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One of the most important steps any business can take is to develop strategic alliances with other firms. By combining expertise and other strengths, unique, and often better results are obtained than if each party was acting on their own. Strategic alliances are often built with suppliers, firms in complementary businesses, and even by competitors coming together to collaborate on a venture or project neither can handle on their own.
In a successful alliance, benefits include access to markets, technologies, information, sales leads, influence, etc. and the fact that each business remains independently owned. The key is finding those who share common interests and goals, who can take advantage of your strengths and provide you with what you need. Relationships can be formal via legal agreements, or simply an unwritten agreement to, for example, cross refer sales leads.
Benefits of partnering also include economies of scale in activities, often resulting, in among other things, operating synergies, reduced costs, a stronger bargaining position with outsiders, and better access to resources.
But strategic relationships are not for everyone. They require opportunities for both parties to benefit, commitment from all parties involved, a clear understanding of the arrangement, latitude and flexibility in the agreement, and much goodwill in execution. The key is that everyone must win, and everyone must profit reasonably equally from the arrangement. If one party gains at the expense of another, or more than the other, the strategic alliance will founder. Guaranteed.
More often than not, strategic alliances are formed and driven by enlightened self-interest. One party has a specific need that must be met by a capable, experienced, “solution” and that solution cannot be developed in-house.
This need helps you identify potential candidates. These candidates include suppliers of products, services or technology and those firms you've worked with in the past. Even if you have not dealt with them before, you may know them from trade shows and conferences, chambers of commerce or trade associations. Or they could come from a referral from your existing network.
Remember that potential partners need a reason to enter into an alliance, so the first step is to understand what you can bring to the table. How can the other party win from the arrangement? What exactly can you provide, or do better?
This is always practical as noted in the benefits stated above. To recap, it is always about such things as sales, technology, finances, capacity, distribution, facilities etc. People and firms are always wanting to hear the answer to the key question.... what is in it for them? Once that is answered, you can present them with what is in it for you.
A couple of negotiation pointers. First, be prepared by carefully researching the candidate, its management and its culture. Make sure you know that they in fact can benefit from a relationship with you and that they indeed can deliver what you need. You also want to make sure you can work with them, ie, their personalities and culture match yours, or at least are not wildly different.
Also, like in all arrangements, lawyers come last should they be needed. Obtaining a strategic alliance agreement is a process where the intent, goodwill, and a real desire for mutual gain guide the process. The legal agreement, if it is considered necessary, should ideally be locked away once signed and never referred to again. During the course of the alliance, there must be give and take and flexibility, and having to resort to the legal basis of the agreement is a sign of danger and imminent failure. Remember, the essence of the agreement is that you are collaborators working together on friendly terms.
Any formal or informal agreement requires you to consider the following. What is the framework or structure that governs how you will collaborate, what are each party’s obligations, what is measured to indicate performance and objectives are being met, how is each party rewarded, and under what circumstances does the arrangement terminate? Details and any added terms will be driven by specific circumstances.
Whatever agreement you choose, the key is to maintain open, honest communication and a real desire to have both parties benefit. Keep learning about your partner and look for ways to improve collaboration and the benefits of the alliance. If a term requires amendment, be open and flexible and approach it with a real desire to solve your partner‘s problem. You have to build trust in the merits of your agreement and build towards the most important long term result.
Which is that you are both better off.
© 2015 John B Voorpostel CPA, CA, CMB
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