Business owners who want to grow their business have many options available to them. Creating strong relationships with employees and customers is important, but another way to gain greater success is to partner with other companies, something called a strategic partnership.
Complementary Offerings
Businesses may form strategic partnerships to share resources, such as information, services, transportation, or products, in ways that are mutually beneficial for the companies involved. Usually, the partnerships consist of non-competitive businesses that are complementary to each other. Examples of strategic partnerships include the quaint coffee shop located inside the local bookstore, or large chains like Target and H&M partnering with well-known designers to create a limited line of clothing. They function mostly independently, but each company benefits from offering a product or service the other company does not have. In both instances, the customers are drawn to the businesses in new ways. However, while each company shares in the profits, they usually share the risks as well.
Benefits
A major motivation for a strategic partnership is that the partners each may increase profit while decreasing costs. Ideally, businesses seek out and find other businesses that will grow their customer base by reaching different markets. Having access to an already existing customer base is much more efficient than finding customers or targeting new markets from scratch.
Strategic partnerships provide an opportunity to expand geographically as well. On-line services remain powerful and popular, but more and more customers are consciously supporting local businesses. A strategic partnership allows businesses to ease into a new geographic area as they become part of a familiar business. The partnership itself creates a more trusting and accepting customer base since “new” customers are already at ease with the “old” business. Brand awareness expands too, as new customers have increased exposure to logos, slogans, and products.
Not only can a strategic partnership provide new customers, but it also provides added value for existing customers. Customers find that this partnership provides additional services or products which improve their experience, in turn creating even greater loyalty for their original customer base while reducing the likelihood that customers will turn to competing businesses.
Additionally, one partnering business offers knowledge and proficiency that leads to greater success for the other, and vice versa. The partnership decreases the costly process of trial-and-error when entering a new market because ideally the new partner has not only survived that process but is thriving. Each partner profits from the experience and expertise of the other.
Collaborating with a partner not only protects and enhances what each business provides, it may pave the way for innovation, especially for smaller businesses. Strategic partnerships allow for shared resources. Making use of another company’s equipment, for example, allows money to be spent in other ways. What’s more, combining resources may enhance innovation for businesses because partners are now able to focus less on day-to-day worries and more on future possibilities.
Establishing Strategic Partnerships
Once businesses have identified needs and determined companies which might fill those needs, they should formalize that relationship with a strategic partnership agreement, also known as a joint venture agreement. Such an agreement establishes the terms and parameters of the relationship, ensuring that all participants are on the same page. In order to solidify understanding and expectations, a strategic partnership agreement should include the following:
- The names of all parties participating in the agreement;
- The services each party will provide;
- The amount and type of compensation each party expects;
- The logistics of the partnership; for example, billing practices, reporting procedures and time frame, or names and titles of parties responsible for specific tasks;
- The length of time the partnership will exist;
- Expectations about confidentiality and exclusivity; and
- Signatures and dates
While a strategic partnership agreement is not legally binding, it offers a path forward for the companies involved and may lead to a formal contract, which is legally binding.
A strategic partnership allows for businesses to grow together in ways that might not be possible if they worked alone. Also key to successful collaboration is working with an experienced business attorney, who is able to offer legal input and perspective throughout the process, further ensuring the success of both businesses.
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