Profitable Partnerships
Strategic alliances and joint ventures bump business to a new level

       
By Elizabeth Seymour
[Reprinted by permission of Imagination Publishing. 2000. All rights reserved.]

It's not just a trend for mega banks and huge technology corporations. Joint ventures and strategic alliances are quickly becoming the fabric from which the modern business is woven. "Just about every company today is doing partnering," says Dorothy Langer, president of Langer and Company, a strategy consulting firm that specializes in business development strategies, particularly strategic alliances and mergers and acquisitions. 

Strategic alliances take a variety of forms; however these agreements between companies but are not a legal entity and do not involve a commingling of assets. An alliance can be as simple as the owner of a manufacturing business including the supplier's trademark on his final product's label in exchange for a better price on parts.

A joint venture, on the other hand, is a specific kind of strategic alliance. It typically involves two companies working together to develop a third and separate project. For example, IBM, Sears and CBS (CBS sold out early) originally created Prodigy, the Internet service provider, through a joint venture.
      
Do It Yourself or Work Together?
Businesses experience many benefits when forming either an alliance or a joint venture. "Companies partner to leverage their resources, commercialize a technology or service, expand their market presence, gain access to expertise, diversify their business, create an alternative to financing, improve their credibility, and to strengthen their edge," Langer says. 

At the same time, evaluate your options carefully before entering into an agreement. "First you have a business need, then you decide whether you want to do it yourself or do it with a partner," explains Langer. "It's my twist on the old 'make or buy' decision. Instead, a company is asking whether they should 'make or partner.'" 

To make that decision, Langer advises "visualizing the deal" you will enter with the partner. If you choose to go ahead and approach a potential partner, be sure to articulate the value that you bring to the partner as well as what the other company brings to you. It is imperative that you do a significant amount of due diligence on the target partner in order to understand its business and to determine the right contact within that company.

Keep in mind the potential drawbacks to partnering agreements. One is that you may lose a certain amount of control you formerly enjoyed as the sole entrepreneur. Langer cites other risks. "The partner may not deliver, the companies may not get along, or the partner may turn into a competitor." She also adds, "Most of the drawbacks are specific to the situation." 

Having a coherent strategy for your alliance will help eliminate many potential problems, says Ben Gomes-Casseres, professor at Brandeis University's Graduate School of International Economics and Finance in Waltham, Mass, and author of The Alliance Revolution: The New Shape of Business Rivalry (Harvard University Press). He suggests that the underlying business plan articulate why this partner and this structure is the best option, what your firm expects to get out of the alliance and how risks will be managed. He also emphasizes the need to think ahead and consider how this alliance fits into your overall business strategy.

     
Goliath Helps David
You can generate partnerships with just about any company. Promonium.com, a Modesto, Calif.-based online promotional products superstore, continues to develop partnerships that "give us some credibility," explains CEO Paul Vogelzang. "We were able to link with partners that had bigger advertising budgets, had more eyeballs going to their sites, and could introduce us to venture capital groups, which paid off."

Promonium.com's partners include Red Herring magazine, PurchasePro and SmartAge.com, a Web site that offers products and services that help small businesses grow. "Our partnership with SmartAge.com literally started because we bought banner ads from an auction site," Vogelzang says. "We are now their site's 'Ask the Expert' on promotional marketing and products, and we host the promotional product and marketing forum. [SmartAge] also has us do some of their direct mail and e-mail. We have a contractual relationship." 

Based on Promonium.com's success, Vogelzang advises small businesses in particular to seek alliances. "You never know where they'll lead," he says. "Modesto is not exactly the mecca for Internet activity, but partnerships gave us that instant connection." 
    
Dealing the Deal
Any and all experts will tell you to get your agreement in writing. Attorney Charles Drewitz of Ontario, Canada, offers a few tips for drafting contracts.
  • Write clearly. Be certain that sentences or paragraphs cannot be interpreted in a different way. If possible, write the contract yourself, so that you can write the details in your favor.
       
  • Cover the basics. Make sure there are definitive terms to bind the parties to specific promises.
       
  • Be specific. The contract should contain exact service or product descriptions, price, delivery, time and place, shipping charges, and

warranty as well as any special provisions.

  • Ensure Payments. Clearly state when payments are due. In addition, ensure that the other party pays for work in progress in the event of a termination and that the obligation to pay any outstanding invoices survives termination.
       
  • Protect yourself. Reserve your rights in case the other party changes ownership or goes into bankruptcy. 
       
  • Include a non-disclosure clause. If you and the other party share trade secrets, be sure to have a non-disclosure clause.

For more on drafting contracts, visit Charles Drewitz's Web site at www.sentex.net/~cdrewitz/html/contract.html.

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