Entanglement has other advantages to the vendor. It can allow a more honest and frank exchange of views which means that problems and issues can be raised and dealt with in a less confronting manner. Both parties appreciate the benefits of the closer relationship and know that occasionally some issues will arise. Due to the closer relationship they also know that these can usually be resolved and that longer term advantages can be preserved. Such relationships are very useful to the vendor as testing ground for new ideas, products or services. Also it is very useful to the vendor to know that honest feedback can usually be obtained.
Another benefit for the vendor is that these relationships build up a huge opportunity cost to the customer in switching to an alternate vendor. In many cases, it is the devil you know. It can be very scary to switch to a new relationship where the new vendor does not have the benefit of all that shared experience: a classic case of switching costs. A vendor who sets out to entangle themselves with their customer is not only providing a higher level of service but is also protecting the relationship.
The concept of strategy partner does not apply to every situation but when it does, it can be very powerful. Basically, the concept suggests that the vendor move from supplier status to partner involved in the strategic planning of the customer’s business or, in the case of an individual, lifestyle. The vendor brings to the table their own experience, industry knowledge and networks to assist the customer to make better planning decisions.
You can see this type of relationship in the electronics and computer fields where the level of technological progress is quite high. A customer planning new products for delivery several years in advance really needs to understand what is happening at the component level. Major technological advances at one level can dramatically impact what you can do at the next level and so on.
The same might apply with enterprise applications vendors. If I am planning a major organisational change, I might want to know what support I can expect from my software supplier. If they have new functionality on the drawing board which will enable me to operate differently, that is useful input into my planning.
To move from supplier to strategy partner, I need to understand more about the environment in which my customer is operating and I also need to see where I can add value. Once I have determined that I can bring new information or a new perspective to the table, my task is to make the customer aware of what I can offer. Once established, this type of interaction can be a very powerful bonding mechanism between vendor and customer.
This form of interaction does provide the basis of long-term relationships where vendor and customer work on problems to their mutual benefit. This is another form of entanglement between customer and vendor.
Tom McKaskill is a successful global serial entrepreneur, educator and author who is a world acknowledged authority on exit strategies and the former Richard Pratt Professor of Entrepreneurship, Australian Graduate School of Entrepreneurship, Swinburne University of Technology, Melbourne, Australia. A series of free eBooks for entrepreneurs and angel and VC investors can be found at his site here.
