Sunset Agreements, Preserve Relationships

Nothing lasts. Nothing is finished. Nothing is perfect.
- Japanese Wabi-Sabi proverb

 

Partnerships, successful or not, usually come to an end at some point. And, whether driven by changes in strategy, shifts in the market, failure to realize an opportunity, or something else, partnership transitions can be painful and costly. Following are a few insights from decades of work helping companies set up, and close out, their most strategic agreements.

I. Don’t just transition – transition to something better

Frequently, we hear some version of one the following from organizations that feel a partnership’s time has come:


“We could do this better ourselves!”
“We just don’t have the right partner…”
“We shouldn’t be in this business…”

Any one of these might very well be true. However, they might not be.

Humans are hardwired to form affiliations (I am part Company A, you are part of Company B; I am part of Sales, you are part of Product; etc.), and then to disproportionally attribute challenges and failures to the “other.” In partnerships, this hardwired tendency translates into many team members viewing underperformance as the direct result of actions (or inaction) by the partner company, rather than your own company. And, of course, frustrations with a partner leads to questions about whether the partner company should be replaced by internal teams or a new partner.

Before you go down the path of dissolving the partnership, ensure that internal decision-makers have fully considered what they want to do and why – so you can avoid either (a) starting down the path of dissolution, only to have the partnership “saved” by a rogue executive; or (b) making a costly change that you later regret.

If you believe your company might be better off without any partner

Work through, and document, answers to the following questions:

  • To what extent does the work we would be taking on align with our core competencies today? If this work does not align with our core competencies today, is it critical to develop these competencies to compete in the future (i.e., does our strategy tell us we need to have this as a core competency)?
  • Will doing this alone in some way reduce the upside opportunity (i.e., we won’t be able to leverage our partner’s client base or brand)?
  • Considering transition costs and ramp-up investment, will doing this alone be more or less costly?

The big question here is really: Even if you could do it better, should you? If the answer is “no” or even “maybe not”, consider what other options exist.

If you believe a different partner might be better

Not every partnership works. We have certainly seen companies swap out partnerships to great advantage in the past.

In 2016 CostCo, for example, ended a long-time customer-rewards card partnership with American Express in favor of partnerships with Citi and Visa. CostCo’s strategy, focused on high volumes and low margins, called for rewards (e.g., 4% cash back on eligible gas purchases) that AmEx, strategically focused on much the opposite, was unwilling to match. Despite some transition challenges, CostCo’s transition has almost certainly contributed to considerable growth in the years since.

And, we have also seen companies change partners only to run into the same (or worse) problems than they had before.

To enable your company to make the best decision in this situation, we recommend you first clarify what is not working in the current partnership, and second evaluate whether that would be better with another partner. One way to do this is by documenting your thinking in the below table, and then using it to facilitate discussion and alignment with internal decision-makers.

  Our contribution Extent of the challenge with our current partner Likely extent of the challenge with potential partner A Rationale for expected improvement (or decline)
Challenge A        
Challenge B        
Challenge C        
Challenge D        

 

The big question here: Even if you switched partners, would you really be better off? Again, if the answer is “no” or “maybe not”, consider what other options exist.

Note: Sometimes the best option is to have multiple partnerships, approaching the problem or opportunity from different angles.

If you believe it might be time to exit the business

Most companies are better equipped to determine whether to keep or exit a business (or product, or strategy) than they are to decide whether to transition to an internal-only approach or a new partner. Below is a simple framework to enable this strategic decision.

G2 Sunset Agreements-01

II. Engage in the conversation early

Like delivering bad news to a customer or in an employee performance review, the decision to end a partnership should not come as a surprise. If it does, you have missed a big opportunity, and have probably put yourself on a difficult path. In healthy partnerships, executives periodically get together (virtually or in person) to review performance, understand challenges, and provide teams with guidance about whether (and if so, how) to address those challenges. Through these decisions, changes in the market and/or within either company surface – and the partners have an opportunity to identify how they might pivot, and if that would be worthwhile.

G2 Sunset Agreements-02

When partners become so disconnected that a decision to transition comes as a surprise, leaders at the other company often react negatively and take extreme actions to either (a) save the partnership (which drains time and resources from both companies); and/or (b) punish their former partner (sometimes with little benefit, or even extreme cost, to themselves).

To be clear, we are not naively suggesting that you explicitly tell your partner that you might want to shut-down the partnership before you’ve made an assessment or understood the implications of your decision. Rather, we are suggesting that you develop a communication strategy that involves early conversations with your partner where you can both gather useful information and lay the foundation for a future conversation about transition.

III. Align internal stakeholders

Many times, we’ve seen a business unit or partnerships team get aligned on a decision to dissolve a partnership, and start to do the messy work of dissolving, only for some other executive to swoop in to “save” it. As in any change initiative, leaders of successful partnership transitions consider and communicate the why, what, and how of the transition, and effectively engage stakeholders to enable successful execution.
 
For advice on making the case for and building alignment around the proposed change, see The Keys to Successful Change.
 

IV. Assume you will need to do business again

Whether with your individual counterparts at the partner organization, or with some other business unit within that very same company, chances are high that while this is the end of your current business partnership, this is not the end of the relationship, nor should it be. Treat all relationships as long-term ones, and close out the partnership based on the problem at hand- not on the people.
 
While all partnerships inevitably come to an end, taking the above steps can help ensure transitions are for the better, are successful, and are handled in a way that leaves the door open for future collaboration, both between organizations and individuals.
 

 

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Alliances & Partnerships