Achieve Growth Without Borrowing Funds
Q: I would like to grow my business; however, I would rather not borrow anymore money for now. Is there any way I can increase my business' sales and profitability without having to invest additional dollars?
A: Yes. One of the most powerful ways to facilitate business growth is through the application of strategic alliances. These alliances, or virtual funding as they are sometimes called, allow you to enjoy many of the benefits typically associated with the infusion of cash into your business, and to do so within a very short period of time. By using strategic alliances, you can avoid having to borrow, or bring outside investors into your business.
Two important strategic alliances are marketing alliances and product alliances. Under a marketing alliance, you and another business exchange customer bases. This allows you to gain access to another business's customers, to whom you can market your business's products and services. Additionally, you may be able to earn a royalty or share revenue from the other business' (your alliance partner's) sale of its products and services to your customers.
With a product alliance, you are able to offer another business's products and services to your existing customers, while your alliance partner sells your business's products and services to its customers. Under this type of alliance, your business is able to sell products and services without any additional costly requirements, such as manufacturing know-how and capabilities, product distribution networks, or increased investment in inventory and storage. Under most circumstances, your alliance partner can direct-ship its products and/or provide services directly to your customer, without your business having to be involved at all beyond the sale. All your business has to do is collect the money and divide this sales revenue between your business and your alliance partner.
The Internet has more clearly defined the respective roles of strategic alliances for business owners. Marketing alliances are facilitated by merely creating a direct link from one business's Web site to their alliance partners'. The other business's customers can reach your business with the click of a mouse (and visa versa). Product alliances are created and activated when one business's customers move to your business' site and purchase products and services, and when your customers travel to other businesses' sites and make purchases.
The ideal businesses with whom to form alliances are those that offer products and services that are complementary to those of your business. For example, if your business offers sporting equipment, you could create an alliance with a sports clothing retailer as a way of offering their sports clothing to your business's customers, while they sell your business' sporting equipment to their customers.
Before you enter into an alliance with another business, you must complete due diligence research and analysis to determine the trustworthiness, capabilities and reputation of any potential alliance partner. Referrals from a business's customers and/or suppliers are good sources of information, along with any credit information you can access. If the potential alliance partner has any existing successful alliances with other businesses, this feedback should be very useful to you in making your decision about this potential alliance partner. Also, be certain that you obtain signed copies of any and all appropriate confidentiality and noncompete agreements, as well as any operating contracts, before you enter into any agreement. This requires that you have legal documents drawn up, protecting such assets as your business's proprietary trade secrets, its reputation and, above all, your business's relationships with its existing customers.
Finally, before you make a strategic alliance a permanent agreement, you should test your alliance concept with each potential alliance partner. Once you have the results of your tests, you can refine the terms and conditions of the alliance and then finalize all legal documents and operating agreements.
Remember, in order to be successful, an alliance must benefit all members sufficiently to both entice them as well as maintain a strong level of interest and working cooperation throughout the entire term of the alliance.
David Meier received an MBA in Finance from Loyola of Baltimore, and spent much of the 1970s teaching business courses; later, he created a consulting group, and for the next two decades, provided accounting and tax services to small-business owners. He is currently the founder and COO of Small Business 411, which provides small-business owners with ongoing business coaching and the knowledge and support required to enable them to become truly successful entrepreneurs. Visit the Small Business 411 site at http://www.smallbusiness411.com
The opinions expressed in this column are those of the author, not of Entrepreneur.com. All answers are intended to be general in nature, without regard to specific geographical areas or circumstances, and should only be relied upon after consulting an appropriate expert, such as an attorney or accountant.