Why Deals Die

Marriage is hard. Half of marriages end in divorce, so say the oft-quoted statistics, and keeping committed to a relationship over a lifetime of bumps in the road is no simple task.
Just like a marriage, the road to a successful partnership is a long, hard, and winding one that requires attention, energy, and effort to maintain. The voyage can be treacherous, so avoiding the potholes in the partnership road requires a good map, a keen awareness of the obstacles on the path, and a steadfast focus on reaching your destination.

Like meeting, courting, and marrying the mate of your dreams, closing a partnership deal is a respectable feat unto itself that is worthy of celebration. Getting from a Value Hypothesis to a signed contract is an accomplishment that requires many hours of time, energy, and effort. But as hard as it is to get a deal, keeping a deal is often the more difficult task at hand.

How to Keep a Deal

Contrary to popular hustler belief, companies do not enter into partnership deal for a deal’s sake. The partnership is a means to an end: creating long-term value by bringing in revenue, getting new users, building a brand, or something else. If a partnership is not delivering on the promise of what was expected coming into the deal, then partners may opt to cut loose and head in another direction.

While people may stay in a failing marriage for myriad reasons (kids, fear, money), there’s often less sentimental glue holding together a failing partnership. While certain contractual provisions may commit parties to a deal that they no longer want to be in (such as minimum revenue guarantees), in most cases partnerships survive only as long as the value they are creating merits the costs of maintaining the deal.

The Costs of Partnerships

The costs of striking a deal can be obvious or hidden – from legal costs for drafting contracts to the opportunity cost of employees’ time – but unquestionably doing deals takes a commitment of resources on both sides.

In order to even get to the stage where a deal is on the table, both sides of a partnership needed to be firm believers that those resources would be well-utilized (be it for generating new revenue streams, building a better product, generating brand awareness, etc.).

But what about when the value that was promised to be delivered from a partnership fails to materialize? What about when the customers don’t come? Or the product doesn’t really work well? Or when their sales team doesn’t want to sell your product?

Keeping a deal alive requires a continuous effort: marketing to support a new joint product launch; training to get a sales team on board; accounting to ensure that revenue share splits are accounted for properly. The specifics differ partner to partner, but in almost every deal there remains some need for additional time and energy to be spent supporting a partnership once it’s in market. And in a startup or a Fortune 500 company, continuing to spend time and energy on an initiative requires a return on that investment.

How Most Deals Die

Of deals that die, most die on the vine and not in the minefield. While there are a variety of paths to ending a partnership – opting not to renew a contract after its term, invoking contract clauses to terminate if performance benchmarks aren’t met, and of course, lawsuits – a partnership that does not merit the cost of supporting it is just as likely to fizzle out.

Often the easiest-to-access escape hatch is to just stop committing any resources against the deal. Unlike celebrity divorces, most partnerships don’t end with the explosive, tabloid-headlining breakup stories. They just fade away, as the support for marketing a new product or distributing to one’s customers or promoting another’s brand dries up.

“But wait,” you may ask. “If a partnership requires so many stars to align in order to get off the ground, how does this decline happen?”

A few possible explanations for the rise and fall of partnerships:

  • Overly-ambitious expectations: it’s easy to make projections that sound rosy and exciting, but predicting the future is hard work. Making aggressive assumptions to inflate forecasts may entice your partner to start, but it’s just as like to go sour once prediction meets reality.
  • Shifting sands: a company’s goals and priorities change over time, and so the area of focus when you launch your partnership may not always remain top of mind for your partner. Waiting until a contract renewal term starts to come due before starting to put out feelers for how a relationship is progressing can result in you being too late to recognize the need for change of strategy.
  • Testing the waters: it’s sad but true, but some partnerships may simply be testing grounds for a more fully-owned entry into a market. Whereas partnership may be the ideal route for entering into a space, build or buy options to pursue that same opportunity may grab their attention once you’ve helped demonstrate the potential.
  • Forgetting to ask deeper questions: there may be many fish in the partner sea, but it’s sometimes too easy to fall in love with the first partner you meet. Selecting the right partner for the opportunity requires going beyond the requisite due diligence of determining whether both sides see value in selling each other’s stuff or promoting each other’s brand or working together on a product. If you’re joining forces to create a new product, who will lead the sales effort? If your partner will serve as a distribution channel, how will your products compare to their existing slate of products? Who will do the marketing, provide the training, secure the PR, etc.?

Keeping the Deal

Just as marriages require the occasional “date night” to keep the romantic flames lit, partnerships require a dedicated effort to maintain the deal. Once your partnership enters the market, consider the following paths to avoid bumps on the road:

  • Talk regularly: use frequent “partnership update” meetings to update no only on progress with the partnership, but to gain insight into what’s happening at your partner’s company in total – and how that may impact their prioritization of your deal.
  • Discuss benchmarks: set performance expectations upfront. Whether you include them in the contract as legally-binding requirements or not, the very discussion around what each side expects to get from a partnership can force the deeper questions that will help identify issues and discrepancies early.
  • Know your roles: the more you can clearly delineate who will do what – who’s tech team will lead development, who will develop training materials, who will manage public relations, who will drive sales efforts, etc. – the more you can rest comfortably knowing that you’re both traveling down the partnership path together.
  • Be prepared: sometimes partnerships just don’t work out, whether it’s due to factors in your control or not. Bracing yourself for the possibility that a partnership may not survive indefinitely will enable you to seek alternative options to protect yourself should the worst occur.

A Cautionary Tale

Yan Tsirklin, managing director at Gorilla Group, formerly a serial head of BD at various startups, and an upcoming Adjunct Professor of Marketing, shared a cautionary tale for deals gone wrong (company names have been redacted to protect the innocent and guilty alike).

His company provided inexpensive copywriting for website owners in need of content; the partner’s company provided a suite of website building tools. At first blush, the opportunity was ripe for a partnership: Tsirklin’s copywriting service would be white-labeled and provided alongside the partner’s other products. It was a partnership model that had worked well for other companies in the industry.

“They thought it was a product their customers would want and we saw it as an obvious opportunity to generate more sales for our content,” Tsirklin recalled.

Over a five month period, the partners prepared their deal. They conservatively forecasted the revenue opportunity from the partnership, hedging expectations by projecting sales that were 30% lower than Tsirklin’s norm. They negotiated a 25% revenue share that sufficiently incentivized both parties. They developed a marketing plan to promote the new product in prime real estate on the partner’s website.

Finally, after five months of investing blood, sweat, tears, and dollars, the partnership opened its doors to paying customers. But no one came.

With conversions far lower than expected, the source of the issue became clear. “We realized that all of our partner’s products were free, and ours wasn’t. Their customers weren’t used to paying for products,” Tsirklin remembered.

Shortly into the fledgling partnership, Tsirklin suggested changes to the marketing plan – by utilizing the partner’s own weekly newsletter ad inventory to promote the program, they could better demonstrate the value to customers. “That ad inventory was worth $20K, and they didn’t want to use it up.”

After 3 months, the product was pulled from the website. The deal was dead, in less time than it took to sign the contract.

“If they were making money,” Tsirklin said, “they weren’t going to walk away.”

3 Responses to Why Deals Die
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