I'm reading "The Great Mental Models" by Shane Parrish, Farnam Street. This book contains timeless, broad ideas and is a homage to the idea that we can benefit from understanding how the world works.
A mental model is simply a representation of how something works. We cannot keep all the details of the world in our brains, so we use models to simplify the complex into understandable and organizable chunks.
This book has motivated me to think through and share my mental model about product partnerships.
Definition
A partnership is an arrangement where parties, known as business partners, agree to cooperate to advance their mutual interests.
The Primary Goal: Mutual Interest
A product partnership should deliver greater value for the customer(s) by using the partners' solution together, compared to using each of the two solutions separately without any integration or connection.
Simply put: the solutions used together should help your customer(s) get closer to their goals and / or be more successful.
Therefore, the parties need to be focused on creating, communicating and delivering the product synergy in a seamless manner. That I believe is the primary goal.
The Secondary Goal: Distribution
The secondary goal is distribution (i.e. co-marketing or co-selling), and not the other way round.
To complete the loop, the secondary goal (distribution) should be leveraged as a means to reinvest in the primary goal (incremental value via product synergy).
All the KPIs, such as expanding total addressable market, increasing customer lifetime value and generating referrals (or installs) should be perceived as the by-product of the above loop (flywheel).
Reasons for Sub-Optimal Outcomes
I've personally experienced well thought through partnerships or initiatives deliver sub-optimal results. The most common reason is:
- The inability to create, communicate and deliver on the product synergies, OR
- Having a greater focus on leveraging the partnership as a distribution channel compared to the focus on generating incremental value for the customer
Therefore, it is imperative for the partners to align on the primary goal, and how they define success. This requires long term thinking amongst all the parties involved.
Case Study: Shopify and Facebook
Shopify and Facebook partnership is a great example of this model:
The merchants use Facebook to reach their customer, build a brand and community, while they use Shopify as the commerce backbone to manage their products, orders, inventory, fulfillment, sell on different channels, and much more. The merchants are far better off using these platforms/products together.
The two companies have continued to invest in improving the product synergies - recently, they expanded the partnership to include one-click checkout service (Shop Pay) available to merchants that sell on Facebook. This would allow the merchants to offer a faster checkout experience to their customers, leading to higher conversion.
Broader Application
While this model is based on my experience, I do believe it can be applied across a wide range of partnership (and even M&A) situations to achieve a better outcome for the customers, and consequently for the parties involved.