Strategic Partners

Table of Contents

1. What is a Strategic Partner?

2. Who is This Good For?

3. When is This the Best Choice for Me?

4. When is This Not Advised?

5. Tips for Getting The Money.

6. Ingredients You'll Need on Hand.

7. Rhonda's Tips.

8. Watch Out For...

1. What is a strategic partner?

You form an alliance with another company whose goals are congruent with yours, perhaps they share the same market but provide a different but related product or service. Perhaps they are in the same business but in a different location. Perhaps they have excess demand and need your help in serving their client base. Many companies enter into strategic partnerships that don't entail financing, but it is also possible to get financing from a strategic partner in some situations. Financing from a strategic partner can take the form of an investment, a loan, a prepayment for work to be done, or the exchange of other resources, such as space, material, personnel.

2. Who is This Good For?

• You have come to grips with certain weaknesses -- in your company, yourself, or both -- that need to be balanced. For example, you have research expertise, your partner has manufacturing capacity;

• You have something a larger, and richer, partner wants, such as a new product, particularly capable personnel, a market niche;

• You are very vulnerable on your own, and a bigger partner gives you clout in the market;

• You are new in business on your own, but respected in the industry, and another company that has more work than they can handle decides to help you get underway, as long as you help them with their excess demand.

3. When is This the Best Choice for Me

• You find yourself eying another company in your industry and saying to yourself, "if I had that, I could...." But you lack the money, time or other capability to build those resources on your own;

• You want to expand more rapidly than you could on your own and you recognize the advantages a strategic partner brings, even if there are trade-offs, such as less than complete independence;

• You are losing bids on contracts because you don't have the depth of resources customers want, but through a strategic partnership, both you and your partner can get more work;

• You don't have the money for certain necessary business expenses, such as office space, and the partner has excess capacity in what you need;

• You're going to get creamed by the competition if you don't get stronger fast, and the partner enables you to leapfrog your competitors.

4. When is This Not Advised?

• When one party has a lot more to gain than the other. Unless a partnership is mutually beneficial, it will fizzle sooner or later.

• When you really, really like working alone. Even though a strategic partnership is limited, you still must work with others. If you're a lone wolf, maybe you don't want anyone else that you have to report to, make decisions with, or otherwise deal with on a regular basis.

• When you have proprietary technology, expertise, or information that the strategic partner will gain access to and after a short while be able to cut you out of the picture. Make sure this is a real partnership and not just a way to rip you off cheaply.

5. Tips for Getting The Money

• Propose a clear, mutually-beneficial relationship; both sides must feel they benefit fairly equally for a strategic partnership to last well over time;

• Understand the value of the money and other benefits of the relationship before you get into discussions about what the partner will get in return, whether equity, a loan, work, etc.;

• One of the advantages of a strategic partnership is that you may be able to return the investment with work performed rather than equity or direct repayment of cash; explore these options;

• Identify potential partners from people and businesses you've already worked with, where there is a mutual level of trust and respect; if you don't have experience with a particular partner, perhaps you want to start slowly with projects that don't entail giving them any ownership interest in your company;

• Negotiate upfront how you'll split profits and any jointly acquired assets, as well as liabilities and resolutions of any disputes that arise;

• Specify in your partnership agreement who will "own" any new customers acquired as a result of your partnership if things dissolve in the future; will you be building a customer base for yourself or for them?;

• Specify in your partnership agreement how you'll divide the ownership of products you develop jointly, and any revenue streams from the sale, licensing, or production of the products;

• Bury any paranoia: For this to work, you'll have to let your partner in on some company secrets; if you don't think you can trust your partner, limit the activities you do together.

6. Ingredients You'll Need on Hand

• An agreement, usually drawn up by lawyers, specifying the nature of the agreement, all the rights and responsibilities, and what exactly is being exchanged;

• If they are getting equity or giving you a loan, you may need to give your partner a business plan, basic financial package, contracts of upcoming work, etc.;

• You or your partner may want non-compete agreements to protect the interests of both partners.

7. Rhonda's Tips

Business Planning Expert Rhonda Abrams offers tips and insights into financing from competitors and suppliers.

• Don't confuse a "strategic partner" with a business partner. With a business partner, you are taking someone else into your business to be a part-owner. You usually choose to do this to balance your skills or because you don't want to work alone. A business partnership is an ongoing relationship that is very difficult to extract yourself from. A strategic partnership is a relationship you develop with another company (it may be a one-person company), where you each maintain your own companies. There may be an exchange of some equity, but both companies continue to operate more or less as independent entitities.

• More and more small companies are seeing the advantages of entering into strategic partnerships. It's a good way to grow your company bigger faster. You get the advantages of having a lot more resources at your disposal without having to make the investment in personnel, equipment, office space. They can help bring you clients or additional clout in securing customers on your own. If you haven't explored the idea of strategic partnerships before, look around and see what other companies might make a good fit for you.

• Consider entering into strategic partnerships with companies in the same field that operate in different geographic locations. This may help you give the appearance of being a larger company when trying to get customers and it may help you stay current in your field. Especially if you are bidding on work that might need to be performed in more than one location, having a network of similar companies can help you in competing for contracts.

• Make sure you have regular meetings with your partners. It's easy to get too busy to stay in good communication, but problems arise when you stop talking to one another.

8. Watch Out For...

• Badly uneven relationships: if one partner benefits far more than the other, eventually the relationship is going to fizzle. Be careful of one-sided partnerships.

• Unclear relationships: You may think you're growing your business -- they may think you're growing theirs. Be clear about even little things, like whose stationery the letters to the clients will go out under.

• Companies that just want to find out what you're up to rather than really wanting a relationship with you. Check out your partners!

• Some big companies deliberately use strategic as a way of identifying take-over targets and developing a limited relationship before acquiring them completely. That can be terrific if you're hoping to cash out your investment, but may be uncomfortable if you want to retain control for a long time to come.

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