill the gaps in the product portfolio that seasoned product managers take advantage of. In fact, I would argue that every product manager should always consider partnerships as an essential component of running a business. Running a business includes the need for a business plan, pricing and packaging, profit/loss of the business, and investing in innovation. The right type of partnership can give a product manager an essential and an effective way to achieve the goals of running a profitable business with a leading market share that provides the necessary value and functionality to the customers. If done right, partnerships can truly help you differentiate your solution in the market and that differentiation can truly help you win against your competitors and give customers what they value.