The penultimate component – Key Partners – deals with the network of partners that put the Business Model into operation. A partnership is when two business entities form a kind of relationship.
This relationship can be of greater freedom when each side of the alliance can form new partnerships, or of exclusivity, limited to a single partnership and no other concomitant relationship.
Partnerships are developed for a variety of reasons, from optimizing your Business Models, reducing the risk, or acquiring resources. They have become a fundamental part of the other components. Let me, therefore, show you a little more about the Key Partners.
Types of Key Partners
- Strategic alliances: they happen between companies that are not competitors, in an agreement that benefits both sides.
- Co-opetition: happens between competing companies. It helps to divide the risk that both are taking by trying to do something new in the market and can also guarantee some supply that both of them need, to name a few.
- Joint-Ventures: the focus here is to develop a new business, due to the birth of a new market or access to a new area, geographically speaking.
- Buyer-Supplier Relationship: it is the most common type of partnership and aims to ensure reliable supplies. One side gets a quality supplier and the other, a confirmed and recurring buyer.
Motivations for partnerships
Although fairly common, partnerships are not simple. They involve a lot of negotiation and, above that, confidence. However, there are several motivations that encourage the development of Key Partners. In general, they can be divided into three large umbrellas:
Optimization and economy of scale
It is virtually impossible for a company to have all the resources and be able to run alone all the activities on which its business depends. That’s why there are optimization and economy of scale partnerships: to reduce costs, through outsourcing and infrastructure sharing.
Reduction of risk and uncertainty
In a competitive environment that is susceptible to change, it is critical to reducing risk – and partnerships may be capable of doing so. This happens even among competitors, who can come together to create something new and/or protect themselves from the uncertainties of the market.
This was the case, for example, with the development of Blu-Ray technology when a strategic partnership between some of the world’s leading electronics and computer companies was created to share the risk of bringing such advent to the market.
Acquisition of particular resources and activities
Sometimes the company – especially a new business – needs resources, knowledge, and/or licenses, which require high investments of time and/or money. Therefore, it ends up forming a partnership with another organization that already has the processes, information, or structures consolidated for it.
Many new companies choose to start their operations by forming partnerships that give them access to the resources or processes they need, but which they are not yet able to own.
Observations when selecting Key Partners
When evaluating the various Key Partners that your business can avail of, check each one of them based on the following key issues:
- Which partners are essential to our business?
- Who are our main suppliers?
- Which of our suppliers and partners are acquiring our key resources?
- What kind of partner would meet our needs?
- What is the supply chain where I should be located?
Having defined the Key Partners your business requires, then look at the following factors so that these partnerships are developed in a sustainable and beneficial manner:
- Correct and Sustainable Partnership Agreements: It does not matter if your Key Partner will be another company or an individual. It is important that the agreements are clear and offer benefits to both parties. It is important that to do so, they should be prepared together with legal counsel.
- Defined Expectations: To achieve the type of agreement above, it is essential that each entrepreneur openly share his or her expectations for the partnership that is to be formed, in order to avoid conflicts later on.
- Impact on your customers: The larger goal, in having a Key Partner, is to fill a gap in the Value Proposition or Key Resources. Also, evaluate how this partnership will be seen by your Customer Segments.
- Selecting and Suspending Partnerships: Some Key Partners seem interesting and profitable at first, but end up not being successful. If a partnership becomes harmful or even irrelevant, close it as soon as possible.
The Key Partners block refers, in summary, to the network of suppliers and partners that make your business model not only viable but efficient. The reasons for choosing a partner are numerous, and some of them are essential for the success – or failure – of your business.
You can optimize the use of resources, create supply streams, and reduce risk by taking on a partner, especially if you are starting a new business or even venturing into new applications.
However, although your organization may make several successful partnerships with many other entrepreneurs and for numerous reasons, it is important to remember that not all relationships are positive for your business. Therefore, it is necessary to evaluate in advance and carefully before signing any agreements.
And, as it happens in virtually all previous seven blocks, Key Partners can change throughout a company’s life cycle and market variations. Always keep an eye on the Business Model, reviewing it and updating it whenever you need it.