Rob Levin, the Publisher of the New York Enterprise Report, writes about strategic partnerships, noting that people will often suggest a strategic partnership without a clear idea of what they want out of a partnership. His response is to draw the other person out:
Even if I do have an idea of how we could work together, I’ll still try to get them to speak first. The reason for this is that it is much easier for me to sell an idea to someone if they think that it is their idea.
Rob’s advice makes great sense. It also has the advantage of getting people as specific as possible, as fast as possible.
How do you tell when a situation is right for a partnership? The longest-lived partnerships occur where each party brings something to the table that the other lacks. Here are some situations when it makes sense to partner:
- Partner when one business provides a unique or desirable product but lacks wide access to the market, and the other partner has a large customer base or access to the market but needs the product in order to round out its own offering or gain a competitive edge.
- Partner when one business has a niche skill-set or provides a highly specialized service. Even businesses the size of Google and Microsoft can’t be expert in everything (just look at how many of their offerings are NOT market leaders). Often it makes sense to outsource a function to specialists so you can focus on your core competencies.
- Partner where one company is trying to break into a new market or expand, and wants to keep its capital costs or staffing costs down. For instance, one company may offer a technology product and needs consulting help for a combined software/hardware/solution sale. Instead of hiring consultants, it might partner with a group of consultants who are already skilled and looking for products to rep. That way it keeps its headcount and staffing costs down.
- Partner in government contracting situations. A larger company may partner with a smaller enterprise in order to qualify for certain contract set-asides for minority-owned businesses or small businesses. For the smaller company, partnering with a large corporation may be the only practical way to break into government contracting. Joint bids and subcontracting arrangements are common in government contracting.
- Partner as a way of screening and evaluating acquisition targets. This is usually done by larger companies that have venture arms, or are aggressively on the acquisition path. It is a “try before you buy” strategy.