Strategic partnerships are a powerful driver of company growth, innovation, and efficiency. These partnerships tend to be comprised of market-distinct yet compatible companies. There may be some exchange of equity, such as a company buying a stake in another one, or a shared project in the case of a joint venture.
Strategic partnerships can unlock tremendous value for both firms, but their success depends foremost on careful planning, a sober assessment of your respective goals, and mutual expectations for the venture.
Find Your Why
A company deciding to form a strategic partnership before identifying the desired outcome is a bit like going to the store without a list, or even knowing what you’re making for dinner in the first place.
A better approach is to understand why your company needs a strategic partner, and conduct an intentional search for a candidate that meets those needs. Common reasons for a strategic partnership include:
- Shoring up a production weakness, such as a key input with volatile price or supply;
- Leveraging brand synergy by marketing together;
- Entering a new target market;
- Combining market power to better compete with larger industry players.
Once you find strong candidates to fill that need, the conversation should begin with a clear, open discussion of how to structure the relationship.
Defining the Relationship
Clearly defining terms is essential for any relationship. This is particularly important when combining efforts between companies. After all, competition is the default mode between firms, and partnerships are more the exception than the rule.
Finding where the competition ends and cooperation begins is key to avoiding friction in the relationship and maximizing the synergy between firms.
Important ideas to nail down include:
A strategic equity alliance involves some exchange of ownership interest between companies. This is naturally the most extensive type of strategic partnership, and will often yield the highest level of integration between partners. A major advantage is that it creates an intrinsic incentive for both companies to serve the interests of the other.
To what extent will the companies cooperate? What are each company’s respective roles and obligations in the partnership? Is there a profit-sharing component, or are companies simply cross-selling one another’s products? Is there a monthly supply quota to be met, regardless of fluctuations in price, demand, or supply? Asking these questions early will help define the scope of your partnership, so you can move forward with clear expectations.
To what extent will the partnership be publicized? Combining brands can be a powerful way for both companies to leverage the visibility and reputation of the other. Of course, the benefit of this strategy is only as strong as the compatibility and respective reputations of those brands.
Bose is an example of a company that has successfully leveraged powerful strategic partnerships with high-end vehicles, providing a mutual reinforcement of luxury and superior performance.
Locate the Exit
Strategic partnerships have the potential to bring your growth and business development to the next level, but like most assets, they tend to have a finite useful life.
For joint ventures in particular, it helps to set an exit expectation. This avoids keeping the partnership beyond its mutual benefit, or blindsiding one party by abruptly ending it. Set a clear, mutually understood lifespan for the partnership.
Exit plans can be time-driven, such as setting a finite end date, or driven by a metric like growth, market penetration, or some other KPI. Discussing this early helps to avoid a much more uncomfortable conversation further down the line.
Data Rooms: A Must-Have in any Partnership
When you combine entities, you will always share sensitive information. From internal leadership to interested parties such as audit and legal teams, huge amounts of information need to be shared with many different eyes. If you’ve ever been part of such a process, you know this can be tricky, cumbersome, and potentially risky.
It should come as no surprise that M&A and partnership events are common catalysts for data breaches. No matter how strong your choice of strategic partnership, the time, energy, and assets invested in combining efforts will yield bitter fruit if it leads to a security event.
Data rooms offer the necessary protection against information leaks, intentional or accidental. And by consolidating all necessary files and strategically assigning access to those who need them, data room users can continue to safeguard sensitive information in the era of remote work.
They also have a positive impact on the efficiency of any union by immediately providing data access to all relevant parties. A strong virtual data room service will allow you to access your combining entities' sensitive information instantly. This way, your various teams can get on the same page from Day 1, rather than sifting through a long series of forwarded emails to search for last week’s essential file.
If you’re considering a strategic partnership, start the relationship on the right foot. Get in touch today to secure your partnership with the leading virtual data room.