08
Key Partners in Business Model Canvas
© Entrepreneurial Insights based on the concept of Alex
Osterwalder
In this section, you
will learn about the next building block in the Business
Model Canvaswhich is Key Partners (or Key Partnerships) that an entrepreneur
needs to have to perform its key activities and ultimately provide its value
proposition to its customer segment.
We will look at
1) key partnerships, 2) types of partners, 3) motivation behind
partnerships, 4)key partners and value propositions, and 5) case
studies.
KEY
PARTNERSHIPS
A business partnership
is when two commercial entities form an alliance, which may either be a really
loose relationship where both entities retain their independence and are at
liberty to form more partnerships or an exclusive contract which limits the two
companies to only that one relationship.
·
Right Partnership Agreements: Whether your partnership is
with a business or an individual, it is important for all the relevant parties
to have clear partnership agreements drafted along with legal counsel.
·
Defining Expectations: Many times new businesses fail to
establish their expectations from the outset leading to much confusion and
conflict later. An entrepreneur needs to ensure that he has shared his
expectations openly with his partner and vice versa from the beginning.
·
Impact on your clients: When forming a partnership, it is
important to evaluate your value proposition and your key resources and make
sure your partner is filling any gaps in either. This can only be done by also
evaluating how the partnership will translate to the customer.
·
Win-Win situation: For a partnership to be healthy and
sustainable, there need to be visible gains on both ends.
·
Selecting partnerships: Some partnerships may seem
lucrative in theory but fail to get off the ground practically. In addition,
changes in the business context may also make some business partnerships
irrelevant. In such cases, it is important to end these partnerships quickly to
avoid further wastage of resources.
This building block
refers to the network of suppliers and partners that make the business model
effective. The reasons for a company opting for a partnership are myriad, but
healthy partnerships are instrumental in making a business success or a
failure. A company can optimize its resource utilization, create new resource
streams or mitigate risks behind major business decisions by taking on a
partner before starting a new course of action. It is important to note here
that your organization maybe partnering with a number of organizations for
various reasons, but not all their relationships will be key to your business.
Partnerships can
change over the course of a business’ lifecycle. The types of partnerships that
may be a necessity during year 1 of a start-up will differ significantly from
the nature of the required partnership in year 3.
Key Questions
When evaluating the
various key partnerships that your business requires, it is fruitful to analyze
the nature of the partnership based on the following key questions;
1. Which partnerships are
critical to our business?
2. Who are our critical
suppliers?
3. Which of our suppliers
and partners are sourcing our key resources?
4. What type of
partnerships would suit our needs?
5. What is the best
cluster/ supply chain where I should be located?
TYPES
OF PARTNERS
Partners and
partnerships can be categorized into four different types;
1. Strategic
alliances: These types of alliances are between non-competitors. So if you
are working through different channels, like a news agency can supply news to
both online and offline channels.
2. Co-opetition: There
can also be strategic partnerships between partners. Such a partnership will
help spread the risk both companies may take. It may also help when both
partners are trying to do something new; additionally it could mean a confirmed
supply stream. For example, there is a need for earth metals in mobile phones.
So securing the supply of rare earth metals could be the reason for competitors
to form a strategic partnership.
3. Joint-Ventures: Another
thing could be to develop a joint venture in a new business. Both partners
could have a mutual interest in developing new business, possibly due to the
emergence of a new market or access to a new geographic area. Both
organizations will only opt for such an option if they both provide some inputs
into the business. Hence, a Dutch company that specializes in producing cheese
might choose to go into a joint venture with milk producing local company to
start making cheese in the new region.
4. Buyer-Supplier
Relationships: These are the most common type of partnerships which
assures that you have a reliable source of supplies coming in and for your
supplier this means they have a steady confirmed buyer for their product.
MOTIVATIONS
BEHIND PARTNERSHIPS
Partnerships are a
tricky business involving a lot of negotiation and an element of trust. There
can be a number of reasons why organizations would make the decision to take on
a key partner rather than doing things themselves or taking on a partner but
not considering them as key to the success or failure of their business.
Primarily, one of the three kinds of motivations can be attributed when a
business chooses to enter a partnership.
Optimization and
economy of scale
Most organizations are
heavily focused on the bottom-line. And many focus on cost-cutting or smart
spending through optimizing the allocation of either their resources or
activities. This is the most common motivation for people to enter into
partnerships of different types.
When you are looking
for efficiency in your company or optimizing your productions chains, key
partners can help you achieve this goal. It is unrealistic to think, as an
entrepreneur that you have the resources in place to conduct all your key
activities in-house. Most partnerships give organizations the ability to share
their infrastructures or outsource some activities to more cost-effective
options.
Citroen, Peugeot and
Toyota joined hands to create a small, cheap car for the masses that they tried
to sell for 5000-6000 euros. These cars looked almost the same except for the
chassis and a few internal and external details.
Reduction of risk and
uncertainty
If you have a good
relationship with a key partner, you reduce the inherent risk that comes with
doing your own business. You also guarantee supply to your business rather than
being dependent on suppliers who aren’t key partners and would therefore not
give precedence to your business over others.
Many competitors may
form strategic partnerships to share the risk of bringing something new into
the market while still competing in various aspects in the industry. A classic
example of this is the advent of blu-ray technology which was developed in
collaboration by some of the world’s premier consumer electronics and computer
technology firms. The development of this technology was expensive and several
competitors had to get together and decide that they would all be selling their
products based on blu-ray technology; hence they needed to collaborate to make
blu-ray technology more mainstream. The group joined hands to bring the
technology to the mass market but still competes on the basis of their various
blu-ray based gadgets in the consumer market.
Acquisition of
particular resources and activities
If there are certain
things that you don’t have in-house and which would require a heavy investment
of time, money or both, a key partner who already has these processes and the
infrastructure developed would come in extremely handy.
Business models can be
extensive maps of the myriad activities that a business needs to perform or the
endless resources required to perform these activities successfully. However,
it is rare for a new company to have the resources or capabilities in place to
fulfill the mandate set down by the business model. Hence, many new companies
are beginning their journeys by forming partnerships that give them access to
the required resources or processes that they require, but are unable to own
yet. Hence, many mobile operators partner with IT companies to develop the
operating system their handsets require rather than bearing the heavy
investment such an endeavor would require if done in-house. This also gives
the IT company a steady source of revenue as
well as the advantage of publicity if the mobile manufacturer’s brand is well
recognized. Bicycle companies do not manufacture their bicycle accessories.
Instead, they get into selective partnerships with bicycle parts manufacturers
who customize the parts like the color or size of the bicycle seat according to
the preferences of the manufacturer.
Heineken is one of the
most popular producers and suppliers of beers in the world, and it is
especially well-known in the Netherlands, where they have created very strong
relationships with bar owners. In fact, Heineken frequently invests in new bars
by providing not only equipment for free but also investing in the décor of the
bar. In return, the bar provides Heineken beer exclusively. Hence, Heineken
gets a repeat customer for their beer while the bar owner can minimize the cost
of setting up the business. Conversely, however, the bar owner is limited to
selling just Heineken, which means that if Heineken increases the prices of its
beers, the bar owner has no choice but to abide by the new prices.
KEY
PARTNERS AND VALUE PROPOSITIONS
For fast moving
consumer goods, availability is key to the success of the company and a major
value proposition. For supermarkets and retail chains, distribution partners
are key if you want to provide your fast moving consumer goods to the market.
Your advantage is that your products will be available to everyone, but the
supermarket will drive down your price and resultantly your margins
significantly.
Technologies are
advancing at a very high rate that increases their risk factor is well.
However, if the technology forms a significant value proposition for your
business, then you can take on a partner to share the risk and cost associated
with the technology in question.
Focus on where you are
creating value but consider that the rest can be outsourced if needed. The
activities that are adding value to your value proposition must be outsourced
very carefully because they are the ones that are key partnerships for your
business.
CASE
STUDY
Starbucks
Starbucks has established several key partnerships worldwide such
as with coffee growers worldwide to grow eco and farmer friendly coffee beans.
This key partnership is a typical buyer-supplier relationship, motivated by a
need to acquire key resources. Another key partnership is with specialized
coffee machine makers who make specialized coffee makers for Starbucks. Again
this helps Starbucks mitigate cost because it does not have to invest in
infrastructure, R&D, and manpower to create these coffee machines in-house.
Instead, it is much more cost effective to partner with an organization that
already holds expertise in this area and has the infrastructure in place
already to cater to Starbucks’ needs. Conversely, Starbucks provides them with
a steady buyer for their product as well as the added boost that the Starbucks
brand holds for the coffee machine manufacturer.
A Comparative Analysis
of Facebook’s and Google’s Partner Networks
Though Facebook has
a number of partners in its network, it isn’t entirely dependent on any of
these partners. Most of Facebook’s partners provide valuable content for its
users so Facebook partners with content providers such as Netflix, Washington
Post, Hulu, etc. to provide movies, articles, music and other forms of content
to its subscriber base.
Conversely, Google has Google Network members who are content companies that
partner with Google to provide content on for its search engine. It provides
Advertisers access to these content companies web pages through the Google AdSense program and in
return shares revenues from the said program with the relevant companies,
leading to a mutually beneficial partnership. Additionally Google also partners
with Distribution companies to attract traffic to its websites. However, these
are a group of Distributors and Google does not leave itself dependent on any
one distributor.
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