By Peter Lyle DeHaan , PhD
Astute entrepreneurs are always seeking ways to improve their business, increase revenue, and diversify into related business lines. During this time of doubtful economic conditions, with possible decreased sales and smaller profits, it is even more critical to explore ways to bolster business prospects.
One such way is by working with another organization towards your mutual benefit. This concept goes by different labels, such as joint ventures, business alliances, strategic partnerships, and collaborations. Often these arrangements are informally structured. At other times there is a more formal configuration, sometimes even resulting in a new legal entity established for this express purpose. Regardless of the name or resulting form, the effective consequence is that you now have a partner.
The results of these business alliances can be a sustained revenue stream, a short-term bump in income—or wasted effort and disappointment. In my experience, it is the latter outcome that is most often realized, but it doesn’t need to be that way. Careful advance planning can help avert disappointment and facilitate successful results for both parties. However, before I share my recommendations, let’s first explore why things often go awry: Mutual benefit and satisfaction is required if the result is to be realized and sustained. Click To Tweet
Hoping for a quick fix: Most collaborations take time to produce results. The belief that you can reach an agreement one day and see results the next is unrealistic and prone to disillusionment. If you pursue a joint venture as a last-ditch effort to save your business, it is likely too late to do any good. It is better to seek these types of innovative strategies while you are in a relatively stable position and have the time to nurture and grow them. The payoff will not be imminent, but when done right, it can be sustainable and long-term.
Not willing to contribute: Too often people enter into partnership arrangements with the erroneous expectation that with little or no effort they will realize great benefits from the work of the partner company. This is selfish and shortsighted. Even if results initially occur, they will not last, as the partner will have no reason to persist doing all the work while you reap the benefits.
Pursuing a win/lose agenda: Sometimes one or both parties in a business alliance are trapped in a win/lose mentality. They persist in the belief that the only way for them to come out ahead is for their partner to lose. Again, even if this works for the short-term, it will not last; the end will most likely be filled with accusation and heartache.
Taking advantage of your partner: Other times joint ventures are sought in order to meet a hidden agenda. Perhaps there is some technology, knowledge, information, or expertise that needs to be provided by one party for the project to succeed. The partnership is merely a ruse to quickly and cheaply obtain that desired asset. No one likes to be taken advantage of, and when it occurs, ill will is inevitable and lawsuits are likely.
Inequitable responsibilities and rewards: Arrangements in which one party is consistently expending a greater amount of time and resources while realizing lesser results is one that is destined for collapse. Business alliances that are comprised of givers and takers are doomed from the start.
Lack of agreed upon objectives and measurements: If you don’t know your target, how will you know if you reach it? How will you know if the collaboration is working? Stating that your aim is to increase sales is vague and untenable. Remember that a goal must be specific. It also needs to be quantifiable. Sometimes this is easy; sometimes it is not. Let’s say that the goal is to increase staff morale. How do you measure that? One way might be to track the staff turnover rate, with a decrease in turnover implying an increase in morale. However, is this sufficient and all-inclusive? Does your business partner concur? If your partner wants to measure morale by the number of employee complaints to management instead, with you holding tightly to the turnover stat, it is not likely that there will be agreement on the efficacy of your venture.
No exit plan: It is unwise to assume that a business alliance will last forever. Things change, and what may have been mutually beneficial will one day cease to be. Lacking a clear and defined ending subjects participants to needless worry and anxiety. Suppose that one company needs to buy equipment, purchase inventory, or hire staff for the alliance to continue to function. If there is concern over how much longer the venture will exist, there will certainly be reluctance to make the necessary investments to continue it. This results in tentative and halfhearted decision-making and could doom an otherwise healthy arrangement.
With these pitfalls in mind, let’s consider the recommendations of how to embark upon a successful collaboration:
Be honest and forthright about your expectations and contributions: This is not a time to hold back. Be clear about what you expect and what you will do. Insist on the same attitude from the other person. Holding back key information will not give you a stronger position later but rather will make success less likely.
Pursue a mutually beneficial relationship: If you can’t agree to seek a “win-win” situation, there is really no point in persisting with discussions. Mutual benefit and satisfaction is required if the result is to be realized and sustained.
Set goals: Once it is determined that there is mutual benefit in moving forward, goals or expectations must be established. As previously mentioned, these considerations must be measurable and agreeable.
Do your part: Whatever you agreed to do, be sure that you follow up on it—or ensure that someone else is. Often the negotiation for joint ventures is not conducted by those tasked with implementing them. Therefore, if you are delegating responsibilities that you agreed to, make sure that they are clearly communicated and diligently pursued. If your team doesn’t buy into the project and is not committed to make it work, the contribution that you committed to will not be rendered, and the partnership will fail.
Discuss how and when the arrangement will end: Assume from the very start that the venture will someday end. Discuss what that point is and how to determine it, (which shouldn’t be hard if you were successful with the goal-setting recommendation). Agree on the responsibilities of each company in dealing with resultant assets or remaining inventories in which one party may have a heavy investment. Determine how things can wind down in a controlled, ethical, and responsible manner so that minimal damage occurs to any stakeholders.
While there is much that can go awry in pursuing a business alliance, there is an exciting upside when it is implemented wisely. Aside from producing profitably sustainable results, some joint ventures have been more successful than either founding company; others have been spun off to become their own self-sustaining entity. By avoiding the preceding pitfalls and pursuing the above recommendations, you’ll set up your strategic partnership for success.