There is definitely a sense of independence one gains when venturing into the world of entrepreneurship. And most small business owners naturally have a “Go it alone” sensibility that permeates many aspects of their day-to-day activities. Yet there can be real value in embracing the possibility of a partnership. For the business owner who has a collaborative mindset, the opportunities can be substantial.
Partnerships can take many forms when it comes to business. They can strengthen purchasing power, open new doors for increased sales, and even help support worthy causes. Let’s take a closer look at the most common types of business partnerships and how they can be leveraged.
Small businesses often struggle with the costs of goods and services they need to operate. It’s this very struggle that makes it hard for many businesses to be competitive in the marketplace. One solution that can help level the playing field is to partner with others businesses to increase buying power. This strategy can help lower operating costs, better respond to competition, and improve their performance.
The most common type of purchasing partnership is a cooperative or co-op for short. There are hundreds of purchasing co-ops that serve small business owners. Most are focused on offering industry-specific support. Their primary purpose is to bring buying power to these businesses while honoring their differences and their independence. But many co-ops also offer other services for independent businesses such as marketing channels, lobbying efforts, educational and training programs, and networking opportunities.
While there are many well-established co-ops that can help, small business owners can certainly form their own co-ops with other like-minded entrepreneurs. This begins with identifying a core group of owners who would be interesting in participating. Then it’s necessary to determine the volume of business that the potential co-op would generate. This needs to be significant enough for vendors to want to support it. If it is, the next step is to enlist the help of an attorney who understands the business model to help lay out the requirements, rules, and regulations to ensure it runs properly. In some cases, you may need to form a separate business that serves as the co-op.
Even if there isn’t the need or possibility for a formal co-op, it may still be worthwhile to consider one or more business owners when it comes to purchasing office space, public relations services, technology services, and other costly items that can be shared.
Back in 2007, the CEOs of Cisco and Microsoft announced a strategic alliance to leverage their networking and desktop solutions. The goal of this partnership was to help push the boundaries of what was possible with networks and software.
The leaders of these Fortune 500 companies both knew that their new relationship was vital to their ongoing success and that it would help protect their customers’ long-term investment in their technologies.
However, there are significant differences between billion dollar companies and small businesses. The reality is that businesses of all sizes can take advantage of partnership opportunities. There just needs to be the desire to undertake a specific task and to share risks, responsibilities, resources, competencies, and rewards. The key ingredient of every successful partnership is synergy to leverage assets and to work together toward a common goal.
The benefits of a partnership can be immense, but perhaps the most important of these is the ability to achieve sustainable competitiveness by having each partner able to focus on what they do best.
So how can a small business owner scope out potential businesses for possible partnership? The first step is to look for potential partners that have complementary resources and capabilities. Small, fast-growing companies in particular should rely on alliances to extend resources. This can lead to time savings and boosts in productivity. Consider all resources when considering other businesses. This includes customers, technologies, capital, and people. From there, it’s about hammering out the details, getting both parties to agree to the terms, and starting the process of collaboration.
Some of the most well-known competitive partnerships are joint ventures, which simply means when two or more businesses form a strategic alliance to share markets, intellectual property, assets, knowledge, and profits. This form of partnership is not the same thing as a merger, as there is no transfer of ownership in the deal.
Joint ventures can happen between businesses with similar products and services to join forces and penetrate new markets. Or they can be based on a larger business acquiring resources from a smaller business to quickly obtain what they need to leverage a particular opportunity. Like with any type of partnership, a legal agreement is absolutely necessary that carefully lists which party brings which assets (both tangible and intangible) to the venture as well as the objective of the strategic alliance.
What are the chances of success with a joint venture? Several studies have shown that they fail about 60 percent of the time within the first five years. However, most experts agree that the key to success is the human factor. How human resources are integrated and knowledge is shared can make or break a partnership far more often than geographical or financial factors.
Partnering with a Non-Profit
Not all successful partnerships are formed to increase the bottom line. In many cases, there can be a significant benefit for a small business to partner with a non-profit organization to give back and to gain exposure.
For example, a toy store may discover many new opportunities by aligning with a local children’s hospital. A percentage of their sales can go to toys for patients. This enables the toy store’s customers to learn about the hospital and feel good that they are in a way helping to contribute to a worthy organization. This can be taken a step further. The same toy store may want to share what they’re doing with local media. A TV news story or article in the newspaper can generate more buzz about both the store and the hospital. This type of partnership can truly be a win-win for all involved.
While the toy store and the children’s hospital may seem like an obvious partnership. The fact is any business can find an opportunity to work with a non-profit, cause, or charity. To maximize the benefits from this type of partnership for both parties, there should be some amount of synergy. To figure this out, it’s a good idea to consider customers. What would they be interested in supporting? Obviously, the toy store’s customers are probably primarily parents and family members who care about children. Thus, a children’s hospital would naturally be a cause that they would feel comfortable supporting.
Improving the Odds
Like with any type of partnership, whether it’s personal or business-related, success largely depends on full disclosure, an honest desire to work together, and a commitment to seeing it through the ups and downs that may occur.
With that in mind, there are some ways to increase your chances of success. Before you shake on any partnership, it’s always a good idea to do the following:
Unfortunately, not everyone is honest when it comes to their accounting, client list, goals, or assets. Investing in a little due diligence when it comes to prospective partners can save you a lot of money down the road. This should include potentially looking at financial information, verifying customers, calling references, and any other information you need to make an informed decision. Businesses that are on the “up and up” will want to share this information and will also want to be provided with the same information.
Jointly Develop the Plan and the Agreement
Hammering out the details may seem tedious when you just want to get started. However, having a clear road map for achieving results and an understanding of how the gains or losses will be shared is absolutely essential to both parties’ success.
Not everyone’s idea of success is the same. Because of this, you will want spell out how the success of the partnership will be measured. By being on the same page with looking at results, you’ll be better prepared to make decisions down the road.
By their very nature, partnerships have the potential for greatness and the possibility of failure. Those that have committed, open partners and well-defined plans and agreements have the best chance of success.