FinTech Partnership Series: Sunset Agreements, Preserve Relationships

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.

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.

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.