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Posted: June 23, 2011

Collaboration vs. isolation

Try "dating" another company

Larry Turner

The typical model of growth for most small- and medium-sized companies is to do it on their own. Develop a new product, sell the next vertical market solution, or just continue doing what they have done in the past. This will generate sales, but in most cases it will be a slow increase.

Many businesses tend to overlook partnering with other firms with complementary products or services as a way to generate incremental sales without having to drastically increase sales and market efforts. There is a wide range of ways to partner to increase your reach, develop new products or services, and multiply your success. A few that we have seen work include:

Dating

A basic strategic partnership is a lot like dating and involves working with another firm that complements your own. This partner does not compete with your current products or services and the synergy is there is develop a referral relationship. Ideally this other firm targets a similar customer base as your company. An example of this type of partnership would be a preferred referral relationship with a company that you feel comfortable with introducing to your customers, and they reciprocate.

We partner with a firm that provides owner exit planning and financial planning support to business owners for tools that include key person insurance and funding buy sell agreements. Our firm provides owner exit planning and operational execution, which is a perfect complement to the services of the other company.

We created a strategic partnership where we introduce each other's firm into our clients as the need arises. We also joint market with this other firm and make joint sales calls on new opportunities. This relationship extends our reach and helps grow our business without adding sales people.

Engaged

After dating you may find that there is a deeper relationship that would benefit both you and your strategic partner. This relationship would be one where there is revenue or margin sharing between the two companies. This relationship most often develops out of a more basic dating partnership when the two firms find true synergy between their organizations.

We have a client that provides services to small and mid-sized companies that has created relationships with organization where they share in the margin on new jobs. Their strategic partners do not have the capability to provide the services of our client and our client gets the benefit of increase volume without having the sales costs.

Married

A joint venture can be a lot like getting married. It can be the creation of a new entity through the development of a true partnership. This new company may be created to leverage a new product or service, or to exploit different markets. I know of a consulting company that is focused on helping businesses understand, develop and create strong brands.

The two partners of this firm have developed a new company with the partners of another similar, but non-competing, firm to provide a new offering and address new markets. They are in the early stages of their new company, but all three companies are operating. This form of strategic partnership requires the effort up front to define the new company direction, document operating parameters, and develop a buy sell agreement.

Pitfalls

Strategic partnerships can drive more business, but can also mean more headaches. The deeper the relationship the more each partner will rely on the other; very similar to the analogy of moving from dating, engagement and marriage.

The joint venture is starting a new business, so all involved need to make sure they are on the same page as well as documenting how the business will operate and who will be responsible for what activity. This version of partnership requires that everyone has the same understanding of the direction and involved with pre-planning to document how things will operate when the relationships are not going as well later.

Strategic partnerships are a great way to extend your reach and grow your business. A full fledged marriage may not be right for you company, but dating is a good way to extend your reach and develop relationships that might otherwise take much longer for your company to build.
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Larry Turner is CEO of Roundhouse Advisors, Inc. and has over 25 years experience growing, starting up, repositioning, and revitalizing organizations.  Roundhouse Advisors is a consulting practice focused on helping businesses increase enterprise value by managing pain, growth and owner exits.  Larry is a consultant, public speaker, and the author of “Owner Exit Planning: Leave On Your Own Terms." For additional information visit www.RoundhouseAdvisors.com

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