Companies are looking for ways to expand markets, strengthen product offerings and grow in what promises to be another challenging year. The economy has improved, but experts predict a slow recovery in 2010.
Strategic partnerships can be a very powerful tool for middle market companies to use for growth strategies.
Any successful partnership requires both parties understand each other, and that it offers a net benefit to both participants. The partners do not necessarily have to be the same size for it to work.
“The most common strategic partnerships take place between a larger company and a smaller company,” according to Chris Baumann, owner of C.M. Solutions, LLC. “The smaller player has something unique and different to offer such as a product, process, patent or idea.”
A smaller company can benefit from the market penetration of a larger partner to launch a new product. A larger partner can help significantly increase product development speed and shorten the time to bring new products to market. And, a larger marketing partner can significantly expand your sales force.
“What you want to avoid is an adversarial relationship, where the larger partner holds all the power and starts to control your company. It is not worth sacrificing your company to get a deal done with an important strategic partner,” Baumann added.
The best possible situation is for both participants to feel empowered to succeed.
“Going in you should feel that you have the right to succeed in any dialog you undertake with a potential strategic partner,” commented Loren Lancaster, managing director with the Electronics and Semiconductor Group of Core Capital Group. “It is helpful to understand your rights prior to talking with potential partners. This way you enter in the discussion from a position of strength that comes from understanding.”
Another important aspect of successful strategic partnerships is having a clear picture of the resources you are committing in order to avoid resource creep.
“In some cases a larger company will want to pull as many resources out of the smaller company as possible, said Peter Skalla, owner of Monument Capital Management, Inc.. “The agreement may call for a half time software designer and you end up giving up two full time people which can starve or kill all other development. This needs to be watched very closely.”
According to Baumann, Lancaster and Skalla, middle market companies have certain rights that come into play when developing a strategic partnership. These include, but are not limited to:
The right to…
own your customers and your customer relationships. It is important to maintain contacts with your customer base and control how your products and services are communicated to existing and new customers.
establish your pricing strategy. This is a very important strategic decision. One that you want to manage very carefully.
own what you develop for strategic partners. They get the benefit of lead time to market, but you ultimately own the product.
maintain your supply chain, value chain and manufacturing. Partnerships are not forever, so it is important to be able to continue making the product when the partnership is terminated.
get paid and to negotiate the most favorable relationships for your company.
prosper long term from the relationship. The partnership should enhance business value, not consume it. That way when you part ways a stronger business remains.
receive a sound and solid contract that offers transparency and clarity to the relationship.
have partners live up to their agreement and face consequences if they don’t.
renegotiate the contract or terminate the contract. It is critical to have an exit strategy built in to the contract up front. Business changes and you need to be able to change with it.
shop for the best deal. Remember the value you bring to the relationship and don’t be afraid to ask for what you need to be successful.
It’s been said that in business you don’t get what you deserve, you get what you negotiate. This is particularly true when dealing with strategic partners. Some opportunities offer greater room for negotiation than others. Knowing your rights helps in the process. But, you don’t have the right to everything in the relationship.
For example you don’t have the right to a partner’s intellectual property (IP) just because you have benefited form using it. Once the relationship is severed, you no longer have the right to use the IP unless it is clearly stipulated in the contract.
“I tell my clients never to expect a strategic partner to save your business,” Skalla said. “A strategic partnership is always about leveraging resources of the partners to their mutual benefit based on the market and business needs at the time the deal was struck.”
Strategic partnerships are not forever, but can be a beneficial way to multiply resources and advance goals of both partners.
Ann Snortland, principal of Snortland Communications, is the spokespwoman for the Peak Venture Group Middle-Market Entrepreneurs. She can be reached at firstname.lastname@example.org.