When business mogul and author John C. Maxwell coined the phrase, “Teamwork makes the dream work,” he probably wasn’t talking about strategic alliances or partnerships.
But growing your business often involves establishing these business relationships with complementary organizations and service providers. In fact, aside from your customers, forming close bonds with like-minded entities is the most important relationship type you can make on your journey to business success.
What is an Alliance?
An alliance is when two or more companies collaborate to achieve a common goal. This is typically formalized with a binding contract, with each separate entity retaining its business identity while becoming alliance partners. Each alliance partner gains access to the other’s markets and can increase their product offerings in the process. Alliance management details are spelled out in the contract. Alliances typically involve representatives from each company who decide on the key initiatives that will be undertaken, and how each company will work towards those goals.
There are four common alliance models that are most frequently formed between companies: joint venture alliances, equity strategic alliances, non-equity alliances, and nonprofit alliances.
Joint Venture Alliance
A joint venture alliance is formed by two or more companies pooling resources to create a third entity. The new entity is jointly owned by the founding companies, and produces and sells products and/or services that didn’t exist prior and can only exist by the two companies contributing. In general, these new entities do not directly impact the work of the individual entities.
A simple example of a joint venture is the work of Elton John and Bernie Taupin. “Rocket Man” could not exist without John’s music and Taupin’s lyrics. Yet, John has written music without Taupin, and Taupin has written lyrics without John. They each maintain their own identities when not working within the joint venture.
Equity Strategic Alliance
An equity strategic alliance is similar to a joint venture in scope. However, it is funded differently. In an equity strategic alliance, instead of each party investing in creating a new entity, one company makes an equity investment into another.
A simple example of an equity strategic alliance is when the battery cell manufacturer Panasonic invested $30 million in Tesla in 2010. The investment built a stronger alliance between the two companies to advance electric vehicles and benefited both entities.
Non-Equity Strategic Alliance
A non-equity strategic alliance is formed when two or more entities determine mutual benefit in working together. Still, no financial transaction is required, and the alliance can be formalized via a contract.
An example is the non-equity strategic alliance partnership between bookseller Barnes & Noble and Starbucks Coffee. Each member brings resources to the alliance for the other party to capitalize on. Many customers enter Barnes & Noble stores to pick up a cup of coffee; meanwhile, once in the store, consumers are prone to purchase a book, magazine, or toy that catches their eye.
Another example is when a small business lists its items on an e-commerce platform. In the age of digital transformation, small businesses may partner with an e-commerce company to handle their online sales, leaving the business to focus on product and business development. The e-commerce provider may charge a flat fee for set-up and a percentage of sales for ongoing service.
Nonprofit Strategic Alliance
Nonprofit strategic alliances can be created between two nonprofit entities, or one nonprofit and one for-profit entity. The main factor to consider in nonprofit alliances is that each entity must invest and benefit in ways that align with its mission.
For example, a local nonprofit YMCA might have a strategic partnership with a childcare organization. The alliance benefits both entities because the childcare may provide babysitting services for the YMCA, while children enrolled at the childcare are permitted to participate in YMCA sports leagues and activities.
What is a Partnership?
A strategic business partnership occurs when two or more stakeholders, through a binding contract, decide to share resources, profits, and losses. This agreement creates a separate business entity that is owned by the partners and managed by their representatives. Partners can have any share of the ownership, but the total percentages must equal 100 percent.
Partners may also share decision-making, know-how, and business goals. The result is a partnership entity that can release new products and explore new markets.
Partnerships can be legally structured in various ways and take different forms. They also may begin as an alliance that evolves into a more formal “spin-off” partnership.
With traditional partnerships, entities typically form a general business partnership, limited liability company, or limited partnership, depending on the types of potential partners and the business relationship type desired.
General Business Partnership
In a general partnership, two or more individuals share the management duties for the business. The partnership is formed with an agreement, typically written and signed by all partners. A partner can be an individual, partnership, limited liability company, corporation, or trust. For more complex partnerships where entities are of mixed types, it is crucial to spell out the management structure to reduce conflict or confusion later.
Limited Liability Company (LLC)
A limited liability company is a legal entity structured so the business entity is separated from the individual partners so that the owners cannot be personally responsible for business debts and liabilities. The company is formed by an operating agreement that designates managing members who make the primary decisions on behalf of the business. Each LLC member’s share of profits and losses, called a distributive share, should be established in the operating agreement. Then, LLC members must pay taxes and fees on their distributive shares annually on their tax returns.
Limited Partnership (LP)
Like an LLC, a limited partnership protects the partners’ individual assets from business liability. The amount of liability is directly proportional to their percentage of shares in the LP. Many LPs use an LLC as the general partner because of their limited liability. The general partners manage the company’s operations, and the limited partners have no management role, so they are frequently used for entities involving silent partners or if there are concerns around the management of the intellectual property. LPs are commonly used for short-term ventures.
In more contemporary cases where new technologies are a significant driver of business development and success, contemporary strategic partnership models have emerged, most frequently involving the use of channel partnerships and technology partnerships.
A channel partner is a company that sells products, services, and technologies on behalf of a manufacturer or vendor. They act almost like a middleman between the parent company and the end customer, allowing companies to expand their salesforce without directly hiring salespeople. It’s a mutually beneficial relationship that works as a vehicle for growing market share and increasing revenue. Channel partners include value-added resellers, original equipment manufacturers, affiliates, distributors, etc. Companies use multiple channel partnership types to maximize channel revenue.
Channel partners make money by receiving a commission as a flat fee or a percentage of referral sales. Parent companies price their products and services accordingly to accommodate commission payments.
Companies wanting to create a robust channel partner program utilize channel partner management software like Relevize to allow channel sales teams to increase visibility into their partner-generated sales pipeline and scale that growth to maximize their channel sales revenue.
When two or more companies integrate their products together, it is called a technology or integration partnership. Technology partners work together through data exchange, workflow management, data analysis and improvements, and marketing strategies. The result of a technology partnership is revenue from a co-branded, co-marketed, or co-sold product that creates new mutual leads and customer bases.
An example of a technology partnership is iPhone app developers who build apps with in-app purchases. The fee for their app is typically processed through Apple’s App Store, creating a technology partnership.
Alliances vs. Partnerships: Differences and Similarities
A strategic partnership involves a formal agreement between two or more businesses to achieve a common goal. Partnerships can take many forms, such as a general partnership, a limited partnership, or a limited liability partnership. In a partnership, each partner shares in the profits and losses of the business and have a say in its management and direction. Partners may work together to directly manage the supply chain, including sourcing raw materials, coordinating production and distribution, and sharing logistics and transportation resources.
An alliance, on the other hand, is a less formal arrangement between two or more businesses or organizations to collaborate on a specific project or venture. Alliances are often formed to share resources, expertise, or market access to achieve a common goal. Unlike partnerships, the members of an alliance do not necessarily share ownership of the venture and retain their separate identities. For supply chain management, each member of an alliance retains their independent supply channels but may utilize their alliance to source materials for a new jointly-created product or share distribution channels or networks to reach new markets.
Both partnerships and alliances involve collaborative business relationships between different entities with varied timeframes, levels of commitment, and ownership.
An example of a partnership would be two companies, such as McDonald’s and Coca-Cola, with a long-standing and close working relationship. McDonald’s and Coca-Cola have a partnership agreement where Coca-Cola supplies soft drinks for McDonald’s restaurants. They work together on marketing campaigns, product development, and logistics. They share profits and losses and make decisions together.
An example of an alliance would be two airlines, such as Delta and Air France, that form an alliance to improve their competitiveness on transatlantic routes. They may jointly market and sell seats on each other’s flights and share airport lounges/frequent-flier programs. They do not share ownership or profits and losses but work together to increase their market share.
6 Tips to Make Alliances and Partnerships Work
Making strategic alliances or partnerships work smoothly might be tricky, but there are some tips to keep in mind that will help collaborations of any type work efficiently. Each involves a lot of planning and forethought, clearly defining responsibilities, strengths, and processes.
Prepare for a Long-Term Commitment
An alliance or partnership is a long-term working relationship, and results won’t be seen overnight. Participants must plan for a long-term commitment, scheduling ongoing progress reports, participation needs, inputs, processes, and outputs. A detailed contract should be created that outlines the terms of the partnership, including financial arrangements and how disputes will be resolved. While everyone enters a partnership hoping it will succeed, each party should have a clear exit strategy if it is not working out as planned.
Define Your Shared Work Processes
Every company has its own way of doing things. One company may use Google Sheets to track projects, while another uses a project management tool like Trello or Asana. At the start of a new alliance/partner relationship, the teams in question need to agree on how they’ll work together, what software will be used, who is responsible for what tasks (and any deadlines they have to do them), and what should happen when tasks or projects get off-track.
Successful alliances often rely on everyone to work as part of the same team, regardless of the formal business structure. It’s also essential to determine a governance structure that defines how and who will have the final say over any conflicts regarding business processes. This is especially important in fast-moving startup partnership ecosystems.
Establish Metrics to Track Progress Toward Goal Completion
Goal-setting is essential, but the goal shouldn’t be tracked as “achieved” or “unachieved.” Simply tracking whether or not the goal is met loses insight into how much work was made toward that goal. It’s true that both parties should have a clear understanding of what they hope to achieve through the partnership “along the way” goals should be established as well. This could be measurable results or softer deliverables, such as everyone getting up to speed on how to use a software program best.
Use Strengths to Create Added Value
One huge benefit of working with an outside alliance/partner is gaining access to the things they do well that your organization doesn’t. Allowing partners to continue to do things their way brings new insight and opportunities to your business. Each partner should identify their unique strengths and capabilities and then work together to leverage these strengths to create added value. Each partner’s shared strengths should be delegated in a shared work processes document. Example areas where partners may share strengths include their unique relationships and resources, such as supply chains, existing strategic partners, physical plants, and data centers.
Maintain Commitment and Communication
Your alliances and partnerships should be viewed as extensions of your own employees/work family. Communication should go both ways–being sure to keep partners fully aware of all goings-on in your business, as well as keeping all internal team members knowledgeable and on board with the projects/goals of your partners. This prevents miscommunications and mixed signals from being sent. Partners and allies should stress open and honest communication to foster trust and transparency between partners.
Part of the commitment to the partnership is scheduling and holding meetings to regularly review, evaluate and adapt the partnership to ensure that it remains relevant, successful, and aligned with the agreed-upon goals and vision within a changing business environment.
Manage Conflicts with Grace
Partnerships and alliances will have hiccups, and disagreements will occur. When they do, it’s easy to point fingers or assume that your alliance or partner doesn’t know what they’re doing or how your business operates. But it’s important to realize that your partner doesn’t act irrationally for fun, and there must be a reason they’re thinking or acting in a way you’re not expecting.
It’s important to get to the bottom of any differences of opinion, and seeing each partner as an intelligent professional will go a long way in maintaining relationships. Partners should work together to find mutually beneficial solutions that address the underlying issues and meet the needs of both parties. Partners should be willing to compromise and make concessions to find a solution that works for both parties, keeping emotions in check and approaching conflicts in a rational and logical manner.
Once a conflict is resolved, partners should document the resolution and the steps taken to resolve the conflict to ensure that similar conflicts can be prevented in the future.
Now that you know the key factors at play when establishing and maintaining strong business relationships through partnerships and alliances, you’re better prepared to discuss potential partner opportunities with compatible companies and groups.
Relevize enables partner managers to provide training and marketing templates to their partners, maintain open communication, and track sales activities, incoming leads, and commissions earned, so you can scale growth and maximize channel sales revenue. Request a free demo to check out Relevize for yourself today.