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A strategic alliance is a partnership between two or more companies to achieve mutual benefits and go after specific goals while remaining independent. If you’ve never thought about it or believe it’s only for larger companies — think again. As a small-medium sized business, a strategic partnership can be the perfect opportunity for growth which would have otherwise been financially or strategically not possible.
Related: How Forming a Strategic Alliance Can Help Your Business Thrive in Turbulent Times
What are the benefits?
- Pool resources and knowledge
- Access new markets
- Increased efficiency and cost-effectiveness
- Innovation
- Mitigate risks
- Create better customer experiences
- Increased brand awareness
3 types of alliances
1. Joint venture
A joint venture is when two parent companies form a third company called a child company. The two parent companies will continue to operate separately and will hold equal equity in the child company.
However, if one company owns more equity than the other in the child company, then this will be called a majority-owned venture. For example, if you own a bakery and you decide to work with a company that manufactures coffee, the child company you could create might be a coffee shop. This way both the bakery and the coffee manufacturer can share their skills and expertise in creating a successful coffee shop.
2. Equity strategic alliance
An equity strategic alliance is when a company purchases a certain percentage of another company. When one company can benefit from the core competencies of another company that’s when an equity strategic alliance would be formed.
3. Non-equity strategic alliance
In a non-equity strategic alliance, there isn’t any purchasing of companies, they usually come in the form of a contractual agreement. Let’s say you’re a wedding planner and there’s a wedding venue that your target market likes to book. You could form a contractual agreement with the venue for if they refer clients to you or you become the in-house planner. This alliance would help the wedding venue’s clients have better customer service by creating an easier experience.
Related: 10 Steps to Forming Long-Lasting Strategic Partnerships
How to set up the right strategic alliance
1. Define your goals
Start by defining your business goals. Are you looking to spread brand awareness, use another technology to improve your own, expand to other markets, drive sales or do you have a combination of goals you’d like to accomplish?
2. Make a list of potential partners and why they should work with you
Make a list of all of the companies you’d like to work with. You want to make sure the other company’s values align with your company’s values. This is important in terms of making sure the branding stays consistent as well as not intimidating your current customers. If your values are the same, communication will be easier and so should any type of problem-solving and compromising. Make sure you also check out things like their reputation and reviews.
From there, create a list of mutual benefits. Remember, you want to convince the other company they should join a strategic partnership with you and you need to do that showing it’s a win-win situation.
3. Negotiate terms and partnership type
Create a clear agreement or contract on what each party is responsible for, what the metrics being measured are and if it’s going to be a joint venture, equity strategic alliance or non-equity strategic alliance. This contract should also include an exit strategy in case your strategic alliance isn’t working for either company. This way you can mutually dissolve the alliance.
4. Be flexible
As you continue to measure your KPIs, metrics and the success of the partnership, be ready to adapt as the circumstances change or if something isn’t working. There’s a reason you chose the company you did as your strategic alliance partner, so be open to their ideas and what they have to say. You and the other company most likely will have many different skill sets so use it to your advantage.
5. Learn and grow
Everything should be a learning experience in life and business. Use your partnership as a case study for your company and examine in detail what worked and what didn’t work. From there you can make an informed decision if you want to continue the partnership. I also recommend doing an exit survey for your employees so you can see what they thought of the whole process.
Related: 4 Crucial Considerations Before Launching a Strategic Partnership
Warning
I feel obligated to include the risks involved in strategic partnerships because it isn’t all better brand awareness and increased sales. Let’s talk about what could go wrong.
- Different priorities: Each partner may be motivated by their own goals.
- Liability: It’s important that the contract includes any type of liabilities each company would be responsible for.
- Harder to communicate: Since there are two businesses, you’ll need to check in with each one if anything is going to be changed or move forward. This may take more time than it normally would.
- One side getting a better deal: You want to keep it as fair as possible but for reasons beyond anyone’s control, one company might get the better deal.
Even though there are some warnings you should be aware of, there are many benefits to creating a strategic alliance of any kind. Whether that’s a joint venture, equity strategic alliance or non-equity strategic alliance, you can increase knowledge, sales, access new markets, create better production output, have better innovation, mitigate risks and have better customer experiences and increase brand awareness. Make sure you follow the steps on how to do it by remembering to define your goals, make a list of the companies you want to work with, list mutual benefits, create a contract and be flexible. From that, you will learn and grow for your next strategic alliance opportunity.
