The arguments for partnership, whether it's starting a business with a partner or strategically lining up with another company are indisputable.
The saying "two are better than one" sums up the principle, but it actually arises from the driver that has lead to the material success of our whole human species - specialisation.
I'm a company director with an IT background. However, I didn't build my house, design my clothes and I don't grow my own food. Other people specialise in these areas and because they focus on it, they do it much more effectively than I would. I like to think that I'm not bad at my specialisation, although others will be the better judge of that.
Strategic partnership follows the same principle. In a partnership, we should look for partners that have expertise or assets that we lack. Then together we can achieve more than trying to do everything ourselves.
My business, Sellerdeck, provides E-Commerce software and services, but at one time we only provided the ability for buyers to pay online through third parties. At the same time, a company called Creditcall had a powerful and reliable payment network, and although it was very successful in other fields, it did relatively little in the way of payments for E-Commerce companies. This meant that we could form a partnership that worked for both of us while extending the capabilities of each company. Since agreeing the partnership some years ago, this part of our business has grown rapidly and been highly successful. We now feed the biggest proportion of web transactions from any E-Commerce supplier into the Creditcall payment network.
There must be genuine synergy for a partnership to work, not mere opportunism. Back in the 1980 Mercury Communications became the first company to be licensed to compete with BT in the telecommunications industry. The founding shareholders of Mercury were an oil company, a bank and a telephone company. It won't surprise you to know the partnership didn't last very long. They were partners in the new venture, but there was no synergy. The companies in question, BP, Barclays and Cable and Wireless had differing backgrounds and differing experience.
For two companies to work together, they must be compatible. It's unlikely that a company noted for being staid and traditional will work well with a company full of flamboyant young things. If one company has a tremendous emphasis on quality customer service, but another is more concerned about introducing new products, again there will be a mismatch.
In fact, personal relationships also play a big part in successful partnerships. If the two people negotiating the agreement both get on and like each other, the whole business is much more likely to succeed.
It's good to look before you buy, and similarly, it's best not to settle for the first potential partner that comes along. At least ask the question, are there alternatives? Choice is a great driver of value in business.
I've found that a good way of going about this is to identify a number of possible partners, and then talk informally to each in turn. This enables you to gain a much greater understanding of the business area, and get an initial feel for the opportunities, threats and questions that you should be asking.
It's then important to issue a formal invitation for a proposal. This doesn't have to be anything fancy, and the detail requested should be designed to be easy to complete. Of course, depending on your size and the size of the opportunity, the effort that a potential partner is willing to expend will vary widely. Either way, you are asking for a proposal, and as long as you receive more than one, it lets you compare them objectively before making a final decision.
A relationship can't run by contract, but having a good contract in place helps keep the relationship on the straight and narrow. If the partnership breaks down, it should protect your interests.
My checklist for drawing up contracts in this area contains:
There's one principle of partnership, which is more important than anything else. This is that if your partner isn't winning, you will end up losing too. It's critical to look at the partnership from both points of view. If you have a fantastic deal, and the other side is losing money, they will do everything in their power to change the situation. In the overwhelming majority of cases, this will lead to it all going wrong. So decide from the start that you won't let your partner be heavily disadvantaged, whatever the contract says.
Ernie Wise didn't have much of a career once Eric Morecombe had gone, yet they were at the top of the ratings for years when they were together. Similarly, strategic partnerships provide a real opportunity to give companies an edge, particularly as so many people find the principles that make partnerships work are hard to embrace. It's not for everyone, but in the right market they can provide a major opportunity for additional business success.
Written by Chris Barling, CEO of E-Commerce & EPOS supplier Sellerdeck. Originally published on BusinessZone.