Protect Your Profits in a Joint Venture
Recent years have witnessed a considerable rise in joint ventures and strategic alliances.1 Through partnering, many small companies are able to achieve business goals that would be too costly, time-consuming or difficult to accomplish otherwise, such as:
- New product innovation
- A wider circle of supplier relationships
- Expansion without adding employees
- Access to new markets
- Improved technology
- Enhanced profitability
- The ability to overcome legal and trade barriers
- Increased stability
Within the real estate industry, similar companies may join forces to capitalize on their complementary strengths. For an alliance to be successful, the businesses must be pulled together by some essential strategic force. In addition, the partners should have more strength when combined than they would have had independently. Finally, top executives from both companies must share a cooperative spirit and trust each other to resolve any difficulties.
A strategic alliance or joint venture must be a win-win situation. To prevent internal dissension, the business structure, operations, risks and rewards must be fairly apportioned between all members. At the operational level, careful coordination of plans and projects is critical. The alliance must offer an opportunity for growth and have a clear purpose, as well as concrete objectives, specific timelines, divisions of responsibilities and measurable results. In addition, the alliance must have the commitment and support of top and middle management – or be destined for failure.
If you believe your company might benefit from a strategic alliance or joint venture, the following five steps can help.
Step 1: Know your company’s mission
Will you be able to achieve long-standing company goals more effectively as a result of the partnership you are considering? Will your company, through the proposed alliance, be forced to give up business practices that have previously been critical to its success? These are just two of the questions to ask before becoming part of any strategic alliance or joint venture. Without knowing your company’s mission, you won’t be able to answer correctly.
Step 2: Decide if an alliance is right for you
Joining forces is not always the best answer. If your partner is a direct competitor that shares much of the same geographic area, an outright acquisition may be the best approach to avoid potential turf conflict.
Step 3: Focus on the strengths of both partners
Find the areas where the alliance results in an advantage in either size or experience, and focus on those areas. Choose the right partner. It’s rare for one partner to succeed when the other fails. Plan so that both partners bring something to the relationship and both partners benefit.
Step 4: Set realistic goals for the strategic alliance or joint venture
Too often, partners set unrealistic goals, making failure and the “blame game” nearly inevitable. By setting attainable goals early, partners can more smoothly navigate the rough waters that often accompany the early years of a partnership.
Step 5: Reward all participants fairly
In the end, partnerships don’t work if one partner takes advantage of the other. Soon enough, the losers will understand their position and pull out of the effort. For any partnership to grow and prosper, the rewards must be economically beneficial to both sides.
1Because joint ventures and strategic alliances have much in common, we included them together in this article. There is a difference, however. While both joint ventures and strategic alliances involve pooling competencies and resources to achieve a common goal, joint ventures generally involve creating a third-party legal entity to achieve a common goal while strategic alliances do not.