As you stare down the tunnel towards the end of the economic downturn, the light appears closer and brighter. So now might be the right time to assess what you can do to speed up your trip towards the light of a growing economy. Consider forming one or more strategic alliances to get a jump on growth. In the same way that you will be careful in adding full time employees today, you also will be careful in making growth investments for your business. A strategic alliance is a way to grow without making a huge initial investment.
Booze-Allen & Hamilton reports that strategic alliances are becoming popular in nearly every industry and are important drivers of added growth. That’s just the kind of boost your business may need today. With the right alliances you can drive into new markets faster, meet competition more effectively, reduce costs, and respond to a fast changing marketplace. A primary benefit of strategic alliances is to minimize risk, generally by avoiding re-inventing the wheel.
A “partnership” with other businesses is an effective way to gain improved exposure and increase your revenue. Sometimes these close working relationships just seem to happen and other times they are the result of proactive searching and matching. Use an alliance to jointly market or sell into new channels, combine capabilities to produce a new or more complex product or service, add to your research and development, collaborate on design, etc. You can begin to work together horizontally with businesses that complement your own or you can link up with vendors or customers.
Let’s say that you make widgets and you have a customer who wants to buy your widgets but needs them redesigned for a unique application. But you do not have the in-house design capability. You could outsource this need, but you want a closer working relationship than you can get by simply buying the design hours from a “body shop.” What you are looking for is a business “partner” that can provide the design capability but would also provide the guidance you need to expand on this new custom business you are experiencing. Small businesses need to be market driven, and if your customers are telling you they want a broader or different service from you, responding may be the only way to keep growing. To launch off into this new custom production world and not fall on your face, you need a relationship that can endure and that injects experience you lack.
This is a typical scenario that leads to the need for a strategic alliance. Sometimes the company you choose to connect with is already involved with your business. Or perhaps you need to hunt down an appropriate partner.
But first do some work before you link arms with a new partner. It is important to document exactly what you are looking for from the alliance by documenting a basic business plan. What are the business objectives you want to achieve? What sort of partner are you seeking, i.e. company culture, personal chemistry, sense of commitment, etc. What are the absolute requirements and what will you compromise on?
If you already know the companies you want to consider, use your business plan to objectively evaluate the potential for the partnership arrangement. If you do not know of a business you want to align with, network through your professional contacts and associations to find candidates.
While none of us likes to document a relationship because the devil is always in the details, failure to develop a written agreement covering the operation of the strategic alliance will ultimately cause trouble. It is true that most partnerships fail eventually. And that will happen with any strategic alliance for lots of reasons. With a document that specifies what happens when the relationship ends, what triggers end, and how and when money flows between the partners, at least you will have some agreed approaches to get past the tough spots.
A strategic alliance like any other ongoing deal is only good if both parties benefit. An agreement where either party can end the relationship on 30 days notice is probably wise. An initial stated term for the working relationship is also useful. Maybe it begins as a two-year agreement with automatic renewals for some period subject to a 30-day cancellation by either party at any time. By setting a term of a few years, both parties can take a longer viewpoint in planning the working relationship.
These “outs” may sound pretty loose, but the whole purpose of the alliance is to benefit both parties and as long as everyone is happy, then time frames and ending arrangements are moot. The 30 day out acts as a brake on either party running rough shod over the other.
Because you are documenting a relationship that may include exclusivity and confidentiality aspects, as well as other details that can get sticky, you will need to have an attorney review the final agreement. But hold off on involving attorneys until you and the partner have documented the agreement to the best of your ability. Then let the attorneys at it; but beware of the tendency of the legal eagles to over protect a party, or inject other unpalatable stuff into the agreement.
Before you sign the final draft, go back to your original business plan and objectives for the relationship. Make sure you are achieving your goals and that you have developed a win-win working relationship with the partner.
A strategic alliance is not a merger or a buyout, but it can put your business on a faster growth trajectory if you get the right match. And who knows, maybe the strategic alliance will grow into something more. It could become a merger that someday provides the exit strategy for one of the partners—and lead to a happy result for both parties.
