Joint Ventures

Many businesses are finding that joining forces with another business can offer significant returns.

According to the Commonwealth Alliance Program (CAP), joint ventures accounted for 25% of all revenues in 2005. Over the past few years this figure has risen.

Explore the concepts behind running a joint venture and if your business could benefit in this blog post.

What Is A Joint Venture?

A joint venture is a business agreement between two separate businesses where they combine resources to achieve a goal. Sometimes, the strategic alliance is there to drive traffic between two different websites; at other times it’s a joint effort to sell a single product and split the profits.

A joint venture is not the combination, merger or a takeover as there is no change in ownership.

There has been a rise in the number of businesses participating in joint ventures as the number of solopreneurs and Work At Home Parents increases. Believing they can combine their limited resources to create a successful business model, these small businesses are uniting to challenge the bigger players in their markets.

The Advantages And Disadvantages

There are many advantages and disadvantages to running a joint venture. Business partnerships can offer access to new markets and distribution networks and increase their production capacity in certain agreements. They can also lower the risk of any venture by sharing costs and resources with their partner.

On the other hand, a joint venture can have significant risks, especially if the proper framework is not established early enough. For instance problems could arise if the following aspects have not been sorted out prior to the venture starting:

• Tangible goals and milestones for the joint venture which can be clearly measured.
• There is an imbalance in the expertise, investment capital or assets brought into the venture.
• There is no agreement on the culture and management style.
• Limited leadership being provided at the beginning of the venture.

One of the best ways to avoid this is to sit down with your partner and write an agreement before any work is carried out. This way all partners understand exactly what is expected from them.

Should You Joint Venture?

For many businesses, a joint venture is an excellent method to gain access to new audiences. Yet this should not be the only reason why you should embark on a joint venture. If you are thinking of a joint venture, consider the following questions:

1. What am I looking for in a joint venture?

2. What can I offer a partner in a joint venture?

3. What benefits can I receive from a joint venture?

4. How much time is it going to take from other business activities?

5. What are the risks of this joint venture?

6. Is there a complimentary business, located somewhere I cannot operate, that I could partner with?

7. Is there a logical business partner who can support me in vertical or horizontal marketing penetration?

For every possible joint venture you will also need to conduct a specific SWOT analysis. Look at your own strengths and weaknesses as well as the opportunities and threats which the partnership might offer.

One of the last questions you should ask yourself is whether you are happy sharing the profits. Consider asking whether you are happy with 50% of $10 million or would you rather have 100% of $3 million? If your answer is the latter option; you might want to consider going it alone.

Types Of Joint Ventures

There are a number of small business ventures which you might want to consider. Some of the most common joint ventures in the world are grocery shops aligning themselves with petrol stations and coffee houses having outlets in bookstores and supermarkets. These alliances offer benefits to both businesses and allow for deeper market penetration for both.

Another common strategic partnership can be massive reward schemes where businesses elect to reward customers on a loyalty card which can then be redeemed at another business which is also a member of the scheme.

However, not all joint ventures have to be like this. Some joint ventures are specific to a product or service. A common example of this would be the entertainment industry. Films, games and music have various different organisations who partner up to deliver a final product.

The film industry is a particularly good market to demonstrate joint ventures, with Disney and Pixar as the perfect example.

Previous to the buyout of the latter, Disney partnered with Pixar with Toy Story Two demonstrating how the two companies worked together. Pixar was responsible for the story and the development while Disney handled the distribution and marketing. The two companies were able to achieve an outstanding success with the release of the sequel.

The games industry works in very much the same way. One company will handle the development while another will handle the distribution. These ventures would not work without the successful communication between the businesses involved.

When A Joint Venture Fails

Sometimes a joint venture suffers from some difficulties and the differences cannot be resolved easily.

To mitigate these possibilities, you will want to sit down with your partner and amicably agree an exit strategy. Consider who will take the rights for what and who will be responsible for what costs. Attempt to be fair in such cases and agree a fair and balanced split.

However, in most cases bad partnerships can be avoided by regular and routine communications between all parties before the venture is even started.

Conclusion

A joint venture is a great way to reach out to new markets and gain extra exposure for your brand. This could be with your current product or with a new product you have developed with your new partner.

The key to any successful joint venture is clear communication right from the beginning with regular updates flowing between all parties. If this can be achieved, you can run a successful joint venture and gain significant rewards for your effort.

Action Steps:

• Complete a SWOT analysis to see if your business could benefit from a strategic alliance.
• Seek out partners and consider how they could help you and how you could help them.
• Contact these potential partners and propose your joint venture.