Edgewater Technology (No. 313 on the 2007 VARBusiness 500) occupies one of those former brick powerhouses in Wakefield, Mass. In a way, the IT consulting and software solution provider built its business in the same way as former factories of old—through specialization. Edgewater specializes in business analytics and software that deliver operational efficiencies. You won't find security, storage, network hardware or servers on its linecard.

That's not to say Edgewater won't provide customers with products or services that fall outside its core competencies. For those opportunities, it will call in one of its regular partners.

"We all want customers for life. When you partner, the customer just sees you bring value to them," says David Gallo, COO of Edgewater. "We've made decisions about where we want to specialize and things we don't want to own, so we'll partner on those things."

Edgewater isn't unique. Nearly nine out of 10 companies on the VARBusiness 500 are engaged in regular peer partnering or subcontracting. While peer-to-peer partnering within the channel is nothing new, conventional wisdom held that the top of the solution provider stack was more self-sufficient and able to fulfill customer requirements without third-party assistance.

The 2007 VARBusiness 500 survey finds the level of partnership among the biggest solution providers is not only vibrant, but also a necessary component of technical and staffing augmentation, technical and vertical expertise and geographic sales reach.

In a sense, the VARBusiness 500 isn't just a list composed of solitary points along a linear line. Given the level of intrachannel partnership, nearly every company on the list is a nucleus of an extended channel universe. For instance, the conventional view is that a $100 million solution provider is simply what it seems—a single company with $100 million in revenue. The ecosystem view holds that if a company partners with 10 other solution providers that generate $10 million in sales, the $100 million solution provider is actually the nucleus of a $200 million partner network.

Reasons For Partnerships

The logic behind intrachannel partnerships is simple: No technology stands on its own; most require complementary products and integration to create a holistic system, just as solution providers need partners with complementary skillsets, geographic presence and market expertise to fully service customers.

"At the end of the day, the customer is driving almost all of what we're doing," says Ron Dupler, president and CEO of GreenPages Technology Solutions (No. 246). "They're looking for turnkey solutions, and no one provides it all."

GreenPages, a Kittery, Maine-based full-service provider of hardware and software solutions, generates 50 percent of its revenue through peer partners. Partnership is one of the forces that drives the company's 23 percent growth, enhancing customer satisfaction with the services.

Most VARBusiness 500 companies—74 percent—use peer partners and subcontractors to extend their technology capabilities. Jim Simpson, CEO of MSI Systems Integrators (No. 143), says hiring qualified talent is one of the biggest obstacles to his company's strategic plan. "You can hire people, but it doesn't mean they're the right people," he says.

Given the drought of technical talent and the need for specialization in specific product and technology sets, partnership and subcontracting are sensible ways to augment resources, win deals and ensure customer satisfaction.

The greatest concentration of partnerships for technology capabilities is around more advanced products and solution sets. Enterprise applications—particularly complicated business intelligence software such as ERP and supply chain management—top the list of partner-enabled technologies. VoIP, unified communications and security software solutions are equally high on the technology partnership list.

A near equal number (71 percent) are partnering to extend their geographic reach. While nearly all of the VARBusiness 500 operates nationally—a sizable number have an international presence—fulfilling customers' technology needs wherever they reside isn't always easy. A New York-based solution provider can easily service a customer headquartered on Long Island, but how does it provide routine support to that customer's branch office in Tulsa, Okla. More often than not, that happens through partnerships.

"Partnership has given us clout with customers, because we're able to deliver technical and vertical expertise through our partners," Dupler says.

While technology expertise is what's most often sought of intrachannel partners, vertical expertise is close behind (61 percent). VARBusiness 500 companies are rediscovering the value of vertical specialization, and more successful companies are discovering the need to move beyond solving customer pain points. As Microsoft channel chief Allison Watson says, success in the future means solution providers must move beyond resolving customer pain points and deliver solutions that gain points for their business. Doing that requires having an intimate knowledge of a customer's industry and business—something that's often cost-prohibitive to build as a standing practice.

"Having vertical expertise takes it up a notch," Dupler says. "Having solutions and vertical market focus is critical to our business, and our partners are a key component."

Partnerships are also about leveraging relationships. Local and regional solution providers deliver long-standing relationships with their customers to larger resellers and services companies. A partnership gives the large company a reach into the small business and midmarket, and the local solution provider access to infrastructure, expertise and enterprise-class services.

The Planet.com (No. 216) is one of the largest privately held Web-hosting companies in North America, providing customers with access to managed services and hosted applications. Traditionally, customers ranged from small businesses looking for infrastructure to hosted-gaming services, but The Planet.com is finding most of its growth coming from solution providers that resell and augment its service with additional value-add capabilities. Today, it does 60 percent of its business through partners.

"To some extent, we don't have a business without them," says Urvish Vashi, the company's director of product management. "They have the relationships, the reach, to deliver customized services to individuals, [which] we don't have." Partnering for Growth

More than half (56 percent) of the VARBusiness 500 does up to 24 percent of their business through partners or subcontracting. One-quarter does up to 50 percent of their deals with peer cooperation. And an amazing 12 percent conducts between 75 and 100 percent of their transactions and extended engagements with or through intrachannel partners.

Historically, VARBusiness' annual State of the Market surveys have found that solution providers earn between 20 to 25 percent of their revenue through peer partnerships. The level of partnership activity among the VARBusiness 500 reflects its importance in both closing and fulfilling product and services deals.

Nowhere among VARBusiness 500 companies is this principle more true than at SoftwareONE (No. 146), which does an astonishing 70 to 75 percent of its business through partnership. Intrachannel partnership is "the cornerstone of our business" and the driving factor behind its 34 percent growth in 2006, says Keith Ackerman, the company's CIO and vice president of marketing.

SoftwareONE is somewhat unique, in one respect: Its partnership model is to take work from prime contractors, not to act as a prime. SoftwareONE started as a Microsoft large account reseller, and gained expertise in developing software solutions and managing software licensing.

The company doesn't develop accounts or try to take ownership away from the primes; it simply acts as an agent that provides the necessary software support that adds value to the prime contractor's business.

Skeptics may say that partnership enables a competitor or rival to grow its business at your expense, or that collaboration and cooperation actually limit your ability to grow your business later.

"The key to any partnership is knowing who is doing what in the relationship," Ackerman says. "We're not out to steal their business, so our partners often relinquish more business to us." n

Partnership Best Practices

Nearly all of the VARBusiness 500 companies are engaging other solution providers to extend their technology, geographic or vertical market reach. Nearly one-quarter of the largest solution providers in North America do as much as 50 percent of their business through partners.

Intrachannel partnerships are a tremendous way to augment resources and add value to customer engagements. And choosing the right partners isn't trivial. Solution providers who rely on partners say that finding the right partners and developing trusted relationships is essential to a partnership strategy.

The following are partnership best practices recommended by solution providers experienced in intrachannel partnering.

1. Seek complementary partners. You want partners who can deliver technology skillsets and vertical practices that you either don't have or are unwilling to develop. It's often less expensive and more profitable to partner than to build a new business practice.

2. Know your partners. Your partner isn't a separate company; they're often representing your business to the customer. Get to know their history, management, finances, operational/business philosophy and culture, and extended relationships with vendors and customers. You should only partner with companies that share your values and work ethic, and have a sound reputation.

3. No one-off relationships. Reward good partners for solid performance and value-added services by having an ongoing relationship. Partners don't often bring new business into a relationship, but they will deliver high-quality work if you continue to deliver business to them. The quality of work often varies with one-off relationships.

4. Define the relationship. All partnerships should delineate each party's scope of work, expense and revenue responsibilities, and liability for mistakes and shortcomings. Partnerships should also have noncompete agreements to limit conflicts and exit clauses for when the partnership is no longer needed.