First came the Travis Scott burger. A viral sensation that was nothing compared to BTS meal. Haven’t heard of it? BTS meal is as viral as fast food gets. Just look at eBay. You can buy an empty BTS meal box for $50. A full meal sold online for $90,000. It might be a viral campaign but the wild success is down to McDonald’s careful selection of strategic alliances. They’re not the only ones doing it either.
The next time you sit into an Uber, try connecting your Spotify and seeing what happens. A 2014 strategic partnership between the two giants gave Uber users the ability to control the music they listen while on their journeys.
It might be a great novelty for you but it has reaped huge rewards for both Uber and Spotify. Spotify customers were encouraged to upgrade and unlock the feature if they want their music. For Uber, it gave them a competitive edge that taxi or Lyft drivers couldn’t match.
That’s what strategic alliances are all about…getting an edge.
Strategic partnerships come about for a variety of reasons but invariably aim to add value, open new opportunities and mitigate risks.
Why Look for a Strategic Partner?
A strategic alliance or agreement is a partnership between at least two companies who can achieve a business goal by working in concert with another. The main idea is to leverage the tangible and intangible assets of a partner to create new value.
In 2018, Amazon, Berkshire Hathaway and JP Morgan Chase decided to band together to tackle health care costs and services for their collective 1 million U.S. employees. They follow in the footsteps of Uber and Spotify, Starbucks and Target, Red Bull and GoPro and more.
Companies, big and small, enter partnerships for a variety of reasons but the most popular tend to be:
- Accessing new markets
- Increasing your sales in your existing markets
- Gaining human and financial capital
- Accessing exclusive technology, patents or capabilities
- Extending network
- Strategic marketing and branding
- Integrating advanced technology
- Leverage new suppliers
- Geopolitical pressure
- Risk proliferation and blocking threats
How to Find a Solid Strategic Partner?
Set Your Goals
Partnering with another company should not be pursued without a motive. Consider your limitations and what the vision for your business is. What are your goals? What impact are you trying to create with a new partner? What do you need to reach your goals or break into new markets? What assets unlock a key market segment for you?
For example, when Apple Pay wanted to introduce contactless payment services, they needed credit card companies to get on board to make it all happen. Mastercard were the first partner and a major coup. For Apple, it allowed users to make payments without the need for the physical card but more importantly, it put pressure on other companies to sign up.
What is your vision and who can help you achieve it?
Set Out Partner Selection Criterion
Now that you know what you are trying to achieve, it is time to set some parameters. Discuss with your teams what a partner might look like. What markets do they sell to? What technology or assets do you need them to have? What missing pieces must they bring?
On the flip side, what should rule a partner out? Criterion to avoid should include toxic reputations, company cultures or ethos. What might deter customers or disenfranchise your employees?
LEGO and Shell had a strategic partnership for 50 years until Greenpeace shone a light on the questionable environmental practices of the latter. Once LEGO were tied to negative press, they couldn’t get out of the partnership fast enough.
You and your executive teams decide what pries certain markets open and what would rule out a potential candidate. Develop a list that looks far enough into the future and stick to it.
Draft a Shortlist of Potential Companies
As you create criteria, you will think of dozens of potential options. However, its still important to survey the market as a separate task. You will find more suitable options that you didn’t initially think of.
As you draft a long list, ask the following questions:
- What impact will this partner have? How would partnering with this company change your brand and competitiveness? Will they create access to new markets? Will they provide significant value?
- Are you compatible? In the eyes of your leadership, employees and customers, is this partner compatible with you, your brand and culture? A $36 billion partnership between Daimler Benz and Chrysler fell apart because a clash in cultures so never underrate the intangible undertones.
- What risks does this partner bring with them?
- Do the goals of both companies align? You and your partner need to be going in the same direction. If your partner is focussed elsewhere, your aims won’t be a priority.
- Do they place nice with others? How has this target partner worked with other companies in the past? Who else can they introduce you to?
Start Reaching Out
Your questioning should trim your list down to no more than 4 or 5 serious contenders. Once you have whittled down to the best of the best, start opening conversations but be clever. Overexuberance scares people off or makes you sound desperate. Both leave you at the weak end of a power dynamic.
Where can you meet a potential partner? What networking events, tradeshows or conferences do they attend? Do you share connections on LinkedIn or other social media with the decision makers? The warmer the lead the better.
If you are going into the conversation cold, lead with the big picture and what is in it for them. Your needs are arbitrary until they are interested in the conversation. Try to arrange a personal meeting with face-to-face exposure because virtual interactions are too easy to blow off.
Make no mistake, this is a sales pitch to an important client. You are selling your vision for both of you and it had better be compelling. Have a partner worksheet to hand that shows the tactical and strategic opportunity available to them.
Be clear and articulate about what you see as the future for you both and how you think you could achieve it together.
Conduct Your Due Diligence
If you receive an intention to partner agreement, even orally, it is time for dotting the I’s and crossing the t’s. Evaluate the real fit between you and your preferred partner. What is each partner expecting? Do the company cultures and aims work together? Are there any hidden risks?
Negotiating the Partnership Agreement
Having assessed your partner and carried out your due diligence, you can begin the negotiations en-route to signing a partnership agreement. This is where utmost clarity is required.
How will your alliance be structured? What specific investments are partners expected to make? What assets will you get access to? What are the roles and responsibilities of each? If there are disputes, how will they be handled?
What Types of Strategic Alliances Are There?
There are three main types of partnership agreement depending on the intention and goal of the alliance.
1. Joint Ventures
A joint venture occurs when you and your strategic partner agree to form a collaborative spinoff company. This can exist between two or more businesses who agree to input resources with the aim of achieving a specific business goal. If the ownership stake for both enterprises is equal, it is known as a 50/50 partnership, otherwise it is a majority-owned venture.
Alphabet (Google parent company) and Glaxo Smith Klein entered a joint venture to create Galvani Bioelectronics with the aim of treating diseases using electronic signalling. They have since gone on to partner with a host of other businesses to achieve their collective aim.
2. Equity Strategic Alliance
Equity strategic alliances occur when either partner purchases a stake in the other’s company. For example, Tesla purchased a $30 million stake in Panasonic to help them create new lithium iron battery technology for electric vehicles.
3. Non-equity Strategic Alliance
A non-equity strategic alliance is a contractual agreement between two or more businesses to pool together resources in the pursuit of a common or new objective. It doesn’t involve the exchange of business equity or the creation of a new business entity but does bind the partners together legally. Most strategic partnerships are non-equity alliances.
“You can do anything but not everything” – David Allen
For emerging entrepreneurs, learn this lesson early. You have a greater chance at success and prosperity by finding partners that align with your visions. When you find alignment, trust, open communications, and clarity in roles with a partner, your joint efforts will far exceed the possibilities of the individual.
80% of US entrepreneurs are looking for at least one strategic partner because they understand the ceaseless nature of change. With prospects uncertain, partnerships create opportunity even in the chaos of current markets.
Two heads will always be better than one when faced with complexity so keep an eye out on who could bring your business to the next level.