MSP Business

How to Structure a Strategic Alliance

13 March, 2012

I have written before about why building strategic alliances can help your MSP business.

If this is an unfamiliar concept, feel free to read over my earlier article for a few tips on building strategic alliances.

An imporant part of this process was focusing on your core competencies while still serving your clients needs in an expert fashion - but once you’ve found a partner you’d like to forge a relationship with, how do you structure a strategic alliance?

Whatever form the relationship takes, it is prudent to sign a Non-Disclosure Agreement (NDA) or Confidentiality Agreement. This document would state that as the partner is going to become privy to information about your business and your clients business, that they won’t share this information.

Next you need to define whether the relationship is one where you will refer business directly to your partner to work on under their own name, or whether they will be sub-contracting for you - providing a service to your client under your name.

Sub-Contracting

If you will be engaging the strategic partner on a sub-contract basis (a good example might be engaging a fellow IT company to help you on a server roll-out project) then up-front you need to define the terms of the relationship.

In addition to the NDA you’ve already signed, a Consultancy agreement is often commonplace. Such a contract would re-iterate the terms of the NDA, but also include statements that the sub-contractor would agree to not engage with your client directly. In other words, the client remains yours.

Additionally, you need to set up-front expectations for the relationship. This might include:-

A project scope - defining the work to be delivered and the standards your business works to. Think about server naming conventions, equipment labelling, quality of work, etc.
Financial expectations. The payment, either fixed fee or hourly rate, you agree to make to the sub-contractor, when you expect to receive a bill from them (at the end of a project, weekly, monthly) and when and how you will pay that bill (monthly, by electronic transfer).
Professional standards - the sub-contractor is representing you to the client. You may wish them to dress accordingly, perhaps wearing a logo emblazoned shirt you provide to them. You may also state that the sub-contractor telephones you upon arrival at a client site and before they leave.

Referral relationships

If the relationship is referral based, then up front you need to decide whether the relationship will yield mutual referrals - in other words, will you be passing work backwards and forwards so that you both benefit.

In many cases, mutual referrals are a natural fit. A data cabling company might be approached by clients wanting data cabling and a server installation. They undertake the data cabling, and refer the server installation to you.

But in many cases you will form a strategic alliance with a partner who is unlikely to be able to refer work back to you. A Telecoms company who provide leased lines might be a good partner for you to work with, but they are unlikely to do so on an exclusive basis - typically they will often work with dozens of MSP’s. In this scenario you may wish to broach the subject of a referral incentive - a financial payment made to you by the strategic alliance partner to reward you for bringing them the work.

Any financial incentive for referrals should be agreed up front and in writing to save confusion post-referral. It should define when a referral fee is paid, how the progress of referrals is reported back to you, and how you go about invoicing the partner for successful referrals.

I should also stress that your primary concern is to your client. You’re ideally looking for a partner who is the best fit for your client base *and* provides a referral payment.

If it came down to it, I’d prefer to work with the best fit for my client base who *didn’t* provide referrals, rather than work with a partner just because they have a strong referral incentive program.

Conclusion

By setting expectations and agreements up front, you are both projecting your professional standards, and creating a framework for both partners to work to going forwards. You'll soon find that structuring a strategic alliance can help you both grow your business and increase your profits.

As the former owner of an award winning IT Managed Service Provider, Richard Tubb works with MSPs to help them increase sales, take on employees and build up relationships with key industry contacts. You don't have to do it alone any more - contact Richard and have a chat about your needs and how he can help you.