Tue 22 Jun 2010
Don’t OEM. Man Up and Buy Them. Comments from The BD Event.
Posted by jtmcarthur under Business Development, LinkedIn, OEM, Selling, TheBDEvent
[4] Comments
The most provocative statement I heard at The BD Event in Boston last week came from George Crump, when he said, “OEM agreements don’t work. If a company wants the technology, they should man up and buy it.” Mike Miracle and I chaired the Business Development Roundtable discussion where George made his comment, and I have to say, it sparked a lively debate.
Although I make my living largely by helping companies establish strategic partnerships, including OEM agreements, I thought it would be helpful to list some reasons why potential partners would say “No” to an OEM agreement.
- If it is strategic, I should develop it myself.
- My OEM partner may OEM to my competitor.
- My OEM partner may be acquired by my competitor.
- OEM agreements limit my ability to differentiate from my competitors.
- OEM components that get embedded in my solution make it harder for me to OEM my own solution.
- OEM agreements make it harder to sell my company.
- The loss of a single customer may affect the financial viability of the OEM.
- If my OEM partner fails to adequately support their product, I get all the blame.
- Unless I have access to the source code from the beginning, I will be unable to support my customer, if the OEM fails.
While an OEM agreement can make a tremendous positive difference for both parties, there are plenty of reasons to say “No” to an OEM agreement. But, as my co-founder, David Burmon, says, “Selling doesn’t start until your potential customer says ‘No’.”
George’s comment was from his past perspective working for an integrator/reseller, and it did cause a lively debate. One conclusion is that you need to devise a termination or replacement strategy up front.
Good point, Mike. Sometimes the reseller or SI builds up a focused and profitable practice around a particular niche solution provider. They do well, because they are a strategic channel for the solution provider. Then, if the provider is bought by a larger company with which they don’t have a partnership, they can end up being a small, insignificant partner to the larger company. Or they get cut off entirely, because they don’t want or can’t handle the larger portfolio.
Mike put it best when he said you need to formulate a “strategy” upfront. I admit to being a bit rusty on the deal side as OEMs used to be deals for normalizing revenue streams in combination with your direct and channel sales. Having done these types of deals a ways back, I’m observing the evoloution of having an OEM strategy beyond a sales channel being much more critical. And I don’t necessary agree that a strategic OEM deal should lead to a make vs. buy decision (which is more a long-term proposition). Markets move very fast these days, and thus OEM deals need to be more nimble to keep up.
Jim,
I was talking to a division head of one of the large systems companies this week, on the topic of OEMs. He would agree with you that “nimble” is the key word. He said, for them, OEM deals tended to be very profitable, because he didn’t have the development cost and had only some of the support cost, and he gets huge leverage from his sales channel. But he also said that when you get into an OEM deal, regardless of which side of the deal you are on, you should view it as temporary and plan at the beginning for your ultimate separation.
John