Expanding With a Business Alliance

Teaming With a Customer

Jeff Brown, the 43-year-old CEO of Seattle's RadioFrame Networks, takes a different approach. He says a great alliance is all about matching corporate cultures. "Two companies can have a common goal, but if they approach it in different ways, both can get incredibly frustrated," he explains. "We were lucky and found a partner who approached things just like we did."

It all started when Brown and RadioFrame founder Rob Mechaley, 52, saw the frustration of people who had to run to the window to make cell phone calls at conferences. They figured installing radio transmitters inside buildings would make cell phone signals clearer, take the load off the local cell phone tower, and pave the way for a wireless LAN inside the building as well.

Before the partners built the system, though, they wanted to make sure someone would buy it. RadioFrame then focused on Nextel as a potential customer because Nextel didn't have as much network capacity as some other telecommunications carriers, and would therefore value the additional bandwidth that the indoor radio transmitters would provide.

Mechaley and Brown had previously worked for McCaw Cellular and knew some former colleagues who had gone to work for Nextel. Those colleagues helped them find the decision-makers in Nextel's technology area. By 2000, just a few months after RadioFrame was founded, the team had already drawn up a bill of materials to show Nextel how much the system would cost and a general technical plan of how they would create it.

Fortunately, the managers at Nextel were so intrigued by the idea, they decided they would not only buy the finished product, but would also help RadioFrame create it. The two companies were eager to work together, so even before the contract was signed in April 2001, engineers were flying between the Reston, Virginia, headquarters of Nextel and Radio-Frame in Washington state.

Nextel offered up senior engineers and product planners with suggestions on the features customers would want. After initial development at RadioFrame, the team flew back to the East Coast to test the product in Nextel's labs.

RadioFrame used its innovative business idea to enlist cash, infrastructure resources and guaranteed sales--all from one source. From initial talks with Nextel in mid-2000 to a product on the market at the end of 2001, RadioFrame now supplies systems to Nextel every month.

"We really worked hand-in-hand with Nextel, from user requirements to how to physically get the finished product into their distribution systems," says Brown. "When people from both companies refer to each other as 'we,' you know it's a close relationship."

Find Your Match

Alliances can get you on the fast track to become more competitive. With a complementary partner, your business can blend products, distribution, technical knowledge, infrastructure or cash to propel you to a new level of success. The flexibility and power boost they provide can be a key strategic tool for today's entrepreneurs. And the best part is that they can go wherever your ideas take them.

Consider This

Don't just check out your prospective partner's financials--check out their integrity. What have other companies' experiences been working with them?

  • Brainstorm as many potential pitfalls as you can. It's easy to imagine all the upside (but often not all the downside) scenarios.
  • Once you've found a partner, use a letter of intent to outline goals and objectives. This document can clarify the project, and if it's not looking great, you can get out of the deal before you're in too deep.
  • Limit your own liability: Don't guarantee anything with personal assets.
  • In case things go sour, create a backup plan for your company to use your resources another way or get your money back.
  • Monitor the work. Make sure whatever is supposed to be happening is happening. Audit personally.

Get Some Answers

Questions to consider before finalizing an alliance, from Emer Dooley, who lectures on strategic management at the University of Washington:

  • What are everyone's objectives? There are three sets of objectives: yours, your partners' and the alliance's. Figure out all three in advance and determine whether they're compatible.
  • Is it a great deal for both sides? Don't just negotiate to get the best for yourself. If the other side thinks the deal is unfair, they won't put much effort behind its success. Who's holding the reins? Know how dependent you will be on your partner. Negotiate a credible commitment so you're not subject to "hold up," where they've got you over a barrel.
  • What happens if you break up? Establish a set of exit conditions around default and failure to meet objectives. Make sure you understand and have control over how (and in what jurisdiction, if it comes to that) these disputes will be resolved.

Julie Bickis the author of All I Really Need to Know in Business I Learned at Microsoft.

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This article was originally published in the March 2003 print edition of Entrepreneur with the headline: Gold Bond.

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