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Strategic Alliances

Two heads are better than one: Join forces with another company and watch your business take off.
December 1, 2005

Many allies are small, says Mitchell Lee Marks, co-author of Joining Forces, a book on business partnerships. This statement is supported by a recent survey of CEOs of small, fast-growing companies in which 90 percent reported forming alliances.

Small businesses in search of growth favor alliances because they can quickly and inexpensively provide access to technology, expertise, marketing, production, distribution and other capabilities. Studies show businesses that participate in alliances grow faster, increase productivity faster and report higher revenues than abstainers.

Alliances are excellent for testing the waters before a full-scale merger. Because no ownership changes, it's easy to back out, notes Marks. Another advantage to alliances compared to mergers or acquisitions is that you can participate in several at the same time.

Synergy is the benefit most alliances are after. If you have a product but lack distribution, you may seek synergy by allying with a company that has good distribution and no competing product. Companies that own technologies that can be combined with yours to create a compelling product are also potential allies. In international alliances, one company can provide local market skills while another supplies imported products or technologies. Allies may also benefit by purchasing cooperatively, marketing jointly, combining research and development, co-sponsoring training, or agreeing to set standards in a new technology.

Yet it requires skills to maintain healthy alliances. Three out of four corporate alliances disappoint, producing higher costs or lower returns than expected, according to Marks.

Seeking Allies Successfully
Allying well is almost as difficult as marrying well. Here are keys to finding and making a match that will last:

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

Now That It's Underway...
Once you've started an alliance, keep it going. Refer frequently to your original objectives. See how you measure up and communicate the results and any changes to everyone involved.

Many alliances are based on hoped-for savings, but alliances involve inevitable costs. Management time is the biggest one. Underestimating the amount of time it will take to manage an alliance is a common cause of failure.

Excerpted from Growing Your Business and "Gold Bond" by Julie Bick.