In my advisory work, I've noticed a pattern of young companies miscategorizing their relationships with external stakeholders.
At best, these miscategorizations can lead to inefficient processes that don't scale. At worst, they can create dysfunctional relationships, incentives, and behaviors that undermine growth and success.
Some examples...
Clients miscategorized as Customers.
The terms "clients" and "customers" are often used interchangeably, but they generally refer to two different types of relationships.
Customers: These are individuals or entities that purchase goods and services in a transactional manner. The interaction is usually more straightforward: the customer pays money to receive a specific and pre-defined good or service.
Clients: These are individuals or organizations that engage in a more in-depth, ongoing relationship with a service provider. The service provided is often complex, tailored, and consultative in nature.
As a product-led Silicon Valley-style startup, you typically want Customers, not Clients. You want to sell what you've built (as is) hundreds, thousands, or even millions of times without tailored, consultative interactions.
This is, of course, related to the dreaded technology-backed services company I often speak about.
Customers miscategorized as Partners
Companies sometimes call their customers (the companies that buy their products or services) "Partners".
Perhaps the most overloaded term in all of business is the word "partner" (see below for more on this). It's particularly an overloaded and misused term in this context.
Partners are generally a peering relationship whereby some aspects of your core operations are intertwined with theirs. They are often deep relationships that serve a particular enabling function for the business.
That's generally not the kind of relationship you want with your customers.
To build and deliver a product at scale, you want to decidedly avoid complex relationships with your customers whereby your operations are intertwined with theirs. Instead, you want simple and consistent touchpoints that serve the needs of customers without exposing them to internal sausage-making.
Vendors miscategorized as Partners
This is similar to misclassifying customers as partners - but in reverse.
You want to avoid stumbling into essential enabling relationships for core components of your business with 3rd parties who think of you as a partner rather than a customer.
This kind of relationship often involves convincing a company to do something that isn't their core business. As a result, it is prone to be brittle, poorly supported, and often ultimately fails.
Instead, it is typically preferable to buy a standard product or service from a company whose core business is to offer that same product or service to a large and growing number of customers just like you. In these cases, it is much more likely that they will do it well, do it sustainably, and improve their offering over time.
Undifferentiated, unscalable Partnerships
Once you’ve reclassified some of your “partnerships” as customers and/or vendors, you will likely find that relationships that don’t fall into either of those two categories remain.
In these cases, you still want to avoid just calling them all “Partners”.
Instead, it is desirable to group and name these relationships into much more precisely named categories.
Doing this allows you to create a playbook for each category that facilitates consistency and efficiency at scale.
For example, some of your “partners” may be better described as Distribution Partners or Distributors.
These companies take your product more-or-less as is and help sell it into new target markets. Consider how you might properly classify and productize this kind of relationship so that it can scale (both in terms of the number of distributors you have and the number of units each distributor can effectively sell).
In some cases, it may seem difficult or impossible to classify each of your relationships into neat categories. This is often the root cause of a larger issue - your company engaging in too many bespoke activities that are not properly classified, scoped, and aligned with a higher-level strategy. The existence of these bespoke relationships might be a cause of thrash, confusion, poor execution, and lack of scale in your business.
