“This is a relationship business,” I said to the new executive I was mentoring.
“Can we pay our partners less because of that relationship?” he asked.
“No, we pay our partners market rate,” was my reply.
“Well, how is it a relationship business?”
I responded to his question, but I felt my answer was so incomplete that I’ve continued to think about what it means to be a relationship business and about why these relationships are so powerful.
These are my thoughts and observations since that conversation, or rather, what I wish my answer would have been at that moment.
The Power of Relationships
A strong relationship creates trust which causes parties to address the unknowns with positive assumptions rather than negative assumptions. Steven R. Covey calls this a trust “premium” in his book, The Speed of Trust. This isn’t the pricing premium my executive mentee thought should be available; rather it was a premium on all assumptions made about us.
Two industry examples of this trust premium are Ron McNab and Charlie Lomond of AireSpring. We’ve worked with Ron and Charlie for years and because of the relationship we’ve built, we can move quickly. If Charlie notifies us the commission must be reduced on an account because margins are thin, we don’t have to give it the same scrutiny we give other situations because of that trust. When we have an escalation or dispute to resolve we can talk to Ron and quickly resolve it. Airespring specializes in complex WAN implementations, and that complexity can cause big issues that slow the delivery of service. Our relationship with them minimizes the friction we would ordinarily face.
Why This Industry Must Be Relationship-driven
The channel creates value over time. Service is rendered to the end user, the partner is compensated, and renewals and upsells take place all over time. In the short-term, most parties are investing and, at the same time, absorbing losses. Extending the investment of channel resources or partner efforts require trust. A partner cannot work for more than a year to identify and close a sale while wondering whether or not she will be paid for those efforts. There can be no question in the partner’s mind they will be compensated for an installed sale.
Likewise, providers make upfront investments. We advised a cloud startup recently on building their channel and explained it would take extensive relationship building and yield few sales for the first two years. They didn’t like that answer and hired direct sales reps. They’ll be surprised in two years that their competitors have passed them in production because, without investing in relationships, it’s simply not possible to assemble a channel.
Great relationships are developed during long periods of time and require the following elements:
- Proximity. Freakonomics authors found that friendships did not happen because of common interests as most people assume, rather they occur because of proximity. Those with whom we have frequent contact are more likely to have relationships with us. We visit, we attend events, and we have frequent contact if we want strong relationships.
- Routine positive outcome. Relationships are the aggregation of experiences shared. The experiences need to be positive to build the trust and understanding required to get the trust premium described by Covey.
- Crisis resolution. One of the greatest ways to strengthen a relationship is to work through a crisis. This gives both parties the opportunity to demonstrate good will and work for the interest of the other which verifies and increases the trust previously placed in the relationship.
Sales take place because of partner relationships with end users and sales are routed to providers because of relationships between partners and providers. Relationships equal trust and trust is the currency on which the channel operates.
That’s what I wish I would have explained to the executive who questioned whether this is a relationship business.