Business partnership

Creating valuable business partnerships is one of the most important aspects of business development. Partnerships can be informal, simply through the casual ongoing use of each other’s services, Read more

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Business partnership

Creating valuable business partnerships is one of the most important aspects of business development. Partnerships can be informal, simply through the casual ongoing use of each other’s services, or they can be formal arrangements set out in contracts, such as supply agreements or joint ventures. The best partnerships are mutually beneficial and bring added value to both businesses by combining their competitive advantages, allowing them to deliver higher quality goods or services at lower prices.

Finding the right business partners

Selecting strategic business partners is nearly as important as selecting co-founders and key staff members, as these partnerships can have a major impact on future business success and often require close work between the executives of the partnered businesses. While there is no single criteria for selecting business partners, most successful business partners have:

  • Aligned business purposes
  • Shared vision
  • Strategic compatibility
  • Different competitive advantages
  • A detailed and comprehensive contract
  • Strong communication
  • Well defined processes
  • Good personal relationships between participants

While these factors will not guarantee a productive and successful business partnership, they go a long way to ensuring that the most common causes of partnership breakdown are avoided.

What steps are usually taken in creating a business partnership?

The exact process of creating a partnership will be determined by the types of businesses which are partnering and the overall goal of their partnership. In broad terms, the steps taken include:

  • Defining the goal of the partnership
  • Creating a shared business plan with achievable targets
  • Negotiating contractual agreements
  • Engaging executives and key stakeholders
  • Creating a joint value proposition for marketing purposes
  • Releasing press releases for public relations purposes
  • Working to achieve the partnership’s goal
  • Engaging in review to ensure targets are being met

While on paper this process looks relatively straightforward, the reality typically involves compromise for both businesses as they adapt to each other’s processes and develop their business relationship. While this period comes with some uncertainty and may be uncomfortable for one or both parties, the long-term value of a well managed strategic partnership typically far outweighs the operational difficulties of instituting it.

What are the most common types of strategic business partnerships?

  • Horizontal strategic alliances are formed between companies which are typically competitors operating in the same space to improve their shared position in the marketplace.
  • Vertical strategic alliances are formed between companies and the other businesses in their supply chain, whether they be suppliers or distributors. These alliances enable the company’s network to offer lower prices and increase value for customers.
  • Intersectional alliances are partnerships between businesses that would not normally operate in the same area, but see a unique opportunity to add value to each other’s businesses.
  • Joint ventures, in which two or more companies create a new company. These new legal entities offer protections to both parties, strong flexibility in how they are negotiated and can be formed for a long-term partnership or for a short-term project.
  • Equity alliances, which are formed when one company acquires equity stake of another company and vice versa. This aligns their interests and discourages competition between them.
  • Non-equity strategic alliances cover nearly every other type of business relationship, both formal and informal, where businesses come together to add value or reduce costs.