Strategic alliances have been commonplace for many in the corporate arena for a long time but it also becoming a staple for small businesses around the nation and Georgia as well. Small companies are seeing benefits in joining forces to provide products and services in a more efficient and profitable manner, often teaming up to bid on large contracts that would normally be only awarded to a much bigger firm. In other scenarios, a larger company might team with a small business to offer services and products that may or may be part of their core focus. Many times this strategy allows the larger entity to concentrate on specific markets with services and products geared to their core competencies.
A Strategic Alliance can be described as a formal relationship formed between two or more entities to pursue a set of agreed upon goals or to meet a critical business need while remaining independent organizations. Strategic allies look at this partnership as a solution not just to solve critical problems of scarce resources but to develop a business partner who can impact a business’s bottom line in a relatively short amount of time.
Typically an alliance can provide resources such as distribution channels, resources, knowledge, expertise, technology, manufacturing capability and shared expenses. At a recent Georgia Minority Supplier Development Council Trade Exposition, John Carter of the Carter Brothers LLC, and A. Louis Parker of GE Security explained to attendees that the relationship requires careful thought. Carter noted, “Small business owners have to make sure that they are not linking up to a potential competitor by doing an alliance feasibility focusing on the major issues, challenges and opportunities of the alliance.”
Careful consideration into the motives of the potential partner is important to review as well. Contract negotiations would involve determining whether all parties have realistic objectives, defining roles, contributions, expectations, rewards, and alliance operation and termination clauses.
Paul Lancets, an attorney who specializes in structuring these kinds of agreements, suggests these six keys steps.
- Choose a partner who has mutual ideas, goals, philosophies and whose strengths complement the limits of the other.
- Determine the kind of alliance that will be created including the scope of products and service delivery.
- Determine what roles each company will play during the course of the alliance including critical timelines, sales goals, etc.
- Develop a sound financial compensation plan for profits received that both companies agree to and reinforced by a legally sound binding document.
- Schedule regular meetings to discuss strategy, operations, products, services, training, financial information, etc.
- Assess whether or not the alliance is working for both entities in a way that allows them to profit and either cut costs or improve on the bottom line.
An alliance can produce substantial benefits to a small business but it can also create a path to closing your doors if the alliance isn’t structured correctly. A small business’s future can be tied to this strategy and an owner has to really consider the pros and cons before attempting such an alliance.
(Source: Eric Bonaparte, SBDC Office of Minority Business)