Strategic Alliances

Strategic Alliances: Strategic alliances involve a specific product or technology between companies of differing sizes; it can last a specified timeframe or can be open-ended and one person/group has dominant control.

The Limitations of Interdependence

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InterdependenceWhat do you think? Will Joe stay or leave?

And, more importantly, what would you do?

Joe had worked in the operations side of his uncles’ technology company for ten years before he told them that he wanted to run his own business.

Good for Joe. That conversation led to the creation of an installation company that was actually separate from the base business, and Joe had his opportunity to be a President. Since they financed the startup, Joe’s uncles owned the new installation business. Within a few years, Joe became a minority shareholder. Today with ten more years now under his belt, Joe and his uncles have equal shares.

Whether you handle computers, telephones, furniture, sun rooms or sound systems, growing an installation business has its challenges. It’s labor-intensive with lots of moving parts, conflicting schedules, union versus non-union jobs, tight budgets, high expectations and too little control over what’s promised.

Installers are dependent on salespeople to make reasonable commitments. In a highly competitive environment, that becomes almost impossible. To get the account or the project, a sales person can feel forced to agree to just about any demand. This pressure is tough enough to handle when the installers are in a department within the core business. Installers in a separate business are dependent on promises made by salespeople in someone else’s company.

So Joe and his uncles negotiated a deal to help the companies be interdependent. The core technology company would get discount pricing and give Joe’s business right of first refusal on their installations. For a few years, the majority of Joe’s installation projects came from the family’s technology business. However, he wanted to grow his business faster and learn how to work with a broad range of customers. Joe can’t hire, train or supervise the sales people in the technology company, but he can develop his own sales department. Today, less than 20% of Joe’s business comes from his uncles’ technology company. Hmm…They are his partners. That could be awkward.

Who gets to decide which companies Joe’s salespeople can approach? What about companies that directly compete with the family-owned technology company? How many other customers can be extended the right-of-first-refusal discount before its value is diluted? Have the installers lost the influence they once had with the technology company salespeople? If the promises made by the family-owned technology business become unacceptable, could Joe charge them more money? Could Joe ever buy his uncles’ shares and become the majority owner? If the family-owned technology company continued to be his largest customer, could Joe change his pricing? If independence is Joe’s primary life goal, could he focus “his” installation company on completely different products or customers than the family-owned technology business?

What do you think? Will Joe stay or leave?

And, more importantly, what would you do?

As an Entrepreneur, Have You Lost Your Authentic Swing?

Businessman ThinkingI love the 2000 movie The Legend of Bagger Vance.

Remember it? Directed by Robert Redford, the movie was based on Steven Pressfield’s 1995 book with the same name. The actors include luminaries Jack Lemmon, Will Smith, Charlize Theron and Matt Damon. This was Lemmon’s final movie which makes it even more important to many people.

In 1931 (during the depths of the Great Depression), the City of Savannah, GA sponsors an exhibition golf tournament with great golfers Bobby Jones, Walter Hagan and the town’s golf prodigy and hero, Rannulph Junuh.

As he caddies, wise Bagger Vance (played by Will Smith) provides sage advice to help Junuh recapture his “authentic swing.” They talked very little about the fairway, sand traps or greens. They talked about post-traumatic stress, the meaning of life, guilt, regret, a broken heart, giving up, accepting responsibility and hiding. You know…light conversation (lol).

As many golfers of today can tell you, finding one’s authentic swing in golf is not just a matter of repetition. Golf is a mental game as much as it is a physical one. When a golfer’s muscles are tight from being angry at work, his/her slice or hook returns on the golf course. When a golfer’s optimism or confidence is compromised, the short game on the green becomes another nightmare. An executive’s capacity to make great strategic decisions is another version of one’s authentic swing.

Presidents of privately held mid-sized companies often don’t have time to play golf or have another similar outlet that offers feedback on whether the president is still centered. It is impossible to maintain your authentic swing when you aren’t centered. Often the all-important feedback comes in the form of poor business results. The president’s loss of his/her authentic swing is taken out on the business.

Sometimes executives just keep showing up when he/she knows he/she is “just not right with the world”. Continuing to show up is important, but just going through the motions can solidify bad decisions (a hook or a slice). Finding what keeps you centered is worth the effort. An executive coach could be your Bagger Vance.

Alternate Between Divergent and Convergent Thinking When Negotiating Deals

Divergent ThinkingYou have been considering your options, running scenarios, and have come up with what you think is a great idea. But your idea can’t possibly be in another person’s budget or plan. You just came up with it. Both parties usually don’t think of a possible deal or new working relationship at the same time. It’s human nature (and more so these days) for a person to be inclined to say “no” if a deal wasn’t his/her idea. So, the first step in deal negotiation is to help other people open up, get caught up, and not feel rushed. If you push to sell your conclusion, you are very likely to prompt a negative response.

It can help to alternate between divergent and convergent thinking when discussing new working relationships or deals. Once you think you have discovered a good option take a step back and start your discussion with the other party with the premise that there could well be ways that the two of you could work together that would be mutually beneficial. That way, the first discussion is exploratory and expansive (divergent). Together, you generate multiple ideas and approaches.

The operative word here is “together.”

The second time you meet, you can shrink the options down to 3-4 that have merit, which is convergent thinking. Together, you can divide up the “homework” to be done. One of you may research the joint venture option. The other may spell out how money would flow if it should be a strategic alliance instead. Or, one of you might clarify how a partnership might work while the other thinks through how a loan could be executed without a partnership involved.

The operative word here again is “together.”

Deals often fall apart in the early stages because one person was too focused on a single conclusion or only one side is doing due diligence. Deals also fall apart when one participant reveals worries or focuses on possible problems way too early in the process.

If there is consensus on a possible mutually beneficial approach, the third meeting can be dedicated to how to prevent problems, minimize barriers to success, address worries, etc. Aired before concept consensus, those concerns just sound like fretting. Divergent thinking is involved when listing what could go wrong and what might be needed to address issues.

The fourth meeting is the most important in most deals. What will each entity actually commit to doing? Who else will be needed in order for the concept to pay off? What is the best timeframe? What ROI is reasonable for both? Is there a fallback or contingency plan?

In my opinion, lawyers should not be involved in deal discussions until the fifth meeting. Their role is adversarial by definition and certainly feels divergent. Business leaders need to know what they want and be centered, so they can provide clear directions to the attorneys. Life is good when attorneys are asked to explore a concept’s viability versus identifying all the ways it may not work.

The sixth meeting is sometimes referred to as the “champagne meeting”. Together, agreements are signed. The launch is rehearsed. Key people who will make the concept pay off are present.

Again, the operative word is “together.”

Look at Growth Strategies Through a Stronger Lens

Signing Agreement_ING

During a breakout session on “Choosing Business Models” at the IMC GROW! Conference in Las Vegas, it became apparent that several attendees already utilize or are considering strategic alliances and/or licensing deals. I’m more of an optimist than a pessimist, but I did find myself calling up sad stories and providing warnings.

Licensing can be a wonderful idea for a service firm that has solid content. Other professionals who don’t have great content but love to speak, train, consult, or coach pay a reasonable fee for your permission to utilize your content. You can provide training and install some form of quality assurance program to protect the quality and your company’s reputation.

However, the problem is that most people who pay licensing fees to use someone else’s material are not business-minded or entrepreneurial. Before you know it, licensees are calling you to ask for referrals of clients or assistance with selling.

I like reviewing any licensing proposal through the lens of franchising. You may still choose to only license your content, but looking at geographic considerations, assigning a value to your marketing, reviewing the assumptions behind business management so everyone can make some money, thinking through legal protection for everyone involved, clarifying responsibilities, etc. can strengthen a licensing arrangement. I’ve seen people opt for franchising once they look through that stricter lens.

The same thing happens when a strategic alliance is being proposed. What would prevent the participants from fully committing to a more formal joint venture? Those issues are what destroy so many strategic alliances.

Counter Intuitive Logic When Choosing Strategic Alliances or Joint Ventures

 
 
 
 
 
 
 

A Classic Barrier to Growth – Increased Cost of Credit

No duh…right?

I can still recall how it felt when my first business attracted its first line of credit.  During the years of great inflation of the late 1970s/early 1980s, the interest rate was close to 20% on our SBA guaranteed loan. My partner and I celebrated “Yeah…We Got the Loan!” but that was followed quickly by “Oh Dear.  We got the loan payments!”

Today, the interest rates on loans and lines are a whole lot lower, but they just aren’t as accessible.  The cost comes in other forms than just interest. Sometimes, it comes in the form of seeking venture capital earlier than you would have five years ago.  The deceptive increase in the cost of credit comes in the form of the hassle factor and increased administrative time spent on credit card companies.  Identity theft increases the cost of credit. The increased cost of credit comes in the form of distractions and lost opportunity as we all must keep a watchful  eye on what is happening at corporations like CHASE, CITI, and Bank of America…even if we aren’t shareholders or customers.

With our most progressive clients, one of the major segments in strategic planning retreats is focused on finding ways to diminish the impact of financial industry dynamics on the growth of their companies.  Ownership. Pricing. Channels. Strategic alliances.

What do you need to be less reactive to the financial industry?

 

Aldonna R. Ambler, CMC, CSP has earned the right to be called THE GROWTH STRATEGIST®. She has won over 2 dozen national and statewide “entrepreneur of the year” awards for the resilient growth of her international businesses across 4 recessions.  Her midsized BtoB clients get on…and then stay on…the published lists of the fastest growing privately held companies. She owns and operates a suite of companies that help privately held midsized companies achieving accelerated growth with sustained profitability® through opportunity & resource analysis, 4 approaches to strategic planning, executive advisory services, growth financing, and targeted search.  2012 is Ambler’s 8th year hosting a weekly peer-to-peer-to-peer syndicated on line talk show that features interviews with CEOs/Presidents of midsized companies (typically between $20 and 200 Mil/yr) sharing success tips about the growth strategy-of-the-week. An archive of over 300 interviews is available at www.GrowthStrategistShow.com. She can be reached toll free at 1-888-Aldonna or at Aldonna@AMBLER.com.

Don’t Get Pushed Around During Negotiations If You are Temporarily Short on Cash, Time or Energy

A friend of mine, Jane, owns a service firm that really takes care of its clients. She was starting to feel the strain of high labor-related costs and overdependence on a few key people, so she invested in “productizing.” You know what I mean. She protected her intellectual property (IP), turned their process into a system, and obtained outside assistance from a merchandising company to package it all. Maybe you can imagine how she felt. Jane had invested a great deal of time and money and was now feeling rather low on money, energy and time.

I found myself speaking up because it seemed like Jane was giving in to more and more demands from prospective licensees and strategic alliance partners.  We have noticed that the same thing often happens to owners of companies who are negotiating with their first franchisees or joint venture partners.

It pays to do a little research about the offers being made by comparable companies.  When you review materials distributed at franchise expo exhibits you quickly see the value assigned to IP, great product, systems, procedures, marketing, expertise, and reputation.  It is reasonable to expect licensees, strategic alliance and joint venture partners, or franchisees to be entrepreneurial enough to do their part and share the risk.

I couldn’t help but wonder if the people Jane’s been negotiating with are trying to take advantage of the fact that she wishes that she had more cash, time, and energy.  Folks who take advantage and would demand more and more and more during initial negotiations probably won’t be win/win partners later.

When Jane got a good night’s sleep and took another look at her value proposition, she moved beyond being embarrassed that she is temporarily low on cash, time, and energy.  A FAIR deal wouldn’t involve her putting up more money anyway!

 

Aldonna R. Ambler, CMC, CSP has earned the right to be called THE GROWTH STRATEGIST®. She has won over 2 dozen national and statewide “entrepreneur of the year” awards for the resilient growth of her international businesses across 4 recessions.  Her midsized BtoB clients get on…and then stay on…the published lists of the fastest growing privately held companies. She owns and operates a suite of companies that help privately held midsized companies achieving accelerated growth with sustained profitability® through opportunity & resource analysis, 4 approaches to strategic planning, executive advisory services, growth financing, and targeted search.  2012 is Ambler’s 8th year hosting a weekly peer-to-peer-to-peer syndicated on line talk show that features interviews with CEOs/Presidents of midsized companies (typically between $20 and 200 Mil/yr) sharing success tips about the growth strategy-of-the-week. An archive of over 300 interviews is available at www.GrowthStrategistShow.com. She can be reached toll free at 1-888-Aldonna or at Aldonna@AMBLER.com.

JOINT VENTURES – THE TIES THAT BIND

You and a key vendor (Vendor A) conclude that if you work together to create a tailored version of a product/service, both companies will be able to make a lot more money.  So you both invest the time, money, and effort to do that and it starts to pay off. You also agree that Vendor A can’t sell the new product to your competitors in return for your investment in them and your marketing/sales efforts to bring them more business.

Was this a loose strategic alliance?  Or was this a firm joint venture?

Here’s the test.

Your business does well.  You are now attracting even more demanding clientele and you are wondering if Vendor A can keep up with you and your new larger clients. A competitor of Vendor A has approached you and Vendor B’s product seems a lot better. Plus Vendor B’s commitment to growth seems a lot stronger than Vendor A’s.

Should you and can you switch vendors? Ethically? Legally? Practically?

What did your written agreement with Vendor A say about that?

 

Aldonna R. Ambler, CMC, CSP has earned the right to be called THE GROWTH STRATEGIST™. She has won over 2 dozen national and statewide “entrepreneur of the year” awards for the resilient growth of her international businesses across 4 recessions.  Her midsized BtoB clients get on…and then stay on…the published lists of the fastest growing privately held companies. She owns and operates a suite of companies that help privately held midsized companies achieve accelerated growth with sustained profitability® through opportunity & resource analysis, 4 approaches to strategic planning, executive advisory services, growth financing, and targeted search.  2012 is Ambler’s 8th year hosting a weekly peer-to-peer-to-peer syndicated on line talk show that features interviews with CEOs/Presidents of midsized companies (typically between $20 and 200 Mil/yr) sharing success tips about the growth strategy-of-the-week. An archive of over 300 interviews is available at www.GrowthStrategistShow.com. She can be reached toll free at 1-888-Aldonna or at Aldonna@AMBLER.com.   

BEFORE You JUMP into a Joint Venture, a Strategic Alliance, a Franchise, Equity Deals, a Roll Up, an ESOP…

 

Recently, I’ve noticed more and more executives of midsized companies JUMPING into strategy implementation.

It’s too easy to fall in love with one strategy over another because you’ve heard a peer share a success story. “Hey, we could do a strategic alliance. George did it.”  Well written articles or webinars with great case studies can convert some people into raving fans of joint ventures or roll ups.  One of our clients became enamored with the idea of franchising his company after his wife was hired by a successful franchise.

The economy has created uncertainty.  Bright ambitious executives (perhaps you) feel like caged cats and are “itchy” for a change. It becomes very tempting to JUMP right into a strategy.  At least that way, something is happening, right?  Well, disruption might be happening that way, but your team will not understand the rationale behind the strategy you have jumped into. You lose credibility as a leader.  And successful implementation is risked. Some folks are JUMPING into strategies when they don’t know the differences between them, what each really involves, and the pros of cons of each. And then they are surprised when bankers are still reluctant to finance them.

Instead of jumping right into a strategy, this would be a great time to involve your executive team. Everyone could benefit from some concentrated learning.  Your controller could be asked to analyze the costs associated with strategies like franchising, roll ups, joint ventures, etc.  Your VP Business Development could be asked to analyze which approaches are being used in your industry and why.  Your General Manager of VP Operations could study pacing and look at what is involved with each strategy.  Everyone would be smarter and by the time you and your team select a growth strategy you will all have a much better sense of WHY it was selected.

 

Aldonna R. Ambler, CMC, CSP has earned the right to be called The Growth Strategist™. She has won over two dozen national and statewide “entrepreneur of the year” awards for the resilient growth of her international businesses across four recessions.  Her midsized B-to-B service, technology and distribution clients get on…and then stay on…the published lists of the fastest growing privately held companies. All of her own service businesses (strategic planning, executive advisory, growth financing, radio show, speaking, search, etc.) help midsized companies in Achieving Accelerated Growth With Sustained Profitability®. Ambler is in her 7th year hosting a weekly peer-to-peer-to-peer online radio program Growth Strategist Radio Show, at www.GrowthStrategistRadioShow.com, that features interviews with CEOs/Presidents of midsized companies (typically between $20 and 200 Mil/yr) sharing success tips about the growth strategy of the week. She can be reached toll free at 1-888-Aldonna or at Aldonna@AMBLER.com.

The Risks of the “Accepting The Devil You Know” Strategy

Cash was always “KING,” but now it is “QUEEN”, “PRINCE” and “DUKE” for a heck of a lot of companies.  Instead of business leaders looking to optimize opportunity, partner with new players, and aspire to new approaches, most seem to be seeking survival, reducing risk, and controlling change. You are not alone if your recent business decisions have felt like accepting the “lesser of two evils” or being stuck working with “the devil you know.”

But it’s not OK.

This extended recession has done some significant damage.

I am becoming particularly concerned about family owned businesses as they huddle around one another and act like it is “us against the world.”  The old premises are resurfacing. You know the ones I am talking about…no one outside the family can be trusted and only immediate family members would care enough.

You have a lazy brother who refuses to learn to use new technologies or an emotional sister who wants to give extra discounts to her friends or a cousin who assumes you will establish a new location in Colorado so he can go skiing more. Just because they are relatives, are these people all automatically better than considering strategic alliances with an up and coming firm or bringing in a CFO who actually understands growth financing or considering a new channel of distribution (because you know the way you currently do things hasn’t been working for YEARS!)?

Maybe your family has passive aggressive behavior, long term indecision, difficulty holding one another accountable, confusing compensation formulas, or conflicts over succession.  If so, selecting business strategies that emphasize maintaining the status quo will compound those problems…not solve them.  Please, do a gut check.  Are you becoming more introspective, less open to negotiations, less willing to hear new proposals, and less willing to meet new people?

This is scary stuff!  It sounds trite, but we have to regain our entrepreneurial spirit, quest for quality, and love of learning!  We just can’t let the lousy economy set us all back dozens of years!

Aldonna R. Ambler, CMC, CSP has earned the right to be called THE GROWTH STRATEGIST™. She has won over 2 dozen national and statewide “entrepreneur of the year” awards for the resilient growth of her international businesses across 4 recessions.  Her midsized BtoB service, technology, and distribution clients get on…and then stay on…the published lists of the fastest growing privately held companies. All of her own service businesses (strategic planning, executive advisory, growth financing, radio show, speaking, search) help privately held midsized companies achieve accelerated growth with sustained profitability.™ Ambler is in her 7th year hosting a weekly peer-to-peer-to-peer on line radio program at www.Business.VoiceAmerica.com and www.growthstrategistradioshow.com that features interviews with CEOs/Presidents of midsized companies (typically between $20 and 200 Mil/yr) sharing success tips about the growth strategy-of-the-week. Family owned businesses will be emphasized in 2011. Ambler can be reached toll free at 1-888-Aldonna or at Aldonna@AMBLER.com

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