The Power of Strategic Partnerships

The Power of Strategic Partnerships

It’s a natural instinct for those with an entrepreneurial bent to forge their way alone. Most businesses are born of a single idea, driven by an individual or small group.

When it’s time to expand your reach or offerings, however, the path forward may not appear as obvious. The juncture of where you are and where you want to go is a place to look for strategic partnerships - other businesses whose offerings coordinate in some way with yours - with which to collaborate. Companies that join forces with others often enjoy compelling benefits like higher profits, a higher rate of - and faster - closing of deals, quicker launching of new products and higher customer retention.

Identifying Potential Partners

Finding a partner business that benefits both enterprises is crucial to the success of the alliance. Look for these elements when identifying potential partners:

Common audiences - Identify the customers who are interested in both companies - those people are a likely fit for both your businesses. This is your shared network for marketing your partnership’s offerings.

Complementary pairing - Consider how what you offer could make your partner’s offering more attractive or valuable - and vice-versa.

Customer needs - Reflect on what your customers want that you don’t or can’t provide. Someone who provides that need will make an ideal partner.

Alleviate customer buying hesitation - A company that removes a barrier between making a sale and no sale is terrific partner material.

Diverse abilities - Look for a partner with talents and abilities that differ from your own skillset so that when you work as a team, there is a wider base of competency.

While it’s important to the success of the partnership that you complement one another’s offerings, it’s equally important that there’s congruency in the way your businesses operate, sharing similar company values, culture and financial health.

Elements of a strategic partnership

The question, "In what ways can a company partner with another?" has a number of answers. These are major types of partnerships that each in their own way provide value to both parties. Multiple strategic relationships - or elements of them - can combine to make effective partnerships by leveraging a variety of value-adds.

A marketing partnership (the most common such alliance) is when two businesses actively promote each other to their respective audiences. Since they share the same customer base without being competitors, the practice effectively doubles their marketing and referral reach. A general contractor and interior designer would make an ideal marketing partnership.

An integration partnership is established when companies’ offerings (systems or services) are linked (through an API), providing a seamless experience and enhancing each other’s usefulness to customers. A prime example of this partnership is Mailchimp + WordPress: a website’s blog signup form feeds directly into the email marketing platform, keeping subscriber lists synced in real time.

A technology partnership allows companies to save money by sharing the expense of costly operating equipment or technology that neither could justify alone. Imagine a small law firm and a small accounting firm sharing the cost of a secure document management server.

A financial partnership is a relationship where, through analysis of financial data, an outside firm’s insights directly shape business decisions of their partner with an eye toward strategic expansion. This could look like a growing restaurant chain partnering with a financial analytics firm to model which cities offer the best conditions for expansion.

A supply partnership establishes a preferred stocking arrangement between a manufacturer and a retailer, in which the seller agrees to stock the item, guaranteeing a selling point for the item in exchange for favorable pricing or exclusivity for the store. For example, an independent coffee shop agrees to exclusively serve a local roaster’s beans. The roaster gets a reliable retail outlet; the café gets favorable wholesale pricing and a local-brand story to tell customers.

A supply chain partnership involves multiple companies each handling different parts of manufacturing for a single product, each focusing on what it does best and together producing something none could efficiently build independently. Think about a craft furniture company partnering with one shop that mills raw lumber, another that produces custom hardware, and a third that handles upholstery - each focused on their craft, together producing a finished piece.

Caitlyn Wells, founder of Upwell Strategies, sums up the power of these relationships with these words, "Strategic business partnerships are about more than just working together. They’re intentional collaborations where two organizations combine their unique strengths to create something greater than they could achieve alone."

Strategic structuring

Of course partnerships must be structured to ensure mutual benefit for both companies. Some important elements to consider include:

Legalities - Consult legal and accounting advice to ensure the proper framework, e.g. LLC, partnership or co-branding agreement.

Means of governance - It’s crucial to have a framework in place that lays out how the partnership operates, including reviews of performance, decision-making responsibilities, conflict resolution and accountability.

Roles and responsibilities of parties - Defining who does and decides what, based on the strengths, knowledge and proclivities of each partner, is key to keeping the partnership going smoothly.

Financial responsibilities - Taking matters such as capital contributions, profit/loss distribution, budgets and growth projections into account is of paramount importance.

Communication among partners - Agreement upon communication methods and frequency of meetings for updates on the status of the partnership and its performance ensures everyone’s always on board.

Exit strategy - Determine the parameters of the partnership, what constitutes "completion" or the need for a dissolution and procedures for un-partnering so there’s no "messy breakup."

Without these structural elements, partnerships can unravel; studies show the majority of business alliances fail due to poor communication or misaligned expectations.

Theresa Caragol, CEO of AchieveUnite, has this to say about the power of partnership for companies: "Partnerships let you share resources, tap into new customer bases and even split risks so big ventures don’t feel so daunting."

Strategic partnering is a strong strategy for growing your business as long as you carefully consider with whom you align forces and thoughtfully manage the alliance.

Which businesses could be your ideal strategic partner?