The formula for a successful strategic partnership may seem easy: 1 + 1 = 3. Indeed, partnerships are a proven way to boost the bottom line. American Express surveyed small businesses in government contracting and found that those who teamed up won 54 percent more prime contracts than average.
But creating effective alliances is not always so easy. Partnerships gone wrong can lead to frustration, financial losses and even litigation, says David Gage, co-founder of business mediation firm BMC Associates, and author of The Partnership Charter: How To Start Out Right With Your New Business Partnership (or Fix The One You're In). “People like to quote Don Corleone from The Godfather, when he says, ‘It’s business, not personal,’ ” Gage says. “But everything with partnership is both personal and business.” It’s important to pay attention to the business matters at hand along with their legal aspects and personalities, he adds.
Consider these steps before creating a strategic alliance with a partner:
• Assess all aspects of your business and identify areas of growth potential.
• Figure out what you do best—and where you need help. Partners should complement each other, says Denise Rodriguez-Lopez, an American Express OPEN Advisor, who consults small businesses on partnerships. “The goal is to increase capability—whether through offering new products or services, expanding in capacity or geographically, or cross-promoting,” Rodriguez-Lopez says.
• Make sure the two entities easily fit together to better serve the customer. “There needs to be obvious synergies,” Rodriguez-Lopez says. “It is not illegal for an information technology firm and a janitorial services company to form a partnership, but how many opportunities will that create?”
• Vet the potential partner to make sure they have solid finances and a track record as a reliable and ethical business. “Make it explicit that you want to learn everything you can about them in short order,” Gage says. “Then call up past business partners, employers and employees.”
• Does the organization share your values?
• After doing your homework, go with your gut, Rodriguez-Lopez says.
• Get it in writing.
Strategic partners’ written agreements should cover these points:
• Who does what? Be specific.
• Who will be the client point-of-contact? “Clients need to know who they will be dealing with,” Rodriguez-Lopez says.
• If money will change hands, a system needs to be defined.
• Create policy for the event that a new innovation stems from the partnership. Who will own this intellectual property?
• Establish a trial period for the arrangement with defined check-in dates.
• Create a mediation plan or a strategy to dissolve the partnership in the event the arrangement goes south.
Jennifer Schaus, principal
Company: Jennifer Schaus & Associates, a government contract consulting network
Strategic partnership philosophy: Align consultants with different specialties to better serve clients and boost everyone’s bottom line.
Proof it works: Schaus’s profits have grown by 15 percent over the past year as a result of her partnerships.
When I started as a government contract consultant seven years ago, I would accept all kinds of consulting: sales and marketing, certification, business development and contracts. I could do all this work, but I found that my focus and time management suffered since each government agency worked in a different way, and each kind of consulting required different skills. I realized it made more sense to focus on one aspect of this industry, but I still wanted to service all of my clients’ needs.
Over the past four years I’ve created an alliance of 10 government contractors with a range of specialties, and I can focus on my expertise, which is consulting work for government contract paperwork. When a client comes to me and asks for a service outside my area of focus, I refer them to one of my partners, with whom I have a pre-negotiated referral fee. Sometimes I sign a contract that requires I hire another consultant in addition to the work I provide, and I pay that partner as a 1099 employee. I make a profit on the partner’s services by marking it up. Today I pass along between 35 and 40 percent of the work that comes my way.
My partners are people I meet through networking events or through the contracting community in Washington, D.C., which is small enough that you can ask around and vet the quality of their work. We do have written agreements, but these are people I know and trust, people I have lunch with regularly, and our agreements are in the spirit of “I’ll scratch your back if you scratch mine.” Their profiles are featured on my company website. The benefit to me is that I am much happier and I use my energy much more wisely since I am focused on work that I enjoy the most. I better service clients since I don’t have to turn them away. Instead, when they ask for services that I otherwise would not be able to provide, I can say “yes” and make money off them.
I could have created a business in which I had employees and was involved in managing the process, but I never wanted to do that. This allows me to be involved with customers while doing my own thing.
Mike Kilchenstein, founder, CEO
Company: RAMP Sports, ski and snowboard manufacturer
Strategic partnership philosophy: The seasonal sporting goods company found a product to sell in its off-season.
Proof it works: Close to meeting sales goals in the program’s first year.
In the ski business, sales are typically 100 percent during the winter high season and zero percent during the low season. Another major downside in this business is that you have to lay off your technical reps who provide product demonstrations and are a critical part of the sales process. This means that many excellent reps often don’t come back the next season, which is a real pain.
To bridge this seasonal gap we decided to partner with a paddleboard company, which has its boom in spring and summer. Stand-up paddleboards are experiencing explosive growth, and there is an inherent overlap in the consumer base of these two sports. When I set out to find a paddleboard partner, I was looking for a company that shared my company’s values. These include having a green aspect to the company, as our products are made of bamboo and green resin; we have a recycling program for old skis, buy carbon offset with each purchase and ship products in reusable bags instead of cardboard. We also wanted to work with a company that offered interesting technology—one of our features is skis designed for users’ various sizes and abilities. We also had to find a partner willing to work within our direct-to-customer retail model, which was not easy to do.
At a national outdoor retail show I talked to dozens of paddleboard companies, and C4 Waterman was the best fit. Its technology is different from anything else on the market, with paddleboards that are inflatable and easily transportable while most other paddleboards are made of fiberglass and have to be carried on a car rack. They also ascribe to four business values—balance, endurance, strength and tradition—which speaks to the kind of organization it is and includes sustainable practices, including the use of bamboo.
A critical component of our partnership is C4’s willingness to think outside its box. This included selling products directly online, which they had not yet done. We agreed to sell C4’s product for the manufacturer’s suggested retail price and cross-promote the two companies’ products by discounting our goods. With each paddleboard purchase, our customers can buy a pair of RAMP skis at a discount price of $149 or a snowboard for $99. That is a huge incentive for a product category that is normally not discounted. Our goal is to have 25 percent of our sales come from paddleboards, and we are projected to hit 20 percent this year.
In addition to moving more of their product, C4 benefits from exposure through my company’s tech rep demonstrations at the Park City, Utah, reservoirs and through our marketing efforts, which are focused on major events such as the Bonnaroo music festival, Dave Matthews concerts and ESPN’s summer X Games.
C4 and I have a written agreement, but we didn’t get attorneys involved in writing it. It is more of a handshake agreement, and we both respect what the other is trying to accomplish. We asked C4 to donate prizes for contests, which is something they normally don’t do. But they immediately agreed.
David St. James, director of commercial sales
Company: 1-800-GOT-JUNK, junk removal service
Strategic partnership philosophy: Create alliances that generate wins for the partner, the company and the customer.
Proof it works: Three to 5 percent of revenue is generated by alliances, a revenue stream that grows at double to triple the rate of other business.
Strategic partnerships are so critical to our success that we have an eight-person National Accounts and Strategic Alliances department. We partner with about 30 companies. About half the time, we pick up the phone and call companies we think will make good partners, and the other half of the time they approach us. We look to work with companies that are world-class in their category, as 1-800-GOT-JUNK is the biggest company in its category. They should be transparent and open in working with us. We also look for agreements that can benefit everyone in the short and long terms.
But the main criterion is that their customers have an inherent need for junk removal. For example, long-term partners include
RE/MAX and Century 21, as people selling their homes often need junk removal to better stage their homes, and those relocating usually need to get rid of unused items. Those customers get a discount on our services; the agents passing along the discount are able to offer their clients a broader suite of services, as we benefit from marketing and advertising. Win-win-win.
Another example is AAA, with whom we partner to host e-waste events at AAA retail locations, where people can drop off their unwanted electronics, which we recycle in a green way. No money changes hands, but both AAA and 1-800-GOT-JUNK gain increased exposure at an event that benefits the environment and the community.
At the onset of a partnership, we create a written agreement that includes a time line of activities and quarterly check-ins. These tend to be very, very simple plans, and at each check-in we evaluate what is working and what we can improve. We don’t put an end date on these plans; we see it as a friendship for life.
An example of a relationship that succeeded after a tweak was our agreement with the mini-storage company PODS. Initially we joined forces on some web and national direct marketing campaigns, which produced minimal results. As we are both franchise organizations, we moved the partnerships to a local level—local 1-800-GOT-JUNK franchisees partnered with local PODS franchisees on trade shows efforts and joint direct mail campaigns. That proved to be a great symbiotic relationship.
These alliances are very important to our business because they generate a lot of repeat business and a greater frequency of use than with other sources of new business.