One reason the Lands' End site has been profitable since 1997 is that company executives don't treat the site as a new business, Bass says. "We never say that traditional business rules don't apply, because they absolutely do," he says.

Bass says he shoots for one major partnership a year whose contribution to the site will reset the bar on how people shop online. So far, the site as partnered with Quickdog, a provider of personalisation software, and EasyAsk, a search engine. Lands' End beta tests the new technology, and if it works, the new feature gets promoted online and in the Lands' End catalogs. But the deal isn't free. "We've made our partners successful, and we've given them a lot of free PR. And in return we ask for a period of exclusivity on their technology and an equity investment in our company," Bass says.

Build a RELATIONSHIP

Drugstore.com President and CEO Kal Raman puts it bluntly: "If we didn't have partnerships, we wouldn't exist." When Raman wanted to know how to make the online shopping experience better for his customers, he went to a local drugstore to ask shoppers how an online version of the shop could make life easier for them. "Customers came and said they wanted the option of picking up prescriptions in-store around the country," Raman says. "We knew we couldn't do everything on our own, so we looked for a retail partner that could help us do that."

In vetting potential partners, Raman (Drugstore.com's former CTO) and his team looked for retailers that shared his company's values and view of the industry. Prospective partners had to be obsessed with customer service. "You have to make the relationship successful for you, your partner and your customers, and you can do that only if you share a common goal, like customer service," Raman says.

In June 1999, after scoping out the business plans, internal operations and strategies of several nationwide chains, Raman chose Rite Aid. A partnership with General Nutrition Centers (GNC) was generated at the same time.

Drugstore.com was founded on partnerships. Amazon.com, an initial investor, still owns 20 percent of the Bellevue, Wash.-based company; CEO Jeff Bezos is on the board of directors. As part of the deal, Drugstore.com gets 10 years of unlimited access to Amazon.com's technology and distribution network. Rite Aid and GNC own 14 percent and 5 percent interest in the company, respectively. In return, Drugstore.com acts as their online pharmacy. The equity and exchange partnerships also give Drugstore.com the exclusive online rights to sell all GNC brand products. GNC and Rite Aid later formed a partnership, and Drugstore.com now has the rights to sell the Rite Aid/GNC PharmAssure brand of vitamins and nutritional supplements. Rite Aid and GNC purchased 12.3 million shares in Drugstore.com for $10 million in cash. These exclusive deals also called for Drugstore.com to share access to its customer base for resales.

By teaming up with Drugstore.com and Rite Aid, GNC was able to extend its retail channel beyond the more than 4,500 stores it operates nationwide, says Archie Isherwood, director of Internet initiatives at GNC. "These partnerships expand GNC's customer reach and lets us offer consumers a number of options for buying our products," Isherwood says.

These deals helped Drugstore.com stack the odds in its favor, says Rob Leathern, an analyst at Jupiter Media Metrix in San Francisco. They helped Drugstore.com overcome issues of trust and name recognition that contributed to the fall of rivals like Mothernature.com and PlanetRX.com, he adds. "You can't just expect people to come to your website and know your brand," Leathern says. "The problem with the Web is that it's very difficult to get the customer to the provider. A user may look for information in a particular context online say, for a book or a gadget and the ideal provider will have no idea that the consumer is there reaching out to them."

Focus on QUALITY

Bid4Assets, founded in November 1999, auctions the assets it gets from surplus government properties and bankruptcies, ranging from office furniture to buildings to financial instruments. The company, which expects to be profitable by mid-2002, has only 35 employees, and its network of contacts is small. Standing alone, the company's chance for success was slim, says Executive Vice President David Marchick.

Marchick made a list of auction leaders in the markets Bid4Assets wanted to penetrate: real estate, financial, bankruptcy, liquidation and food services. His criteria were multilayered. He looked for leaders whose network of contacts, service capabilities and sales staff would benefit Bid4Assets without incurring added overhead. In addition, he wanted companies whose culture and mission fit his company's mix of traditional and entrepreneurial endeavors. In exchange, Bid4Assets offered ties to a Web front-end and the technology supporting it.

"We wanted to partner with a leader that was more established than us and who was interested in using auction technology, but one that didn't want to develop it themselves," Marchick says.

The result was a partnership with Trumbull Services, a subsidiary of The Hartford Insurance Co. Trumbull handled the administrative side of bankruptcy court claims and had a vast network of contacts in the bankruptcy field. In August, The Hartford invested $4 million in Bid4Assets. Trumbull gave the company access to its contacts, and now the two companies sell bankruptcy claims on Bid4Assets' auction site. They also partnered with SB Capital of Dallas, a leading liquidator whose sales and inventory force let Bid4Assets expand its sales capabilities.

For Trumbull, the partnership offered a way to get on the Internet without hiring a staff to develop a site. Bid4Assets had a business model that differed from every other startup Trumbull interviewed, says Lorenzo Mendizabal, vice president of the Windsor, Conn.-based company. "We looked at five or six other companies, none of which are still in business," Mendizabal says. "There was an enthusiasm, vision and strategy that attracted us to Bid4Assets, and that energy helps us be more entrepreneurial."

"We had done only online auctions, and we knew a large part of the liquidation business is more amenable to offline auctions," Marchick says. "Someone in California is not going to fly to Washington, D.C., to buy 10 cubicles. Since we have only 35 people, sending 10 of them around the country to round up material made no sense. SB Capital had people all over the country who could handle inventory, live auctions and equipment removal."

Choosing a partner based on set criteria can be difficult, Brandeis's Gomes-Casseres says. The key is to find a partner with capabilities that match your needs and the incentive to contribute those capabilities to the union. Having more than one partnership is fine, but too many can spread a company thin and create competing interests that can distract from the business plan, he says. "Polygamy is OK, but promiscuity is not," he says. "It's hard enough to run one alliance well, but it gets exponentially harder as you add more partnerships to the equation."

E-mail your partnership insights to Staff Writer Simone Kaplan at skaplan@cio.com.

Ideas You Can STEAL

Pick partners that help you better serve customers.

Insist on deals that are exclusive at least temporarily.

Look for partners that will benefit from your online presence.

Profitable Pals.

Five criteria for building successful partnerships

1. Put the business plan first, and then think about what partnerships can contribute.

2. Make sure there are compelling incentives for each party to cooperate.

3. The deal is important, but the relationship is more important.

4. A few partnerships executed well are worth more than many partnerships done poorly.

5. For the partnership to be managed smoothly, your internal organization must first be well-managed.