There can be strength in numbers, and successful business partnerships and strategic alliances are a testament to this. Studies show that corporate alliances increase by 25% every year, but what makes such a venture attractive in the first place?
The same study reveals that alliances account for nearly a third of a business’ revenue and value. As this article on Mckinsey has put it, partnerships can be a huge factor in helping companies a) gain access to untapped markets and channels, b) allow two entities to share intellectual property or infrastructure, or c) even reduce risk for both parties.
However, as beneficial a strategic partnership can be, things can also go sour. One poll released by Mckinsey shows that there are a multitude of reasons why alliances do not work out. According to the poll, the failure rate for alliances hovers between 60% and 70%.
Some of the reasons behind these failed partnerships can range from the partners’ disagreements on central objectives, to poor communication and governance practices, and even to one or both sides’ inability to identify and quickly make the changes needed for the partnership to succeed.
A business partnership can be fragile, and it needs conscious cultivating. To make strategic alliances and agreements work, here are three best practices to establish before pursuing a partnership:
Set a solid foundation
As with every transaction, a contract is a must in every business partnership. Make sure that the terms and compensation detailed in the agreement are points you and your prospective partner are comfortable with. It should also detail how you are going to work together, and how resources of each company will be utilized. Establish how this will cause a ripple effect internally and how it will change management protocols.
Beyond the needed paperwork, start building a foundation by recognizing the strengths of each side. How will your company be of value to both the partner company and the consumers you plan on targeting? Moreover, take this time to check and see if there is a market for the product that will be born out of the partnership.
One example of a successful strategic business alliance is the partnership between Apple Pay and Mastercard. Apple Pay was able to get the benefit of MasterCard’s reputation and financial credibility, with Mastercard being the second-largest card provider in the world.
On the other hand, MasterCard was able to further tap into Apple’s loyal followers, effectively becoming the first card provider to become an Apple Pay authorized option. Both were able to leverage each other’s strengths to their advantage while supporting the other through their respective weaknesses.
Constant communication and clear expectations
WP Engine’s SVP of Corporate Development and Strategic Alliances, Lisa Box, said it well when explaining the importance of setting expectations in partnerships:
“Setting expectations from the beginning is key. Being direct and outlining what the expected outcomes from the partnership for both parties will look like at the beginning of the project will help determine if the partnership will be successful. The key is defining what success looks like first and then working your way back from there.” – Lisa Box, WP Engine, Inc.
Being clear on what to expect and what you aim to receive from the partnership ensures that all cards are laid out on the table. Firmly establish what you can offer, what you are both working towards, and how you will work together in order to achieve your common goal. Then properly communicate this to the other party.
In order to reach this point, make sure your business vision first aligns with the partner company so you can work on the same mission together. Keep everyone in the loop so that people will remain accountable throughout the partnership. This can help prevent possible miscommunication down the line.
Connect socially and go beyond business
While it is easy to simply get down to business, conversations about sales and strategic plans can lead to a monotonous collaboration, leaving much to be desired when trying to establish trust and empathy for the other’s objective. In the same Mckinsey research, one energy-sector executive highlighted the importance of “spending time on the other company’s turf.”
As someone who has negotiated and managed dozens of partnerships, this executive noticed that only about 30 to 40% of partnership meetings are about business. The rest of the time is spent on connecting and building friendships.
Bill Gates and Paul Allen is one example of a successful partnership rooted in a lifelong friendship. Having been friends since they were students in a Seattle-based school, their dynamic was already tried and tested. Microsoft would not have been created if not for the other’s contributions and support.
The benefits of connecting socially and not just as entrepreneurs, also applies to established companies looking to partner up. It is one way to understand the other’s perspective, paving the path to better collaboration.
Strategic partnerships can be an exciting venture, but management of such an alliance can sometimes be a struggle for some. Proactively making it work, through establishing foundations and being on the same page when it comes to respective contributions and the vision for the alliance, are just some of the keys to making it work.