A kid going on a hike with his Boy Scout troop is usually advised by the leader to find a buddy and stick with him — for safety mainly, but also to give one another a helping hand when needed. For grownups owning businesses, this “buddy system” still exists, but the catch phrase for it is “strategic alliance.”
A strategic alliance is an agreement between two businesses to combine efforts or resources for mutual benefit. The joint effort can involve getting a better price for goods the partner companies both need by buying in bulk together or seeking out new customers together. The basic idea behind strategic alliances is to minimize risk while maximizing return on invested time and money.
Strategic alliances are sometimes formed when one company alone cannot serve the needs of the marketplace. It involves two companies pooling together expertise and resources to enter new markets, share financial risks or get new products and services to market faster.
Unlike a merger, both companies in a strategic alliance maintain their individual identities and goals. The purpose of the alliance is simply to create opportunities for the two companies to work together to achieve a specified goal. Don’t, however, confuse strategic alliance with collusion. Collusion is a secret agreement between individuals or companies for a fraudulent, illegal or deceitful purpose. Price fixing would be an example of collusion.
Sleeping With the Enemy
Because people who own their own small businesses often got started because they place a high value on independence, it’s easy to understand why they are often wary of partnering with other businesses, especially businesses that operate in the same industry. They can’t understand why anyone would want to help the competition.
But here’s a simplified example of how it can work: Suppose you own a portable restroom company with 100 units on the west side of town and a competitor with 100 restrooms from the east side of town approaches you about joining forces to place a combined order for a hand sanitizer that would reduce the cost of the product by 20 percent. Sure, your competitor would reduce his expenses, but so would you. More importantly, it would give both of your companies a competitive advantage over the restroom companies on the north and south sides of town.
That’s just one example of the power of forming a strategic alliance. Both companies achieve an advantage in the marketplace that they could not achieve independently.
The business community is full of potential partners for strategic alliances. Take a look around. Potential partners include competitors, businesses that provide complementary goods and services and even businesses completely outside of your industry. Successful partnerships are sometimes created between companies that have little in common.
Customers provide another source for strategic alliances, especially in a business-to-business industry. For example, if you provide portable restrooms for a construction company, you see from visiting their work sites how they do business; the quality of their work. They in turn see how well you service the restrooms and how professional your employees are. Since a relationship already exists between your two companies, you potentially have a level of trust and mutual respect for one another, and maybe there are ways you could benefit each other, from providing testimonials about each other’s companies to sharing a pressure washer. If the alliance is successful, you’ve also given the customer an added incentive to continue to do business with your company.
Alliances range in scope from an informal business relationship based on a simple contract to a joint venture agreement in which, for legal and tax purposes, either a corporation or partnership is set up to manage the alliance. A strategic alliance can be a long-term binding legal contract, or as informal as a handshake and as short as a one-day event.
Some Examples of Strategic Alliances:
• Equipment sharing: The sharing of costly but infrequently used equipment is a common strategic alliance. Maybe several small businesses in an office building share a copier, splitting the cost of toner and repairs. Businesses that share a building with a common lobby area might even share a receptionist.
• Web site links: You see this one all the time. One company’s Web site will have a link to a related businesses’ Web site. This is a simple, but effective, strategic alliance.
• Shared advertising efforts: Two companies targeting the same customer pool will split a direct mail postcard down the middle. Bob’s Tent Rental uses half the space and Bill’s Portable Restrooms uses the other half. They each spend half on production and postage. If they swap mailing lists, they’ve both expanded potential markets.
• Partner with the competition: Agree that if a job is too big for one of you to handle alone, you won’t turn it down, you’ll ask the other company for help. You may also agree to refer customers to each other when one of you is booked solid.
• Team up with related business: If at every special event you supply restrooms for your work side-by-side with people from Bob’s Tent Rental, maybe you and Bob could benefit from some sort of an alliance. If you and Bob would both like to have more wedding business, split the cost of a booth and the time staffing it at the next Bride-o-Rama.
• Barter for services you use that are unrelated to your industry: Maybe you could provide the restrooms for an accounting firm’s annual picnic and they comp you a few hours of number crunching.
