How Small Businesses Benefit from Strategic Alliances

In a competitive, complex business world, there are few companies that have the capability to do everything alone. The skills and technology necessary for success in business today, many times, mandate that companies work with other companies that possess complementary skills for the mutual benefit of each. Regardless of the alliance partner or how the alliance is structured, strategic alliances can bring significant benefits to each partner, especially small businesses.

The following are ways strategic alliances can be profitable:

• Alliances can bring complementary skills from partners that a small business may lack. Due to the smaller scale in which many small businesses operate,they may not have all the skills required to be successful on their own. Strategic alliance partners can provide the skills that a company may lack, thus, creating a win-win situation for both.
• When partnering with larger companies or other equity partners, strategic alliances can provide a much needed cash infusion required for growth.
• Alliance partners can provide access to a large number of customers that a small business may not be able to reach alone. Just think of the number of customers a small business could gain access to if partnered with Wal-Mart!
• By working with technology startups, a small business can learn and take advantage of new technologies that can foster a significant competitive advantage.

There are a number of ways small businesses can form strategic alliances. An equity alliance is when one partner provides cash in return for access to technology and skills as well as an ownership interest in the company. Technology alliances can be formed where both parties develop high value solutions by combining complementary technology developed by each. In still another type of alliance, one party provides access to its distribution or customers in return for obtaining products or services from the other that the first company may not have. There are also multi-tenancy alliances where more than two partners join together to develop a common platform giving each alliance partner an advantage over its competition.

While strategic alliances can benefit all parties, finding a suitable alliance partner and making the relationship work requires determination. Companies must do proper due diligence to find the right partner and develop an operational framework to ensure the partnership remains “on track.” The 5-step process described below for finding a strategic alliance partner can be helpful in ensuring that the alliance partnership will provide value to both parties over a long period of time.

1. Assess your business – Perform a SWOT analysis to understand the strengths and weaknesses of your business. By understanding these critical factors, a small business owner can focus on finding partners that can “fill the gap” to provide skills necessary to take a small business to greater levels of success.
2. Evaluate candidates for potential fit – Establish criteria to evaluate candidate alliance partners. As examples, review the company culture, management philosophy, willingness to partner, financial profile, and common technologies.
3. Identify candidates – Once the type of strategic partner has been identified, a list of candidates that fit the profile can be compiled. Although the final list will eventually only have one or two potential partners, it is better to start with a longer list knowing it will be “whittled” down to the final few serious candidate partners.
4. Negotiate the agreement – Numerous issues must be addressed before a strategic alliance can be formalized. The negotiation should include the alliance structure, investment, timing, intellectual property rights, revenue sharing, etc.
5. Establish governance model – A solid governance plan is a must for any strategic alliance to succeed. Inevitably, issues will arise when two companies with different philosophies and interests work together. The governance model will help solve those issues in an amicable manner when they do materialize. You can even utilize tools like Zen software which was developed to help businesses manage their Governance, Risk Management, and Compliance models.

When companies form strategic alliances, they develop a common bond so each becomes more efficient and more profitable. Alliance companies improve market access and gain entry into markets they would otherwise not be able to enter. Additionally, strategic alliances can help reduce external threats, help reach company objectives, and build core competencies.

Richard L. Weinberger, PhD, CPA is the CEO of the Association of Accredited Small Business Consultants (AASBC). The AASBC provides certifications to individuals who have demonstrated proficiency in small business consulting. The AASBC is a global association that recognizes the growing need and lack of individuals qualified to consult in this area. Educational materials and practice aides are specifically designed to enhance small business consulting and assist small business owners to increase business value and profitability through achievable improvements in everyday systems.