Wednesday, January 14, 2009

Forming strategic partnerships.

Technical and Computer Graphics in Sydney, Australia developed a network of 24 small companies with hundreds of employees and revenues in excess of $50 million. Together, they made portable data terminals, computer graphics and bar coding systems. One of the paradoxes of today’s business world is that companies must lower the walls between them rather than building them up to make them safer. Large organizations with more resources are better able to support partnership experiments that open up new possibilities than small companies. As a result, lopsided partnerships are proliferating, matching smaller innovative companies with larger deeper-pocketed investors.

Try to form alliances with people who are richer, smarter, larger, and who need you. Give or sell them what you’ve got cheaply to create market share and product awareness. You want them to eventually become your friend and help make your market. Joint marketing arrangements for building brand-name recognition can involve finding someone who is willing to subsidize your distribution. But make sure you know how the other company’s sales force is compensated. Otherwise, the cash you get up front is likely to be all the cash you get. You risk ending up as a line-item in a catalog that no one reads. Get to the sales people and tell them how much money they’re going to make from selling your product. And you still have to sell, to represent, to advertise your product. Don’t assume it’s going to be in your partner’s best interests to help you - they’re more likely to concentrate on selling their own products. Joint venture companies don’t always believe that promoting the partner’s product is in their own strategic interest.

Two key objectives should drive any strategic partnership deal. First, it should be a very good financial transaction for the company and its principals - that’s the primary consideration. Second, it should create an association with a partner who adds value. That’s the secondary part of the transaction, but it’s crucial in choosing who you sign up with.

Start by getting clear on what the absolute requirements of the partnership are and how you want the transaction to work. For example, “We want a partnership because it’s a flexible and creative form of an alliance. However, it’s crucial that we keep control of our current business."

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