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Growth

How to safe check a joint venture in business

Morris Kaplan
Smarter Writer

Morris Kaplan is a former finance and venture capitalist who writes for entrepreneurs and professional services firms

Morris Kaplan
Smarter Writer

Morris Kaplan is a former finance and venture capitalist who writes for entrepreneurs and professional services firms

We explain the top 6 tips for ensuring a safe joint business venture. Read more and learn how to make a strategic alliance work for you.

In the business domain we hear a lot about strategic alliances, joint venture partnerships and the benefits they can bring for both parties. 

At a micro level we see many professionals form alliances by teaming up with like-minded and non-competing professionals. They share resources and join forces to put on events, such as seminars. Sharing the costs of marketing and hiring a speaker to deliver a talk or workshop on a topic relevant to both businesses creates a win-win outcome. 

Two non-competing businesses can also form a joint venture. For example, travel company Flight Centre formed a joint venture with a large corporate travel business in India. Unquestionably a good alliance can be a highly profitable undertaking, but equally a bad alliance can be a nightmare in the making.

 

cartoon men working together on an idea

So what makes a good joint venture?

Rule number one in how to start a joint venture is that the potential sum of the total must be more than the sum of the parts. In other words, each partner must end up better off than they would individually to both be considered successful joint venture companies. It’s too easy to forget that time, energy and money goes into maintaining a successful alliance. Whatever your motives, here are some things you might want to think about:

 

1. Joint venture trust

Alliances are all about relationships built on trust and mutual interest. They require the respect and interaction of people in each business. Successful joint ventures, like good personal relationships, require effort to build. 

All relationships are based on a degree of give and take. It is no different for joint ventures in business or professional service. Each joint venture partner has to give something and get something in return. If you are the instigator, it's important to be clear about what you have to offer your potential partner. 

2. Resources

Each party needs to contribute resources to the arrangement. This doesn’t necessarily have to be monetary, but each needs to be prepared to dedicate people and time to the venture. Someone in each business needs to be recognised as having responsibility for the joint venture agreement.

3. Time

Alliances take time to build and also to maintain. The optimal path is to work together on a small project or at least establish a beach head that can be named as the joint venture – some activity that can be readily translated and scaled later after some “chemistry” is established and parameters defined.

4. Communications

Good communications are always more about listening than telling. Be all ears. Listen to your potential partners. What they tell you will not only give you clues about their needs, but may influence your thinking in ways you've never even imagined.

5. Joint venture strategies

Joint ventures and strategic alliances go hand in hand. When alliance building does alwats have immediate benefits (although you should set out with that intention), it can be ruinous when partners dont think about it strategically. When all is said and done both sides want something out of the deal. The initiator needs to take into account a number of risks: joint venture and strategic alliance, joint venture strategic alliance 

  • Thinking too small. Too often, a business owner or practitioner asks the potential joint venture partner for an endorsement in return for putting the partner's logo on the company's website. That's not a strategic joint venture. 
  • Thinking only of what the potential partner can do for your business or practice Joint venture and strategic alliance involves a situation where both parties gain something; otherwise, they're not real or equal partnerships. 

 

6. Expectations

While the parties might be all warm and fuzzy when making a joint venture agreement, the terms of the venture should be set out in writing. The truth is each party may actually have very different expectations about how the agreement will work in practice. Without their arriving at a true meeting of the minds, the deal they've signed or verbally agreed on may sour.

The most common cause of problems with joint ventures is the lack of clearly defined expectations. The parties invariably form expectations about how the agreement will be carried out, whether they discuss it or not. Even if initially compatible, those expectations can silently shift in response to actions taken, even though no overt negotiation takes place.  It’s clearly in the parties' best interest to make their expectations explicit and negotiable in a joint venture agreement. 

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