If you want to grow your business, forming strategic partnerships can be a smart way to go about it. Simply put, a strategic partnership is a formal alliance between you and another business in order to share resources and fill in gaps for the benefit of both companies. It is also important to understand, however, that a strategic partnership is not a joint venture, merger or acquisition.
Partnerships can be quite beneficial. Let's say you want to produce a new product, but you don't have the facility, expertise, technology or some other resource to do so. You could form an alliance with a business that has capabilities you don't. You get a resource from them and bring something to the table that they need, and you both win. It's a great way to become more competitive and increase your offerings without having to invest a lot of money in the process.
For example, if you want to break into a new market, but can’t because of laws and regulations or some other restrictions, by licensing the rights to a partner and allowing them to sell your product in that market, you can expand the reach of your product despite these hurdles. You get the benefit of a new market, and your partner gets the benefit of profiting from your expansion.
One of the best companies at forming strategic partnerships is Starbucks. In 1993, they partnered with Barnes & Noble bookstores to open Starbucks coffee shops inside the storefronts. The partnership was very successful for both companies. More recently, Starbucks has entered the Chinese market and turned an unlikely customer base that traditionally prefers tea into their fastest growing market. One of the reasons Starbucks was so successful was that they partnered with local Chinese companies. In fact, because China is so diverse, they partnered with three different companies to adhere to the intricacies of each market in the northern, southern and eastern regions of the country.
Strategic partnerships are not without risks; in fact, it is estimated that anywhere between 30 and 70% of partnerships are unsuccessful for one or both of the companies. Several things can go wrong when embarking on a partnership. Among them are:
- Monetary losses due to one or both companies failing to perform.
- Legal issues and lawsuits that can result from partnerships gone sour.
- High expenses of getting out of a partnership.
- Loss of valuable IP or other core strategic assets that are shared with the partner company.
These are only a few of the risks, and many more things can happen in the course of a partnership that can diminish its effectiveness. One of the most important things to keep in mind is that the more planning that is done upfront before the partnership, the greater the chance for that partnership’s success.
Now that you have a clearer picture of what a strategic partnership is, below are a few tips to follow if you are considering finding a partner for your business:
1. Pick Businesses That Complement Your Own
What is important is that you pick a partner that shares the same core areas of success as your business. For example, you want to focus on companies that target the same type of customer that you do. You want a partner that has familiarity with both your offerings and your customer base. In this way, you can immediately market to each other's list to grow both customer bases. The key is that both companies fill in each other’s knowledge and expertise gaps.
2. Hone Your List
Partnerships can be difficult to manage and are not appropriate in every situation, so make sure that the right solution for your objectives can be best accomplished with a partnership. This is also cautionary advice to not get involved in too many concurrent partnerships. You'll need to nurture the partnership in order to get the most out of it, and you don't want to spread yourself too thin. Focus on businesses that can help you move toward your goals. For example, would working with a vendor allow you to bring down your production costs? Or could you release your new product with the assistance of a technology firm? Only reach out to those companies that will accelerate progress on your most important business objectives.
3. Have Something to Offer
It's not a partnership if the benefits only swing one way. Be certain that you have something that the other business will deem extremely valuable, whether that is manufacturing power, technical support, marketing potential or so on. You need to be able to sell the benefits of doing business with your company, so create a pitch that highlights the reasons why you can help the other business grow as well.
4. Don't Leap Into the Partnership
Spend some time with the other business owner(s), and foster a relationship. Allow time to get to know each other and become comfortable before you consider big business ventures. Consider starting small, for example, by swapping emails lists before you move to bigger projects.
5. Ensure Fit
To avoid conflict and other issues, ensure that your business philosophies and strategies jell with the owner(s) of the other business. Do your research to know what kind of business you're linking up with. For example, if you are known for your ethical and honest business practices, and you link up with a business that is known for shady practices, you could tarnish your reputation. Thoroughly investigate any business you are thinking of partnering with. Take the time now, so that you don't have regrets later.
6. Assess the Value of the Partnership
Each month, sit down with the other business owner(s) to evaluate your successes and failures. Plan your next steps around the things that are going well, and avoid repeating mistakes. Be willing to cut ties if the partnership is not beneficial for either of you. Don't keep investing time and energy into something that doesn't help your business.
These tips are a great starting point to forming a strong and successful partnership with another company. Preparation is crucial, because no one knows what the future holds. For this same reason, though, it will be important to maintain good relations and to be flexible. A great personal relationship with key members of the other company, therefore, should not be underestimated.