Growth by Partnering

By Mike Myatt, Chief Strategy Officer, N2growth

If corporate growth is what you seek, but you lack the patience to endure the slow pace of organic growth, and don’t have the capital necessary to finance an acquisition binge, then you might want to consider the many benefits associated with partnering.  While the concept of creating a strategic partnership is familiar to many, the reality is that few companies take advantage of them. Let me offer the initial disclaimer that the subject of today’s post is a complex area that would require much more in depth coverage to do it justice. That said, in the text that follows I’ll provide an overview of the many reasons why partnering should be included as a key component of your corporate growth strategy…

Acquisitions
Growth by acquisition in most cases constitutes a complex, capital intensive, and time consuming process. Furthermore the brain damage associated with an acquisition is just beginning when the deal closes. It is the difficulties associated with post acquisition integration that many companies often fail to consider. The merging of cultures, employees, technology, process etc., can cause what appears on paper to be the perfect acquisition to fall far short of expectations. Even in the case of an accretive acquisition, it can take far longer to reap the benefits than is often reflected in the initial projections.

Organic Growth
The predominant business risk associated with a reliance on pure organic growth is lost opportunity costs tied to a decrease in velocity of achieving business objectives. In most cases, organic growth simply means slow growth. Many executives and entrepreneurs let their concerns about the certainty of execution, or loss of control associated with transferring responsibility to a third party keep them from pursuing strategies that accelerate growth. This type of antiquated thinking puts companies at a severe competitive disadvantage. Moreover, these concerns should not be an issue with the proper selection, operating structure, and management of a partner.

Partnering
Joint Ventures, strategic alliances, corporate partnering, licensing, royalty, revenue sharing, distribution agreements, and numerous other collaborative business arrangements provide an exceptional opportunity to catalyze growth. These types of ventures can rapidly meet corporate needs for key resources, generate more customers, attract capital, acquire needed expertise, expand product lines, open new markets, secure new facilities, access new distribution channels, increase production capacity, and offer a whole host of other additional benefits. The reality is that few organizations have everything they need, and the basic principle behind partnering is, no matter what the need, there is another entity somewhere that can fulfill any unmet need.

The obvious advantages to partnering as contrasted with either organic growth or growth by acquisition is the low financial and operational barriers to entry, combined with very rapid deployment capabilities. The need for speed is critical to evaluate when considering partnering as on option. Corporate partnering is very commonplace in industries experiencing rapid technology change. There is often a strong correlation between the rate and scope of change within a particular industry, and the amount of partnering that occurs within said industry.

Partnering is an extremely fluid and flexible business model. There is no preferred methodology to structure and organization as each relationship should be engineered based upon its own unique requirements. Sometimes corporate partners form a new jointly owned entity, while in other instances one partner may purchase an equity interest in the other partner. However by far the most common method of structuring and governing partnering relationships is by written contract. The presence of a governing document allows both parties to address such issues as non-competition and non-circumvention, use of brand guidelines, intellectual property considerations, performance requirements, indemnifications, and winding-up provisions among others.

As fond of partnering as I tend to be, it is certainly not without risk. Care needs to be given to the underlying motivations and business logic behind the implementation of partnering as a strategy to begin with. You must be careful not to create or strengthen a future competitor, or to become dependent upon a partner for mission critical initiatives. Businesses looking to co-venture need to exercise extreme diligence when selecting a partner as said partner will become an extension of your brand.

Despite the risks, or the form of partnering utilized, the business model has proven itself to be one of the preferred growth strategies of choice for companies desiring to maintain a competitive advantage.

Thoughts?