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Joint Venture Paradigm Shift Requirements

 

Why should you enter into a joint venture? Why should you try something you’ve never tried before and risk failure? Why should you take time from your core business to reach out to another organization that may not even be interested in partnering with you?

Many of the entrepreneurs who struggle with these questions conclude that they must either enter into joint ventures and partner or die. There are no other viable alternatives to long-term, sustainable growth. As entrepreneurs look to find creative and predictable ways to grow their businesses in the Customer Economy, many will conclude that they must become proficient at developing joint ventures because the business growth potential is tremendous.

Through a joint venture, your company can achieve growth by selling:

New products and services to existing customers.

In this scenario, you link with a partner to provide their products or services to your current customers, or the two of you jointly develop new products for your existing customers.

Existing products and services to new customers.

A partner is often able to quickly open up new markets to you that would take you some time to break into on your own. By forming an alliance with a company that is already active in a market that you’ve targeted, you can shorten your entry time into that arena. Instead of knocking on doors as a stranger, you have the benefit of having your partner open those doors for you.

New products and services to new customers.

Together, you and your joint venture partner can combine your core capabilities to create something new and exciting that will attract new customers for both of you. Bringing two organizations together can create synergy that shortens both the new product development and sales cycles and puts you both on the fast track to market expansion. Also, by developing a new product or service with a partner, you spread the risk of failure over two organizations instead of putting it all onto your own company.

Obviously, you can also grow your company by selling more existing products and services to existing customers. But let’s be realistic. If you’re selling to other businesses—unless you’re in an industry in which your customers are experiencing significant growth themselves—this type of growth is likely to be very gradual.

So you need to be either in the position to offer these customers something new or to reach out to new clients with either existing or new offerings to support the significant annual growth you desire.
Likewise, if you’re selling a consumer product or service, your ability to grow by significantly increasing the volume sold to existing customers generally is not huge. Here again, you need to constantly reach out for new customers or offer existing customers something new and innovative to achieve consistent growth.

ACCEPTING THE PARADIGM SHIFT

Some entrepreneurs are leery of joint venturing because their business philosophy stresses the importance of standing on their own two feet and doing things for themselves. If you started out with scarce resources and toiled on your own for many years to achieve success, it can be difficult to think of doing it any other way. Giving up even a little control may be hard to contemplate.
If you are a woman business owner or a minority business owner, you may have had little choice but to do everything yourself. In the past, lending programs geared toward your business-growth needs were scarce, so you had to bootstrap your organization, using personal funds and what you could borrow from relatives or friends. Beyond gaining access to capital sources, women and minority entrepreneurs also have had a difficult time gaining access to markets. Despite the technical, managerial, and leadership skills to add value to customers that these entrepreneurs bring to the table, some institutions still resist the participation of these new, intelligent, and energetic business leaders. While the resources available to women and minority-owned businesses have improved, the situation is still not ideal, so the notion of having to do it all by yourself is still heavily ingrained in many business owners’ minds.

To even consider undertaking a joint venture requires a shift in this paradigm. You must change how you think about your business and specifically how you believe you can best grow that business. Changing the paradigm requires accepting that going it totally alone in today’s complex business world may simply no longer be possible for the vast majority of small businesses.
Always keep in mind that you don’t have to bet your whole company’s future on your very first alliance. You can start out small and build both your company’s competence as a joint venture partner and your own confidence in the wisdom of joint venturing as a business growth mechanism. And while some joint venture partner relationships do eventually result in one organization subsuming the other, if that’s not something you wish to have happen with your business, you can design your alliances to have different outcomes.

The doubts that enter your mind as you begin to consider a joint venture may cause a cacophony of noise that can make you want to forget the whole idea. This noise can get particularly loud when you begin to consider a specific partner.  You start to look at a possible partner and you immediately begin to come up with objections about why forming an alliance with that particular company won’t work. You think, Yes, they’re a possibility but they’re:
• Too small
• Too large
• In the wrong geographic location
• Minority-owned
• Majority-owned
• Woman-owned

When this happens, you need to turn this objection on its head and use it to add value instead of to detract from the attractiveness of a partner. Thus, you think something like, They’re too small, but they bring:
• Customer relationships
• A different way of thinking
• Access to domestically emerging markets
• Access to internationally emerging markets
• Technical competence
• Political relationships
• Geographical penetration
• Industry sector penetration
• Engineering niches
• Marketing savvy

The list of skills, know-how, and vital connections a potential partner can offer is endless.

THE STRATEGIC PARTNERSHIP MODEL
Building trust. Although lots of tasks can get accomplished between two or more companies looking to form alliances, very little of real substance or positive value can be created unless the people within the organizations share a bond of trust and mutual respect. Building trust is a delicate issue that becomes even more challenging when the people who are considering a partnership are different. Differences can be defined and sliced by class, culture, gender, race, ethnicity, geography, and other criteria. By being aware of the differing attitudes of people who are on the other side of the racial, ethnic, or gender divide, you are better prepared to overcome common misperceptions and build the trust that will be the bedrock of your joint venture.

Define mission, goals, and objectives.

The major benefit of creating a strategic alliance is that the alliance allows all companies involved to compete for an opportunity that neither company alone could realize. Opportunity gaps or vacuums develop in markets due to uncertainty, chaos, inconsistencies, timing, lags, or leads in market developments, technological evolution (or revolution), and/or inertia. Going after these opportunities in the market often requires adding new skills to a company, and the quickest way to do this may be through joint venturing. Entrepreneurs who recognize these opportunity gaps or vacuums before competitors do can identify potential partners to help them assemble the best team possible to go after the newly emergent market opportunity.
Bringing this team together successfully requires that each potential alliance member is crystal clear on the joint venture’s mission (the scope of the venture and the dominant emphasis and values), goals (usually quantitative targets, such as to increase market share by 15 percent or increase revenues by 25 percent— though sometimes qualitative, such as improving customer service or improving the quality of existing products or services), and objectives.
Never be tempted to skip or rush through this important strategic planning exercise without giving it ample attention. By being very explicit about what you hope to achieve together up front, you and your prospective partner can avoid huge problems down the road.

Define customers, products, and services.

After you’ve established your joint venture’s mission, the next step is to identify your target customers and which products and services these customers will be offered. Determining which customer or customers you need to focus on and what it is that you collectively bring to the table (products and/or services) will maximize your efficiencies as a team and minimize duplicating work. Again, because you are working with a partner who may have a different set of customers and different ideas about what the products or services should be, this can be an intricate decision-making process.

Complete self-evaluation.

Shakespeare said, “To thine own self be true.” This adage couldn’t be more important than in the consummation of a joint venture. As you work with your potential partner to define the mission, goals, and objectives, and identify the customers and products or services, you also should give your own organization a thorough analysis to determine if you have the capabilities needed to fulfill your part in this proposed joint venture. Part of this self-analysis involves asking yourself one important question: “What value do I bring to this team that my partner either does not have or, if she has it, doesn’t do as well as I do?” Another question you might want to ask yourself is, “Could this team be successful if I were not on it?” This type of self-evaluation helps you to position your role on the team and what value you bring.
This self-evaluation process cannot be fully completed until specifics of the joint venture are determined, because until you understand what will be required of your company, you can’t determine whether your organization has the “right stuff” for this particular joint venture. However, there is much analysis you can do in parallel with the mission definition step so you are ready to say yes or no to the partnership at the appropriate time.

Know your partner.

Just as it’s important to know your own organization thoroughly before entering into a joint venture, you definitely need to know all about the organization you’re considering as a partner. I am still amazed at the number of companies that fail to exercise proper due diligence in researching and studying potential partners. You could be putting your company on the line by aligning with another firm. Isn’t your company worth a little extra effort and time up front to protect it from the dangers of a bad partnership?

Some businesses, though, are not so lucky, because they fail to dig deeper into their potential partners’ character and past. The parents and family are defined as any person, organization, or institution that directly or indirectly interfaces with the company with which you are proposing to create an alliance. These entities could include employees, stockholders, vendors, government officials, trade leaders, and competitors. The health of your alliance will depend on many people who will not be in the room when the partnership is being formed. The last thing you want to have happen is to find out after you’ve inked a deal that key employees in your partner’s organization aren’t up to getting the job done or that your partner has bad relationships with vendors who are essential to making the joint venture a success. This is why it’s essential to take time to get to know the family up front.

Establish relationship boundaries.

Setting boundaries for the relationship is essential. This includes determining up front what your process will be for resolving the conflicts that inevitably arise in any partnership. By having this discussion before anything goes amiss, you will assure that problems get ironed out quickly with less possibility of causing any animosity between the two sides.

Determine first-step project.

Nothing happens until something happens! This may sound like a Yogi Berraism, but it really drives home the point that good intentions and stellar joint venture legal documents won’t measure up to a hill of beans until the joint venture team begins working on a first-step project. Even if the initial project is small, you want it to be well defined. Both  partners must be crystal clear about things like the project plan, timeline, performance measures, and financial commitments before moving forward.

Maintain independence.

Unless you are planning to completely integrate your company with another company, you must maintain a certain level of independence from your partner so your company can continue to grow and prosper beyond the joint venture’s end point. By being clear up front on which assets are part of the deal and which are not, you will avoid misunderstandings and be able to properly leverage your other assets, customers, and opportunities to benefit your company in other ways.

Another reason for maintaining independence is that, depending on the size of your joint venture, you could risk being distracted from your existing business, especially at a very critical time. It’s important that mechanisms are in place to assure that your current product line or services receive the necessary continued support. This includes communicating clearly about the joint venture with your current customers, vendors, and other stakeholders so they know exactly how this new undertaking will affect your ongoing business.

Relationship maintenance. 

Some will argue that if it has reached steady state, that is a good place to be. Our business environment is constantly changing and consolidating, so adjustment to that dynamic requires that businesses scale quickly and efficiently to at least maintain their positions in the marketplace.
Likewise with maintaining joint venture relationships—if the relationship isn’t growing, then it is dying. Just because the deal is signed doesn’t mean your work is done. As with any relationship, it will require constant monitoring and maintenance. You must continually take the temperature of the relationship to make sure that everything is well.

Legal aspects of joint ventures.

Joint ventures come in many legal forms. While a lot of this can be left to the lawyers, there are legal issues you need to understand and decisions you need to make before signing on the dotted line. I put this information toward the end of the model not because it actually occurs at the end, but because it’s rather dry information. However, never forget that it is also critical information, so please don’t skip this chapter when you come to it.

Exit strategies.

Like everything else in life, all good things must come to an end, including joint ventures. The exit strategy defines how the entrepreneurs will bring the alliance to an orderly and scheduled close. The same amount of effort that goes into building a joint venture/alliance should go into developing workable strategies for exiting. How are you going to dissolve this thing when the mission is achieved? How will you bring the relationship to a close in such a way that all parties involved feel good about the experience and that they are walking away a better company than before they engaged in the alliance? The choices for exiting are many, but they need to be determined from the very start so that there are no misunderstandings when the partnership nears the end of its days.

 

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