Business partnerships are often overlooked or not given much consideration by small businesses, however they can be vital in helping a business grow and prosper. Too often, small businesses think partnerships are only for big business; as a result, they are neither scouted nor persecuted. However, they can be just as beneficial for small businesses as they are for large corporations. If a small business is serious about accessing new markets, capitalizing on technology, and increasing profits through the use of shared resources, they should consider a business alliance.
It’s no secret that companies that share resources can create greater efficiency and be more profitable. Business alliances can increase synergies and mitigate potential risk, while allowing companies to work together toward common goals while maintaining their individuality. There are several types of business alliances, each with its own unique attributes.
Now is the time to assess what your business brings to the table. What assets, whether tangible or intangible, does your business possess that, when leveraged with another business, can unlock greater potential for each business?
Alliance opportunities can be developed with suppliers, customers, investors, complementary businesses and friendly competitors. Some alliances are natural combinations, while others require creative thinking. I have listed the different types of alliances below, along with a description and example of each. As you read them, think about how your business can create the benefits of a win-win proposition with another company.
JOINT PROJECT
A joint venture is a contractual arrangement whereby a separate entity is created to carry on a business or business activity for itself, separate from the core business of the participating companies. Companies often come together to share knowledge, markets, funds, and profits. In some cases, a large company may decide to form a joint venture with a smaller company to rapidly acquire critical intellectual property, technology, or resources that are otherwise difficult to obtain. Companies with identical products and services can also join forces to penetrate markets that they would not or could not consider without investing an enormous amount of resources. Separation is often unavoidable because JVs generally have a limited life and purpose.
Example: You have developed a product but have a limited distribution base. Another company has the distribution system in place with a sizeable market and wants to expand their company’s product offerings. You form a joint venture with the other company to jointly promote the product. It’s a win-win because you don’t have to finance the costs of reaching potential customers and the other company expands its value and product offering to its current distribution base without having to finance the costs of research and development of a new product. A contract would be signed detailing the aspects of the agreement.
STRATEGIC ALLIANCE
A strategic alliance is generally an agreement whereby a separate entity is not created. The participants engage in joint activities, but do not create an entity that conducts business or trade on their own. Strategic alliance partners may provide resources such as products, distribution channels, manufacturing capabilities, capital assets, knowledge, experience, or intellectual property. Each party in the alliance maintains autonomy.
Example: A business management consultant wants to expand his services. He currently offers coaching, marketing, financial and operational consulting. You have noticed an increase in demand for HR consulting and diversity from your clientele. You currently have no desire to hire additional staff with the required degrees and certifications to provide these services. Seeks a strategic alliance with a human resources and diversity consultancy. The new firm agrees to work with your firm when opportunities arise for its services and a percentage of the revenue generated from the services provided will be returned to your firm.
CAMARADERIE
A partnership is a legal agreement between two parties in which both parties agree to share the profits and losses of a common business with no early termination date.
Example: A business whose primary function is to sell advertisements and produce one-off coupon circulars to promote a variety of small businesses in the residential community had a substantial monthly printing bill. The company sought a partnership with a small printing company. The printing press had the experience but a limited print volume. It required the purchase of equipment that the printer did not have but needed. A contract was signed establishing the new company; the cost of the equipment was divided between the two entities. The producer of the coupon circular sent all of his business to the new company at a substantial discount. Profits from the new company were split between the circular stamp company and the printing press. Each kept their original businesses separate from the new business.
MARKETING ALLIANCE
A marketing alliance is an agreement involving two or more companies to share costs and resources to promote each of the companies within the group. The target markets of the alliance companies often share similar characteristics. The alliance can be a formal or informal agreement.
Example: A group of locally owned and operated restaurants come together to form a marketing alliance. The alliance, similar to groups across the country, promotes the uniqueness of its kitchens in an effort to stand out from national chains. The group pools its resources to post ads and produce a direct mail guide to promote its menus, while offering discounts. They pay a fee up front and then put up several hundred dollars in gift certificates each quarter. Those certificates are sold online at a discount to help fund your marketing efforts. Gift certificate donations help keep costs down for participating restaurateurs.
COLLABORATION
A collaboration is when two or more companies come together to share resources to create greater efficiencies, such as sharing employees, equipment, shipping costs, rent, products, etc. Collaborations are generally for specific time periods and resources.
Example: As a small business, you may find it difficult to throw a first class Christmas party for your employees. You want to show them how much you appreciate them, but the economy is tight and company funds are even tighter. Pooling your resources to have a party with a complementary company saves money for both companies and could lead to new business and networking opportunities.
Alliance Management
Each company must bring a balanced set of strengths to the alliance, but there are other considerations as well. You must manage the alliance to ensure that it contributes to the success of each company. Listed below are some of the things you need to consider in order to produce a successful partnership:
1. Alliances must be made with the decision maker. You must have the support and commitment of the business owner and not just a manager.
2. Communication is a key ingredient. Clearly communicate the goals and objectives of the alliance from the beginning.
3. Develop the metrics by which the alliance will be measured. Determine how the performance of each of the companies will be measured.
4. Allocate adequate resources to the alliance. Don’t get halfway through the project before determining that the right resources haven’t been allocated to the business.
5. Ensure that all participating employees are committed to the success of the alliance. You need buy-in from everyone involved, not just a select few people.
6. Detail the responsibilities of each of the participating companies. Be explicit on what the expectations are for each of the companies in the alliance.
7. Like all things, nothing is perfect. Be prepared to make changes if something doesn’t work.
8. Stay committed and focused on the benefits of the partnership rather than the inconvenience the partnership may cause.
Each party must benefit from the alliance for it to be successful. Otherwise, like a marriage, the relationship will quickly go from honeymoon to divorce court and all parties will suffer.