Advivo Managing Partner, Leon Stephen, helps you to weigh up whether a joint venture, strategic alliance or partnership is best for growing your business.
In previous blogs, we have discussed many strategies for growing your business, and ultimately they fall into two distinct categories. The most common is the slower ‘organic’ growth path -deploying multiple strategies to grow your sales profits over time, or the ‘turbo-charged’ strategy which involves an instant growth strategy of plugging in additional resources via Joint Ventures, Strategic Alliances, and Partnerships. This increases your resources and accelerates your growth more quickly – that is, of course, assuming your selected option works for you.
Like any major project, a significant amount of research – followed by appropriate planning, implementing robust documentation with third parties, pilot testing, and deployment of a detailed implementation plan with ongoing monitoring and benchmarks – is essential. Joint Ventures, Strategic Alliances, and Partnerships can be quite risky to your business, your culture and your clients. For example, A\a client who once had an unsuccessful attempt down this avenue of accelerated growth that failed said it was almost impossible to recover the business to where it was once – he had “let the wolf into the chicken coop”. The consequences of not getting it right were a destroyed culture and the loss of several key staff and some major clients. So how do we get it right?
In some ways, all three of these options (Joint Ventures, Strategic Alliances, and Partnerships) are all the same but legally, structurally and commercially they are all different. What is the same is they have to be the right fit for your business, so you must get to know the key people first before you jump in to understand what drives them and their values, culture and processes to ensure a harmonious and efficient working relationship. The people in both businesses need to deliver, the cultures need to be melded together, and all team members need to align in their purpose. On the other hand, if your people are dysfunctional, then your business will be too.
Values
Setting values for teams is important to achieve clarity of purpose. Shared and aligned values are essential for a business to prosper. It is not easy to bring two teams together, but it is impossible without value alignment. There will always be some minor differences but if there is a lack of alignment, which is usually obvious at the outset, it is a no-go.
It is a key step to review both sets of values and determine whether your existing values and theirs can align, or will align with some minor changes.
Culture
Managing culture is one of the greatest challenges for business owners. It’s not easy to change and it takes time to get it humming along but can be broken very quickly.. That is why when you do your due diligence, you should invest time into exploring the culture of your proposed alliance, partnership or joint venture.
Processes
Another aspect you will have reviewed in your due diligence is the HOW of your business. Following the alliance, whatever shape or form it takes, you may have two groups of people with two very different ways of doing things. Ask yourself: will this be efficient, will it impact inefficiencies and re-working, and will your customer service be negatively impacted?
It’s possible that your new partner may have some better systems or some less efficient systems than you, so it’s time to see which parts you want to retain and which parts you want to change. Choosing the best of both businesses will help to create a new and improved process.
Furthermore, the integration of your combined systems and processes must at the very least maintain current efficiency and service standards and hopefully initiate further improvement.
Now we have raised some ground rules: which is right for you? Joint Ventures, Strategic Alliances, or a Partnership?
There is no one answer – it will depend on you, your business and circumstances and, to a degree, what you are trying to achieve. No matter which you choose the terms and conditions need to be fully documented before you start and include the difficult discussion points around termination conditions and requirements.
Strategic Alliance
As I mentioned, a ‘pilot’ above strategic alliance is one way to better get to know the other side before it is an all-in marriage, akin to living together first. That is ensure that the process is easily and quickly unwound if it is not working and move on without major legal or financial consequences as there is no formal merger of the two parties. From an accounting point of view, each party is independent of the other for the taxation, legal and financial affairs.
Partnerships and Joint Ventures
A Partnership and Joint Venture are pretty much the same thing effectively, with some minor variations. The two entities have engaged in a combined manner to execute a commercial venture. Each party is a party to that combined venture, however unlike above, they are operating under one umbrella with the ability for the actions of one party to legally and financially impact the other. As noted above, there are many variations to how this structure may operate, which will be in many ways dependent on the legal agreements that form the joint venture or partnership, and they are too diverse to fully comment on. Different to the above, the partnership or joint venture is an entity in its own right with legal, accounting, financial and taxation responsibilities.
As noted earlier there is no one right answer for each business and their personal objectives and circumstances will be different, so the best advice is to seek professional legal and accounting advice before committing to any of the above.