Business partnerships are often overlooked or not given much consideration by small businesses, yet they can be vital in helping a business grow and prosper. Too often, small companies think that alliances are only for big companies; as a result, they do not explore or pursue them. 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 using shared resources, it should consider a business alliance.
It is no secret, companies that share resources can generate 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 company brings. What assets, tangible or intangible, does your company have that when leveraged with another company can unlock greater potential for each business?
Partnership opportunities can be developed with friendly suppliers, customers, investors, complementary companies and competitors. Some wedding rings are natural coincidences, while others require a bit of creative thinking. I’ve listed the different types of wedding rings below, along with a description and example of each. As you read them, think about how your company can generate 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 out a trade or business on its own, separate from the main 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 quickly acquire critical intellectual property, technology, or resources that would otherwise be 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 a huge amount of resources. Separation is often unavoidable because joint ventures generally have a limited life and purpose.
Example: You have developed a product but it has a limited distribution base. Another company has a distribution system with a sizeable market and wants to expand your company’s product offering. You form a joint venture with the other company to jointly promote the product. It’s 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 for 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. Participants carry out joint activities, but do not create an entity that conducts business or commercial activities on their own. Strategic alliance partners can provide resources such as products, distribution channels, manufacturing capabilities, capital equipment, knowledge, experience, or intellectual property. Each part of 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 do not want to hire additional staff with the required degrees and certifications to offer these services. Seek a strategic alliance with an HR and diversity consultancy. The new firm agrees to work with your firm when opportunities for its services arise and a percentage of the revenue generated from services rendered 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 without an anticipated termination date.
Example: A business whose primary function is to sell advertisements and produce unique coupon circulars to promote a variety of small businesses in the residential community had a substantial monthly printing bill. The company sought to partner with a small printing company. The print shop had the expertise but limited print volume. It required the purchase of equipment that the printer did not have but saw the need. A contract was signed creating the new company; the cost of the equipment was divided between the two entities. The producer of coupon circulars sent all of his business to the new company at a substantial discount. The profits of the new company were divided between the coupon circulars company and the printing company. Each kept their original businesses separate from the new business.
MARKETING ALLIANCE
A marketing alliance is an agreement that involves two or more companies to share costs and resources to promote each of the group companies. The target markets of the companies within the alliance 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 networks. The group pools its resources to run ads and produce a direct mail guide to promote its menus, while offering discounts. They pay an upfront fee and then contribute several hundred dollars in gift certificates each quarter. Those certificates are sold online at a discount to help fund your marketing efforts. Donating gift certificates helps keep costs low for participating restaurateurs.
COLLABORATION
A collaboration is when two or more companies come together to share resources to create greater efficiencies, such as exchanging 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 host a first-class holiday party for your employees. You want to show them how much they appreciate them, but the economy is tight and company funds are even tighter. Pooling your resources to host a party with a companion company saves both companies money and could result in new business opportunities and networking.
Manage alliances
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. Here are some of the things you need to consider to produce a successful partnership:
1. Alliances must be established 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 up front.
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 to the middle of the project before you determine that the right resources were not allocated to the company.
5. Make sure all participating employees are committed to the success of the alliance. You need the buy-in of everyone involved, not just a select few people.
6. Detail the responsibilities of each of the participating companies. Be explicit about the expectations of 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 alliance rather than the inconvenience the alliance may cause.
Each party must benefit from the alliance for it to be successful. Otherwise, as in a marriage, the relationship will go from honeymoon to divorce court quickly and all parties will suffer.