Key insights when thinking about partner agreements and negotiations
By T.C. Doyle
When building a channel program, prepare yourself for an inevitable question from one or more partners: “Are you willing to sign an exclusive deal?”
The question often pops up when you enter a new market and/or when a partner senses a unique sales opportunity that revolves around your product or service. It’s a conversation you should prepare for as you build your partner program, says channel program expert and Tenego Academy president and founder Donagh Kiernan.
Kiernan, a member of the Impartner Channel Chiefs Advisory Board (CCAB), advises clients on how to build partner programs and enable their channel personnel. He advises having conversations about exclusive deals when you begin developing agreements and negotiations for partner contracts*.
Why is pretty straightforward: “Exclusive agreements protect vendors and their partners from either party working with competition for a set period of time,” explains Kiernan. “Exclusivity affords partners the freedom to develop a market without having to worry about a competing reseller, and vendors the assurance that they have a dedicated sales ally who can provide access to a market, build a sales pipeline and speed their time to success.”
Exclusive deals offer both promises and challenges. No matter where you are in your partner-building journey, you’re going to have to consider them at some point. In this article, we examine the pros and cons of exclusive deals, a little business history for perspective, and questions you will want to ask before you move forward with any decisions.
Before we dive in deeper, please note: exclusive agreements don’t have to last forever or be to all or nothing propositions. Also, exclusive arrangement should always be vetted by veteran legal experts as exclusive deals are subject to different if not confusing local and national laws, in many instances.
Understanding exclusivity starts with definitions. You can, for example, define “exclusive” in any way you wish. In general, exclusive deals involve granting a partner sole access to a market as defined by geography, product specialty, company type, customer segment, vertical niche, use case or more. You can also make your “exclusive” more specific, such as a list of named accounts. Again, laws vary from region-to-region, but you get the idea.
When carving up a market, specificity is the key. “Exclusive” can be as simple as a registered deal in a PRM, or as broad as a vertical market such as “government” or geography such as “the UK.” Regardless of what you choose, you will want any definition of “exclusive” to pass the McKinsey & Co. “MECE test.” A territory, sector or niche, for example, should be “mutually exclusive and collectively exhaustive.”
The pros exclusivity? There are many. An exclusive deal can provide you a knowledgeable partner who is dedicated to the success of your products or services. It can also provide instant access to a desired set of customers, plus a local presence and trusted ally in a region or vertical market that you alone don’t have great familiarity with.
On the downside, there are as several cons that may or may not influence your decision making. When you grant a partner an exclusive deal, for example, your sales priorities become subject to the agenda of another company. That may or not work for your organization or strategy. Similarly, your exclusive deal may mean that your sales opportunities are limited to a partner’s existing customer base or tied to its sales savvy. If you sell sophisticated goods and/or services, you become defined by your exclusive partner’s technical acumen or dedication to customer service.
There are also other considerations. Ask yourself: are you willing to grant exclusivity to a partner that represents one of your rivals? How would you respond if a high-performing exclusive partner wants to expand into another market where you already have existing partners? Would you extend its exclusivity? If so, how?
Given the pros and the cons of exclusivity, it’s not surprising that business history includes examples of success and failures of exclusive deals. Apple, for example, signed a deal that made communications giant AT&T the sole carrier for the then-new Apple iPhone. (The deal worked spectacularly.) But a previous exclusive deal involving Apple co-founder and former CEO Steve Jobs failed miserably. That deal, struck in the late 1980s, gave computer reseller Businessland exclusive rights to sell the NeXT computer to educators and students. It was just one of several missteps that doomed the device and, ultimately, the company.
Questions to Consider
If asked for exclusivity, you need to consider several questions before deciding. They include:
- Is the partner sufficiently staffed from both a sales and engineering perspective to handle the demand we expect in a given market?
- Will this partner devote sufficient personnel to our product line?
- Does our technology complement an existing practice of the partner, or will it help launch the partner into a new market adjacency?
- What is the partner’s history in our field of expertise?
- What is the partner’s existing customer base and what percent of our total addressable market (TAM) does this partner comprise?
- Will this partner offer us exclusivity in return for our commitment?
- What is our plan if target objectives or metrics are not met?
- Can we easily exit a deal if it’s not working as hoped?
What to do when things go wrong is an especially important consideration. The problems you encounter with an exclusive deal could run the gamut from very firm (you partner gave business to a competitor) to more squishy (your partner took sides with an end-customer over a contract dispute). At any one time, the calculus of your deal could change when one or more of the following occurs:
- A disruptive innovation is introduced
- Another product or service makes better sense in a particular customer setting
- Another partner comes to fore and offers more promise and/or commitment
- Economic conditions change
If any of these developments occur, change is inevitable.
One last thing: don’t confuse fidelity with loyalty. You might be tempted to grant a partner exclusive rights to a market because of its pledge of fidelity to you. What might make better sense is to enlist the support of loyal partners that are equally capable and dedicated to customers’ success but may represent other brands.
For more thoughts on how best to build your partner program, but sure to check out our series on program building blocks, Channel 101*. In addition, see for yourself how partner automation can help increase your sales by a full third. Sign-up for your Impartner demo today.
Coming next in Part Seven: Partner Program Tiers and Supports Matrix
*The Channel 101 series was produced with insight and information provided by Tenego Academy. Tenego Academy is a Cork, Ireland-based company that provides support to companies wanting to grow their organizations with third-party “channel partners” be they dealers, agents, referral partners, distributors, consultants and more.
Tenego Academy’s 12-part “Build Your Partner Program Like a Global Leader” education program helps companies looking to create, grow and/or optimize a partner program regardless of their size or market focus. No matter where your company is in its channel partner program journey, you will benefit from Tenego Academy’s 12-part program, which covers everything from channel strategy to partner recruitment to automation and more.
T.C. Doyle is the Channel Growth Evangelist at Impartner, the leader in channel management and Partner Relationship Management (PRM) technology. A journalist, book author and analyst, Doyle has worked in media for three decades. As channel evangelist, Doyle produces podcasts, case studies, e-books and more for Impartner. Doyle can be reached at [email protected].