Partner to do what you can't do alone
Partnerships are hard. Don’t form one unless you have to do so in order to do what you want to do—but could not do alone.
Most kinds of "partnerships" are really transactional relationships, not the partnerships we are seeking in this book. To find and grow your reciprocity advantage, you have to find a partner with whom you can create a new business— one that uses your right-of-way to create the complementary new business that you could not create alone. This isn't just easier, faster, cheaper—its necessary. Together you are the founders of the new reciprocity advantage business. Partnerships are very different from transactional relationships.
In a transactional relationship, each participant could walk away tomorrow. In the world of price-driven transactional competition, the moment a supplier’s costs get too high, the retailer’s margins get too low, or the consumer’s price gets too high, your partner suddenly becomes an unnecessary supplier, and you move on. You should have many, many customer-supplier relationships, and these should be as respectful and long-lasting as possible. But as we consider developing new businesses using our right-of-way, we need to have a stricter understanding of what it means to be a partner and what it means to have a partner.
STEP 2: Find the Best Partners
With an understanding of the right-of-way you can share to create growth, you will need to find the best partners. These are new partners who will allow you to accomplish what you could not do alone. Which partners will lower your risk, increase your innovation potential?
Socialstructing will disrupt partnering
Expect a big shift in the diversity of potential partners—and the diversity of ways in which the partners will be able to work together. In a socialstructed world, partners can come from anywhere, and they can be any size. In particular, we expect more partnerships involving very large and very small players because it will become much easier to find potential partners and work together. Collaboration, teaming, and partnerships will become possible on a scale that could never before have been imagined. IBM is partnering with Propeller Health to create new types of data on asthma to create a Smarter Planet businesses.
Indeed, the boundaries that determine the size of businesses will become increasingly porous. Traditional corporations have people called employees who are doing jobs. The bad news is that in ten years, there will be fewer traditional jobs and lower job security. The good news is that in that same time frame, there will be much more flexibility and many more ways to make a living.
Propeller Health + IBM's Smarter Planet
Every partnership should have an options agreement
The new business you create will exist because you gave away your right-of-way in an intelligent way. Because you have entered a part- nership in order to create something new, one of two things will happen: either the new venture will be a success, or it will disappoint. You need a plan for both possibilities.
Let’s deal with disappointment first. Since the right-of-way already existed, you don’t have to worry about losing money on that part of the investment. Starting new businesses using an existing right-of-way can be low risk. You read of large companies writing off large investments that are far from the core all the time. If they had used existing rights-of-way with partners, the risk would have been far more manageable.
Now imagine a success. Scott Anthony of Innosight—the innovation consulting firm that works with Clayton Christensen’s models—tracked the growth of disruptive companies that have reached $1 billion in sales. He observed that these companies double in size every year for the first five years. So if sales in year one is $25 million, then after five years, it is $800 million. This is the billion-dollar business you are seeking. A business of this size would go for a high price and have many bidders.
The best way to buy this business is through negotiating a fair option price for purchasing the company from the beginning. You gave away the right-of-way to start the business. This is the basis for your requesting a right to participate in the success.
At the root of the railroad story, the mistake that railroad companies made was not that they missed the telecommunications revolution— who could have predicted that? Rather, they had inside information and a right-of-way that was in use. What they missed was negotiating partial ownership of the emerging telecommunications business.
Place your bets, but cover your options.