Key partners are the secret sauce to skyrocketing your business success, but who are they and why do they matter so much?
What are Key Partners?
In entrepreneurship, your key partners are the relationships that you build and maintain with other businesses to ensure your business model will be successful.
The most obvious key partnerships are related to your supply chain, but it’s important to remember that most companies can be considered as supply partners, and often are only a small link in a much larger value chain.
We often think of our customers as end-users of our products and services, but in reality, our customers are most often simply the next link in the chain.
To our customers, we are their key partners – meaning without the products or services rendered, they could not produce their output.
Let’s consider buying a new car – there are literally thousands of key partnership relationships that made the car happen.
If you are the car manufacturer, your key partners are the companies that make the tires, rims, and brakes – or even components that come together to build these parts.
Moreover, if you are the tire company, you have key partnerships with rubber suppliers and the steel company that supplies you with the steel cords used to manufacture tires.
Each link in the supply chain has key partners that help the company do what it does, and each link in the supply chain is on the active lookout for new partnerships.
How to Identify Key Partners for Your Business: Types of Partnerships
Key partners are not restricted to just supply chain partners, in fact across a broad spectrum most key partnerships can fall into one of four wider categories:
1. Strategic Alliances between Non-Competitors
As the name implies, this is a strategic partnership between non-competitors.
For example, your business may choose to partner with a manufacturing company to produce a sub-assembly – indeed, the tire company and the car manufacturer are not competitors.
While the car company could choose to be vertically integrated and manufacture its own tires, it is far more efficient to contract with a tire manufacturer to source its tires.
Another great non-competitor strategic alliance was when Edger Thompson, president of the Pennsylvania Railroad, partnered with Andrew Carnegie of Carnegie Steel to create its railroad tracks.
This is the strategic partnership between direct competitors.
For example, consider the energy sector – it is not very efficient for every oil and gas company to try to sway public opinion about fracking.
Instead, many oil and gas producers pooled their money to create a series of public service announcements (PSA) to debunk many of the claims that fracking technology is bad for the environment and is responsible for polluting water supplies.
While the oil and gas companies are in direct competition with each other, that does not mean that they may not have a key partnership with other oil and gas companies to cooperate on some things.
3. Joint Ventures to Develop New Businesses
This is where two companies combine their technology to create a new business.
For example, Google had a robust internet delivery mechanism, while NASA had a defense mapping database with images of the planet – through a joint venture, they created Google Earth.
In another instance, there has been extensive collaboration between Virgin’s Galaxy Space programme and manufacturers of satellites, by providing a solution to the launch needs of satellite operators – they have been able to tap into an extensive source of funding for research and development.
4. Buyer-supplier Relationships
Last but not least is the buyer-supplier relationship.
Key partners in a buyer-supplier relationship can build mutually beneficial and reliable relationships with Porter’s five forces.
There is a bit of a distinction that can be made between a simple supplier and a true partner:
A “supplier” is a company that you choose to provide a needed product or service and is more of a commodity-based provider. Communications with suppliers are primarily one way and can be easily replaced with another supplier if needed.
A “partner” can be a key upstream supplier or downstream customer that has a greater interest in your success. Partners are more engaged in your process and help you provide a better product or service.
Unpacking Key Partnerships: Motivations for Building Partnerships
While the above framework illuminates the plethora of different partnership arrangements a business might engage in, it fails to adequately explain the rationale and motivations that underpin these partnership decisions.
To explore this further, here are three common reasons that motivate building partnerships with other businesses:
1. Optimize expenses
For the small business owner, your key partners are often chosen to optimize expensive capital resources through their economies of scale – enabling you to reduce costs.
For instance, imagine the case of a residential home builder, they’re better served by outsourcing the work of digging the building’s foundation to a dirt-work contractor.
This is because owning their own excavator is not as efficient, based on a lower duty cycle of the asset.
2. Mitigate risk
Other times, key partners are chosen to mitigate risk and uncertainty by transferring it to a partner who is in a better position to handle them.
Such was the case with banks that sold their mortgages to Fannie Mae and Freddie Mac, which then sorted them by risk and sold them as mortgage-backed securities.
3. Unique Resources
Finally, key partners may be chosen based on their unique set of resources or activities – or competitive advantage in the production of such resources or activies.
Take for example when Dodge embarked on a process of building partnerships with diesel manufacturers, finally culminating in production manufacture of Ram’s first diesel trucks with the Cummins engine.
10 Key Partners Examples to Consider
Key partners can vary greatly depending on the nature of the business or project.
Here are a few examples:
- Suppliers and Vendors: For a manufacturing company, key partners might include raw material suppliers and parts vendors. For instance, a smartphone manufacturer relies on suppliers for components like chips, screens, and batteries.
- Distribution Partners: For a company that produces goods, distribution partners such as logistics companies, wholesalers, or retail chains can be key. For example, a small organic food producer might partner with local supermarket chains to distribute its products.
- Technology Partners: For a tech company, this could include software developers, cloud service providers, or hardware manufacturers. A startup developing a new app might partner with cloud computing services like AWS or Azure for their infrastructure needs.
- Strategic Business Alliances: Companies often form strategic alliances with other businesses to expand their market reach or complement their offerings. For instance, an automobile manufacturer might partner with a tech company to develop advanced navigation systems for its vehicles.
- Research and Development Partners: In industries like pharmaceuticals or biotechnology, partnerships with research institutions or universities are vital for innovation. A biotech firm might collaborate with a university lab for cutting-edge research in gene therapy.
- Marketing Partners: For many businesses, marketing agencies or consultants play a key role in developing and executing marketing strategies. A fashion brand might partner with a well-known advertising agency to enhance its brand presence.
- Financial Partners: Banks, venture capitalists, or angel investors are key for businesses needing financial support. A startup might have a venture capital firm as a key partner, providing not just funding but also business expertise and networking opportunities.
- Government and Regulatory Bodies: In certain industries, partnerships with government entities or adherence to regulatory standards are crucial. A renewable energy company, for example, might work closely with government agencies for compliance and to benefit from green energy incentives.
- NGOs and Community Organizations: For businesses focused on social impact or sustainability, partnerships with NGOs or community groups can be key. A company focusing on sustainable agriculture might partner with NGOs that work in environmental conservation.
- Franchise Partners: In a franchise business model, the franchisees are key partners. For example, in the fast-food industry, individual franchise owners operate their outlets but adhere to the company’s standards and practices.
Understanding and nurturing these partnerships is often a critical aspect of a business’s strategy and operational success.
Conclusions and Key Takeaways
Overall, in this deep-dive there has been a comprehensive explanation of the four types of partnerships available to your business and we have explored the various pull-factor motivations that form the basis for these partnerships in the commercial world.
When it comes to analysing the key partners for your business, or even building partnerships for your business, it is imperative to ask yourself the following questions for success:
- Who are your key partners and who are your suppliers?
- Which key resources are you acquiring from key partners and suppliers?
- What key activities do your key partners and suppliers perform?
- Do you know who your key partners are?