Strategic partnerships bring together the value, knowledge, insights, and market reaches of two businesses for mutual and sustained commercial advantage.
Unlike with a merger, both companies still exist and operate as separate entities with their own leadership teams and business goals. This means that a strategic partnership needs a different and more flexible type of management structure to make it work than a merger.
Strategic partnerships can deliver enhanced benefits for both customers and employees. Customers benefit from a wider range of related products and services from trusted sources. Employees benefit from expanded career development opportunities through their exposure to the expertise and perspectives of new colleagues working for the partner company.
In this article, we examine:
● the characteristics of potential strategic partner companies,
● the opportunities for new customer acquisition
● maximising additional sources of income
● how collaboration reduces customer acquisition costs,
● the edification of your brand and its value through strategic partnerships,
● how information can be shared and improved
IDENTIFY OPPORTUNITY GAPS
Do your clients have particular needs, wants, or pain points which your current products or services satisfy successfully but you feel that there are related sales opportunities you’re missing?
Before you consider the idea of a strategic partnership, you need to first understand what the strengths of your current operation are as well as identifying areas for opportunities for improvement. What ideas, insights, and innovations could a strategic partner bring to your company which would make yours a better business? How would your company add value to your strategic partner’s business?
You need to be sure in your mind about what you have to offer a strategic partner and what you need from them in return before starting your journey to find potentially profitable alliances.
NEW CUSTOMER ACQUISITION
57% of all companies enter strategic partnerships to acquire new customers, according to Powerlinx. At the beginning of a partnership, sales and marketing teams look forward to the opportunity of mining each other’s customer databases.
Most partnerships are formed primarily because there is crossover in both companies’ products and service options. The sales approaches made to the customers of the other company won’t be considered as “cold” approaches either.
Another motivating factor behind strategic partnerships is geographical coverage. Partners whose office or branch networks do not overlap will be able to pitch to brand new areas where there is strong local sales rep coverage.
It’s not unreasonable to expect a surge in sales once the partnership has become more settled and organised either. Hungry telesales and field sales reps will seek every chance to earn commission from a suddenly-expanded database of existing customers.
ADDITIONAL SOURCES OF INCOME AND BETTER CASH FLOW
Businesses tend to operate using one of two different types of financial models. They will either make big sales every so often or little sales all of the time. Companies making little sales all of the time will often collect revenue from clients using direct debits or another form of recurring payment system.
“Big sale” companies with lumpy cash flows often gain the opportunity to bring recurring and regular income into the business by taking a cut from the sales they make of their partner’s product. Likewise, “little sale” businesses with smoother cash flows benefit from large commission payments on the sales they make on behalf of their partners.
REDUCED COSTS
A strategic partnership enables both companies to leverage the power of each other’s brands and the value that clients store in those brands when selling to the other’s clients.
New customer acquisition cost is always significantly higher than the costs attached to persuading an existing customer to buy. While the cost of finding new customers may remain broadly the same following the establishment of a partnership, both companies are likely to benefit from an overall lower cost per sale by cross-selling to each other’s existing customers.
There is also the opportunity to procure as partners. Each company may be able to take advantage of favourable supply relationships which the other has negotiated. Likewise, there may be opportunities for a shared back office and customer support function to deliver further savings.
BRAND EDIFICATION
In most strategic partnerships, one company is substantially larger than the other. This makes the negotiation of a partnership more challenging for the smaller company but the rewards much greater if the negotiations are successful.
For the smaller company, the ability to use the brand of the bigger partner in sales and marketing literature and in the delivery of their products and services edifies the proposition to everyone in their target market.
For the larger company, a willingness to partner with smaller companies offering a different perspective and skill set demonstrates that there is a continual internal drive for improvement within the business and in making their product and service offering more relevant, nuanced, and useful to clients.
THE CASE FOR STRATEGIC PARTNERSHIP FOR GROWTH
Companies benefit from the opportunity to access each other’s intellectual property, resources, and technology for mutual improvement.
Perhaps the most valuable benefit that a strategic partnership delivers is the introduction of you and your company to brand new audiences of buyers, decision-makers, and influencers who you wouldn’t have normally reached via your standard marketing and sales channels.
HOW DO YOU CEMENT YOUR ALLIANCE WITH A STRATEGIC PARTNERSHIP?
You could just shake hands on it or you could draw up a contract governing the conduct of the arrangement.
Alternatively, you could form a joint-venture company to control the relationship and the division of profits or both parties can issue shares in their companies to each other. Whichever arrangement you choose, make sure that you, your company, and its assets are protected.
Following any agreement, there must be a shared purpose on both management teams in the first few months to successfully mesh whichever structures need to be integrated and to provide targets for each department on progress.
Senior management and board members also need to keep in constant contact with each other with a preference on meeting in-person whenever possible to cement personal and professional bonds across companies.
Within your company, there exists an energy which has fueled its creativity, innovation, and growth to date. This has value.
With a strategic partner, you can pool the creativity, innovation, and knowledge from both sides for growth and to create a partnership whose value is greater than the sum of its parts.
WOULD YOU CONSIDER A MERGER INSTEAD?
There are many benefits to and arguments for forming a strategic alliance with another company. There are pitfalls too however.
A strategic partnership can be formed and dissolved quickly in the absence of a governing legal framework. For example, a new leader at your strategic partner may arbitrarily decide to end cooperation and, without a binding agreement between the two companies, there’ll be nothing you can do about it.
According to the Business Performance Innovation Network, initial management team excitement at the possibilities offered by a strategic partnership dissolves quickly and the required follow-through to make it work doesn’t happen in many cases.
Over two thirds of companies in a strategic partnership do not go on to agree the formal strategies required to make the most out of their union. As a result, nearly half of all partnerships fail as management teams at both companies are unable to create and maintain the working practices and intelligence sharing required for successful, productive, long-term relationships.
A formal merger – a legal joining of two companies normally via a newly-formed entity which assumes the assets and liabilities of the merging businesses – focuses the minds of the management teams across both businesses.
In addition to the opportunities to improve profitability and extend market reach offered by a strategic partnership, a merger offers the management team of the new entity the chance to make wholesale changes across both businesses to increase efficiency and remove duplication.
However, mergers are also far from perfect if not handled correctly from the beginning. Much more so than a strategic partnership, the disruption caused by a merger may lead to key members of staff leaving and the attempt to amalgamate business operation practices across the two previous companies with the different cultures and different expectations on employees can be fraught with complexity.
Which would be better for you? IBA Corporate is an experienced merger and acquisitions firm with years of experience working with company owners deciding whether a merger or a strategic partnership would be better for their firm. We’re also there to work alongside your professional advisors to ensure the maximum chance of success of any strategic partnership or merger you agree to after the deal has been done.
Please call or email us today for more information.