I have struggled with the title of this blog for over a week, and the perfect one came to me during a coffee meeting with the Vice President of Development of a leading advisory firm. He used an analogy that I would like to share: He spends his days playing in traffic, hoping to get hit. Through his role, he focuses on inorganically growing business for his firm. He increases his chances of successfully finding strategic partners by casting a wide net. I believe strategic partnerships will be important in 2024 and beyond, and this conversation confirmed it. We all may have heard of successful corporate strategic alliances like Uber and Spotify, Starbucks and Target, or Red Bull and GoPro, but I would like to explore how almost anyone could benefit from a strategic partnership and open your mind to the possibilities that may exist right in front of you.
What is the purpose of a strategic partnership? On a basic level, every business has its strengths and weaknesses, and you can capitalize on another company’s strengths to get an edge in the marketplace. For example, let’s say I own a lemonade stand, and I am quickly gaining popularity in my neighborhood. Everyone raves about how refreshing the beverage is, but I know we are having some trouble with the packaging. I buy plastic bottles from our local Walmart, and the packaging costs alone are eating into my profit margin by 30%. My next-door neighbor, who happens to sell 100% recyclable cartons, visits my stand and pitches an idea: he provides the cartons, I provide the lemonade, and we offer my popular beverage with an environmentally friendly rebrand.
There are key factors that determine the success of a strategic partnership. Using my example, we are going to explore 3 and hopefully get you thinking about your next big move!
- Trust & Communication
- This seems obvious, but you would be surprised how many people disrespect the value of trust and communication in a business relationship. In a survey done by McKinsey, lack of effective internal communication and trust was voted as a top reason a joint venture could fail. In any partnership, each party must trust that they are being told the truth, whether in the data, contracts, finances, etc. Also, any agreements made should be upheld to avoid messy legal battles.
- In our lemonade example, I have to be able to trust that my neighbor’s cartons are truly 100% recyclable and environmentally friendly. Imagine investing in marketing and packaging just to find out his entire pitch was a scam. Can you imagine how harmful that lie would be to my brand and how it would affect my customer relationships? This is why it is so important to do your due diligence. Research everything and never take anything for face value. Come to every meeting prepared with questions, and do not let the excitement of a new relationship cloud your judgment. Collect as much data as possible so that you can be confident with your decision to move forward (or not).
- The more conversations you have with a potential partner, the better you will be at determining alignment. The best place to start is your values. Every person and business should have a value system that describes their core beliefs. Even if it is just one word or phrase, there should be something that you stand for and build everything around. When your core values are deeply embedded in everything you do, it will be extremely clear when people operate outside of that. Never bend or compromise when it comes to your values. No matter how good the deal appears, if there is a lack of alignment, somewhere down the line, the friction between partners will become unbearable. Another great way to determine alignment is by comparing purpose. Why does my business exist and why does yours exist? If we drew a Venn diagram, how large is the middle section in terms of what we offer our customers? Try to connect with people and businesses where you share a solid overlap because that is where you will likely find an opportunity.
- My (hypothetical) neighbor and I considered a partnership because we aligned in purpose. He created cartons, and I created lemonade, and both products depend on each other to be sold. However, that is only one layer to consider when it comes to alignment. Another layer is whether I or my customers value being environmentally conscious. After our discussion, we could stand to mark up the prices of the lemonade with our new marketing angle, but I need to research whether people will be willing to spend more on recyclable cartons.
- Shared Risk, Shared Reward
- In my opinion, the best partnerships happen when there is a pooling of risks and rewards. Everyone must have something to gain and lose. If I take you to Vegas and give you $1,000 to spend in a casino, how careful are you going to be with that money? If I had to guess, you would likely be more willing to take a few risks knowing that you are having fun on my dime. Now, let’s say we go to Vegas together and are stranded on our last $100 at a casino. I can almost guarantee that we would spend time building a strategy, hedging our bets, and gambling with the straightest faces knowing what was on the line. When both partners have skin in the game, there is a different attitude and approach to collaboration.
- Don’t worry, this is my last lemonade example, but consider how my neighbor and I will work together if we agree to share profits. Now, we are having weekly check-ins and reviewing our marketing ads because we both stand to gain a lot if this venture is successful. Our attitudes would be completely different if we decided to engage in a white-label, vendor relationship instead. In this case, my neighbor would not care whether I sold any lemonade because he made his money when I purchased the packaging. I am not saying you should go around sharing profits with every partner and entering risky arrangements to prove your commitment, but consider how you can incentivize each partner to maximize their efforts toward the success of the venture.
Toward the end of my meeting, we laughed about how you may “kiss a few frogs along the way” in your quest to find the right partner(s). Business is a marathon, not a race. You will meet a lot of unique players on your journey: some may be helpful, and some may completely waste your time. Not everyone who glitters is gold, and some of your least exciting calendar invites may end up being your best connections. You never know who may know someone who could be a great partner for your business, and even better, the person you think you know may have a lot more layers to them if you give them a chance. So, my challenge to you: NETWORK! Go to at least one networking event this week with the earnest expectation that you will meet someone and form a mutually beneficial relationship. As always, feel free to Ask Prisca if you need some ideas on how or where to start.