Beware of Partnering Promises: Validate Why and Who To Engage With Before Forming Business Alliances

Before you engage in any partnering effort, be sure your expectations are valid. Do
you have good reasons to partner with other businesses? You should. Do you know
enough about your partner? You should. Beware of the wrong deal or the wrong
partner. But don’t let that scare you off. Partnering may be your company’s most
lucrative path for revenue growth and innovation development.

Don’t be swayed by promises your partner may not be able to keep. Don’t be
sucked into deals offering revenue you may never see. First, you must define your
own partnering goals. Second, find a compatible ally. Before you start negotiating
with anyone, conduct the appropriate due diligence to be sure they are actually
capable of delivering up their end of the bargain.

The First Step in A Thousand Partnerships

Whether your business generates profits directly or indirectly, markets or makes
products or services, sells via the Web or a sales force, offers parts or end-to-end
solutions, operates locally or globally, you cannot afford to ignore the partnering
opportunities available to you right now for growing revenue, innovation and brand
equity.

But before you begin to engage potential partners, think about how far you want
this journey to take you. Chinese philosopher Lao-tzu is quoted as saying, “A
journey of a thousand miles begins with the first step.” On its surface the statement
seems to say the obvious. After all, even if the journey is only two steps long, it
begins with a first step. So what did he really mean? Your level of commitment and
resolution to reach your destination is encapsulated in how you begin. Very little
determination is required in taking two steps. But one who embarks on a thousand
mile walk must summon a whole lot of tenacity and purpose into that first step.

Starting down the path of partnership is similar. Don’t take it lightly. View your first
partnering initiative as the first of many – the first step in a thousand partnerships.
Fail to start out right and nothing of consequence can follow. Start with the right
reason and a good understanding of the path before you and you’re on your way to
reaching your goal.

Before You Begin: Choose A Powerful Reason To Start With

Before you engage in the partnering process, be sure to have a clear plan. First,
decide on the best reasons to pursue alliances.

Your first alliance should be a strong one. Have a reason powerful enough to launch
your enterprise on its way to future partnerships — able to take you as far as you
can foresee.

Here are ten solid reasons for engaging in partnerships:

1. Customer Access – Two marketers exchanging access to compatible
customers.

2. Sales Initiatives – Producer or marketer working in tandem with a sales
force organization, retailer or Web store to increase sales.

3. Market Expansion – Partnership aimed at penetrating new or niche
markets.

4. Unique Value Alliance – Marketer with strong customer base partners
with innovative supplier adding unique value to the marketer’s offering and
increased sales for the supplier.

5. Building Scale – Partnership formed to achieve economies of scale.

6. Innovation and Specialization – Public, education or private enterprises
combine financial and knowledge resources to research and develop innovative or
specialty products, services or solutions.

7. Supply Chain Stability – Marketers trade exclusivity with suppliers in
exchange for investment in quality, cost reduction, and priority speed to market;
The supplier is able to make long-term commitments at stable levels and pass on
the benefits to the marketer.

8. Distributor Partnering – An alliance between manufacturers and
distributors to provide access to new markets, domestic or foreign, or strengthen a
position in existing markets.

9. Parts Manufacturing Partnership – Two or more manufacturers of
component parts pool their resources to produce a better product.

10. Licensing Agreements – Alliances providing license to proprietary
products, support services or technology.

Before You Engage: Learn About the Road You Will Be Taking

You may be motivated to go the thousand miles until you discover it’s all uphill. So
before you start on your way, be sure you know what’s in front of you. Six of ten
alliances collapse at some point down the road, because one or more of the
partners failed to do their due diligence. Before you engage a partner, learn the
following:

1. Management Strength and Integrity – Who runs the company – senior
officers and board of directors? Are these people dealing from strength or
weakness? Do they deal with integrity or are they the kind to cut corners or look the
other way? Do they have a litigation history?

2. Short-term Objectives and Long-term Goals – What is their corporate
strategy? What is their partnering strategy? What will they gain by partnering with
you?

3. Performance Rating – Is their organization efficient? Is it flexible? Is it
focused? Do they have other partners? How well have these alliances performed?
How well have they performed in the past? Regarding: quality of goods or services,
speed of delivery, pricing and management response to solving problems.

4. Capabilities and Innovations – What are their capabilities: past, present
and future? How committed are they to investing in capabilities that would benefit
your business? How creative are they? Are they unique and innovative?

5. Financial Considerations – What is their credit standing? Are they
profitable – as measured by EBITDA (Earnings Before Interest, Taxes, Depreciation
and Amortization)? Are they growing? At what rate – as measured by CAGR
(Compound Annual Growth Rate)?

6. Resources and Employees – Do they have the resources to deliver on
their end of the partnership at the scale required? Do they have the staff or
outsourcing to fulfill your orders? Are there unresolved issues with labor or former
employees?

7. Risks and Compatibilities – Are your trade secrets safe with them? Is
their company a fit with your company in regards to markets and cultures? Are they
looking for an exit strategy? How would a change in management or ownership
affect your alliance? Will they be sold in the near future or right after they close the
deal with your company? Is your partner planning on bringing in new investors? How
can you get out of a failing alliance? Who will own new intellectual property rights
and patents produced by your partnering?

Before you make contact with the prospect partner conduct as much research as is
available to you. A second, more comprehensive and mutual due diligence phase
must be undertaken once both parties have agreed to embark on negotiations. You
will want to personally visit your prospect partner’s offices or production facilities.