Businesses often work together on projects. “They realize they can’t do it all themselves,” said Nina Kaufman, an attorney, entrepreneur, host of the Cash Out BIG podcast, and professional speaker. Her company, Business Exponential, advises entrepreneurs about the ways they can get off the hamster wheel and run like a well-oiled machine. Her advice can often mean forming alliances with other firms.
“Alliances can be tricky,” Kaufman sighs. Alliances must foster mutual benefits and can exist only as long as they are advantageous to both parties. The concept of gaining a marketplace advantage by teaming up with another company whose products or services fit well with your own is not only seductive, but it’s also critical for an increasing number of businesses.
Perhaps you met at an industry event, worked together at a previous company, or someone made a referral. You think, “let’s partner on a project.”
“That’s premature,” said Kaufman. “You need to date and get to know each other.” Here are some rules of the road.
1) Identify the Need: “First, determine why you would work together,” Kaufman points out. Do your companies have complementary skills or are you adding extra capacity to each other? Understand the strengths and weaknesses of each firm. Determine how the alliance fits into your business plan. Be clear with yourself about why you’re entering into the partnership and what you expect to gain.
2) Evaluate Partners: Even when you know someone or get a referral from a trusted advisor, researching a prospective partner is crucial. It’s not just the capabilities the other company brings to the table. You must feel comfortable with the work style of the potential alliance. Once you’ve determined the other firm has complementary skills, it’s critical that you look objectively at management styles, work ethics and values, and identify where potential clashes could occur. Key questions to ask:
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- How are decisions made? Who owns the relationship with the client?
- Who is paying whom? If you’re not in charge of payment, how fast will they pay you and other vendors?
- What is the company’s work ethic? At what pace is work done? Is it similar to yours?
- How competitive or aggressive is the company? How does that compare to you?
Answering these questions honestly leads to a better match. Some companies, for instance, are known for their tight rein on employees or the long hours they keep. If your work style isn’t similar to theirs, you could be headed for problems. While it’s smart to get references from people who have worked with your potential strategic partner, references often fear legal retribution so they may not provide a full picture of the company, commented Kaufman. “Do a Google search to see if there are any negative reports online or lawsuit filings.”
3) Establish Joint Objectives and Goals: Developing key objectives and goals that reflect what both parties expect to gain is critical. Be sure that expectations are realistic in light of the resources both parties are willing to put forth and make adjustments as needed. Nothing sours an alliance faster than the notion that one party is giving everything while the other is getting a free ride. Strategic partnerships have to foster an environment in which both parties gain something; otherwise, they’re not partnerships.
4) Define Roles and Responsibilities: “Many problems can be avoided by setting expectations upfront,” Kaufman advises. Assess each company’s strengths, and define responsibilities accordingly – especially in the area of management. Many alliances fail because of poor management relationships, so document clearly what’s expected. Be specific: Decide how many people from each company will be involved in the alliance and what their particular roles will be. Each party has to dedicate resources to the relationship, and both parties need someone within their organization who will champion the cause.
5) Develop a Good Communications Process: Clear communication is key to creating an enduring partnership. “This is one of the key pieces that often gets overlooked,” said Kauffman. Disappointments and misunderstandings can be avoided by establishing an effective process for working with your partner. The relationship must be developed to the point where both parties can be honest when evaluating progress and offering recommendations for improvement — both of which should be done on a regular basis. For example, you might want to exchange weekly sales reports.
6) Develop Conflict-Resolution Systems: An alliance is rarely a match made in heaven. Misunderstandings, compromises, and disagreements are natural. “Determine how you will voice them when you feel your partner isn’t responsive,” said Kaufman. When misalignments arise, resolve them as quickly as possible. It’s best to meet in neutral territory where both parties can speak openly and honestly. Then, focus on creating solutions rather than placing blame. Be prepared for the possible break-up of the relationship. “Have an exit process worked out in advance.”
7) Build on Trust: Strategic alliances are built on trust, dedication, and mutual interests. They require the respect and interaction of people in each organization. And, like good personal relationships, they require effort to build. Once they’re in place, however, you can count on them.
Each party has to feel that he or she is giving something and getting something in return. If you haven’t taken the time to think through how both sides will benefit, don’t pursue an alliance at this time.
8) Demonstrate Commitment: The alliance needs to assume a position of status and importance. Both partners must be willing to nurture and care for it. This means that the top people in both organizations must be supportive. The point of any strategic alliance should be to make an impact, and you can’t do that without active engagement at the top. It also means giving extra effort to making the venture work, even if that means a willingness to go beyond contractual obligations. Committed partners dedicate resources and energy, and face risks to make the venture work.
9) Be Patient: Strategic alliances take time to develop and maintain. When you’re starting, don’t make judgments about potential partners if they seem reluctant. Figure out how to stand out from the crowd.
10) Formalize with an Agreement: A written document formalizes what you have agreed to. It is an outline of expectations and protects you and your alliance if those expectations aren’t met. If a disagreement arises, there is a document you can refer back to in order to get the relationship back on track.