It's not that we don't think you can go it alone. It's just-why would you want to?
Strategic alliances are struck for a variety of reasons, from conducting marketing promotions to consolidating buying power, between the smallest of companies and the largest of companies. And just like any other relationship, a ton of things can go wrong. How can you avoid the pitfalls of partnering relationships and enjoy the benefits of developing opportunities with other companies?
In Ed Rigsbee's book, The Art of Partnering, he outlines the basics of how to create a lasting and valuable strategic alliance. With his follow-up book, Partnershift: How to Profit from the Partnership Trend, due out in October, Rigsbee let us in on a few partnering tips.
Entrepreneur.com: What are the benefits of forming strategic alliances with other companies?
Ed Rigsbee: The benefits are numerous. It depends on what you're looking for. One benefit, which is very big, is purchasing parity. For example, in Chicago, there's a group of about eight patio furniture retailers who advertise together in the [local] area. They buy together, allowing them to get better prices and special deals on things they can then use to promote [their stores].
In Northern California, there's a group called the Sonoma County Fine Furniture Association. It's a group of eight fine furniture companies that banded together in the early '90s because of the recession. They were able to go to the local newspaper and ask for better pricing and placement of where they wanted their ads. [They also] printed brochures, so if Mr. and Mrs. Customer show up and [the store doesn't] have what they want, they give them the brochures and say, "Well, why don't you try one of the other stores that are part of our group?" So [partnering] is also a way to refer business.
|"The most prevalent mistake people make is jumping in bed with one another before they've gotten to know who their partner is."|
In Texas, there's a group of patio furniture companies that-because patio furniture is pretty bulky-band together to buy truckloads to lower their shipping costs.
There's another group called World Sign Associates [made up of companies] that make large neon signs, and they have a national alliance where they'll work with one another. One company may build the sign and ship it to another state, and instead of sending their crew to install it, they'll pay one of the other World Sign Associate companies in that area to install it.
There are a lot of reasons why [companies form strategic partnerships,] but generally, purchasing, advertising and marketing tend to be main reasons small businesses band together.
Entrepreneur.com: Some companies might be reticent to band together with the competition. Is that an important concern?
Rigsbee: The interesting thing is, it depends on your mentality. People who think small and who probably aren't going to be in business for a long time are truly afraid of their competitors. You have to ask yourself, Do I see the world as a zero-sum game-meaning for me to win, you have to lose? Or do I see the world as full of possibility where we can work together and build a bigger pie?
For people who see it as [the latter], if you're working with competitors to build recognition of your product or industry, your percentage of the pie may not increase. But if [your alliance] makes a bigger pie, you'll get more total pie.
If a person sees the glass of water as half empty, they're not going to be a good person to work with because they're going to come from a place that's win-lose. People who see the glass as half full are going to work better together because they're going to see that by working together, they can create synergy where one plus one equals three, where working together creates more than just double. And that's what we're looking for-how can we create that one plus one equals three? If you can't do that, why work together?
Entrepreneur.com: Are there any major mistakes entrepreneurs make when choosing partners for strategic alliances?
Rigsbee: The most prevalent mistake people make is jumping in bed with one another before they've gotten to know who their partner is. I was speaking at a large conference on mergers and acquisitions about a year and a half ago. I went to different sessions, and I was listening to people talk about conflict resolutions and exit agreements. Later, I was on a panel discussion about partnering and the same subjects kept coming up. And I said, 'If you guys put a little bit more energy into picking your partners right in the first place, you wouldn't have to spend so much time trying to get out of lousy agreements.' People tend not to do their due diligence. If you're going to partner with somebody, show up unannounced. See who they really are.
A great example of this is the owner of an electrical contracting company who was looking for a supplier. [He was considering] Graybar, a big national electrical supplier, and some local ones, too. The owner and some of his people just showed up unannounced at one of the local electrical suppliers, and the company didn't know what to do because the manager wasn't there. They put them in a conference room and they sat there for 45 minutes. And the owner said, 'Are these the type of people I want to work with?' Then they showed up at Graybar unannounced, and although the branch manager wasn't there, the people knew exactly what was going on and showed him around. You have to know who your partner really is. It's more important to see their actions than to listen to their patter. That's going to give you an idea of whom you're working with because relationships are really important when the unexpected happens and problems occur.
Entrepreneur.com: Do you have any advice for keeping your partnership healthy?
Rigsbee: In the book, I talk about relationship-value updates, and there's a form in there you can photocopy. This is absolutely mandatory. If I'm going to have a great relationship with another organization or person, I have to create value for them. If I don't understand what creates a value for them, if I lose sight of the value they need, or if their needs change and I haven't learned their new needs, I might be doing things that I think create value for them but really don't. It's crazy to do that. You're wasting energy.
So if you want to keep your alliance healthy, at least every six months-or better, every quarter-do a simple value update with your partner. The minimum elements are: the value you're getting from the relationship, the value you think your partner is getting from the relationship, and your ideas on how you and your partner can make the relationship better. Now if your partner has [evaluated] the same thing and you switch [papers], it's a very safe, nonthreatening way to find out what's going on with the other person [and] to keep issues from blowing out of proportion. It's like, instead of leaving a splinter in your finger and letting it fester, every quarter you're going to pull that sliver out and make sure you deal with it. Because if you don't deal with conflict early, quickly and swiftly, it gets out of hand and starts getting personal. And you don't want to take these things personal.
I've been married for more than 25 years, and in marriage, there are ups and downs, but what you have to focus on is why did I pick that person in first place-what was it about them that I saw as valuable. Focus on that instead of on all the little piddly things that bug you this week. In a business relationship, it's no different. You've got to focus on why you selected them as an alliance partner and not on what went wrong this week. What tends to happen is you spend so much time putting out fires that you don't spend enough time talking about possibilities and opportunities. That's why relationship-value updates are so critical.