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A strategic alliance is a partnership between two or more companies to achieve mutual benefits and pursue specific goals while remaining independent. If you've never thought about this or believe it's only for large companies, think again. For small businesses, strategic partnerships can provide great opportunities for growth that would otherwise not be possible financially or strategically.
Related: How forming strategic alliances can help your business succeed in turbulent times
What are the benefits?
- Rich resources and knowledge
- Access to new markets
- Increased efficiency and cost effectiveness
- reduce risk
- Create a better customer experience
- Improving brand awareness
3 types of alliances
A joint venture is when two parent companies form a third company called a subsidiary. The two parent companies will continue to operate separately and hold equal shares in the subsidiary.
However, if one company owns more shares in a subsidiary than the other company, this is called a majority-owned venture. For example, if you run a bakery and decide to partner with a company that produces coffee, the subsidiary you can create could be Coffee His Shop. This way, both bakers and coffee makers can share their skills and expertise in creating a successful coffee shop.
2. Stock strategic alliance
An equity strategic alliance is when one company acquires a certain percentage of another company. Equity strategic alliances are formed when one company can benefit from another company's core competencies.
3. Non-equity strategic alliance
Non-equity strategic alliances do not involve the acquisition of a company and are usually done in the form of a contractual agreement. Let's say you're a wedding planner and you have a wedding venue that your target market prefers to book. You can make an agreement with the venue about either referring clients to you or having you become their in-house planner. This partnership will provide wedding venue customers with better customer service by creating an easier experience.
Related: 10 steps to forming long-term strategic partnerships
How to set up the right strategic alliance
1. Define your goals
Start by defining your business objectives. Are you looking to spread brand awareness, improve your own technology with another, expand into other markets, increase sales, or have a combination of goals you want to achieve?
2. Create a list of potential partners and why they should work with you.
Make a list of all the companies you want to work with. You want to make sure that their company's values align with yours. This is important in terms of ensuring branding consistency and not intimidating current customers. When you have the same values, it's easier to communicate and make all sorts of problem-solving and compromises easier. Be sure to check out the ratings and reviews as well.
From there, create a list of mutual benefits. If you want to persuade the other company to enter into a strategic partnership, remember that you need to show that it is a win-win situation.
3. Negotiate the terms and type of partnership
Develop a clear agreement or contract regarding each party's responsibilities, what metrics will be measured, and whether it will be a joint venture, equity strategic partnership, or non-equity strategic partnership. The agreement should also include an exit strategy in case the strategic alliance doesn't work for either company. In this way, alliances can be mutually dissolved.
4. Be flexible
As you continue to measure the success of your KPIs, metrics, and partnerships, be prepared to adapt if circumstances change or something goes wrong. There's a reason you chose them as your strategic alliance partner, so be open to their ideas and opinions. You and the other company likely have many different skill sets, so take advantage of that.
5. Learn and grow
Everything in life and business should be a learning experience. Use your partnership as a case study for your company and take a closer look at what worked and what didn't. From there, you can make an informed decision if you want to continue the partnership. We also recommend conducting an exit survey with your employees so you can see what they think about the whole process.
Related: 4 important considerations before starting a strategic partnership
It's not all about increasing brand awareness or increasing sales, so we feel obligated to include the risks associated with strategic partnerships. Let's talk about what can go wrong.
- Different priorities: Each partner may be motivated by their own goals.
- Liability: It is important that the contract includes all types of responsibilities that each company is responsible for.
- Difficult to communicate: Since there are two businesses, you will need to check with each business if anything changes or moves forward. It may take longer than usual.
- One side gets a better deal: We want to keep things as fair as possible, but for reasons beyond anyone's control, one company might get a better deal.
Although there are some caveats to be aware of, there are many benefits to forming any type of strategic alliance. Whether it's a joint venture, an equity strategic alliance or a non-equity strategic alliance, you can increase your knowledge, sales, access new markets, generate better output, enable better innovation and take risks. , create a better customer experience, and increase brand awareness. Follow the steps, defining your goals, making a list of companies you want to work with, listing mutual benefits, drawing up a contract, and remembering to be flexible. From there, you can learn and grow for your next strategic partnership opportunity.