Strategic Alliances For Small Businesses



Posted: Tuesday, June 12, 2007

by
Jenesys Group, LLC

Strategic Alliances – What, why, etc.

A strategic alliance is one in which two companies join hands to market services and products for mutual benefit. Traditionally, strategic alliances are formed between companies that are not direct competitors of each other but have complementary products or services that are marketed to the same target audience. There are three primary types of strategic alliances; joint ventures, minority equity investments, and direct cooperation.

However, in this new Internet age, strategic alliances between companies that are direct competitors are taking place. In such cases, one company agrees to buy services from the 2 nd company to resell at a higher cost to company one’s end customers. In such a case, a company located in a low cost country (like India, China, etc.) or that has offices in a low cost country, forms an alliance with a company located in a high cost country (like the US, UK, etc).

In such cases, both companies are selling the same services. But they are bound by an agreement that prevents the company selling the services (from a low cost country) to directly interact with clients of the company buying the services (in a high cost country like the US ).

The company that is buying the services also has the added benefit of getting diversity in skill set and flexibility to add or reduce resources without the disadvantages associated with hiring and firing people to accommodate peaks and valleys in business.

Why form Strategic Alliances?

Regardless of the type of strategic alliances that are formed, there are many advantages to both companies involved in an alliance. Strategic alliances allow businesses to gain a competitive edge by leveraging partner resources such as marketing, technology, capital investments, and people. It also benefits both companies by allowing them to brainstorm ideas, leverage skills, and leverage connections to take the business to the next level. By forming strategic alliances, companies can add complementary skills to diversify offerings without the added cost of finding talent with new skills, ongoing training, and the need to maintain employee overhead costs.

All these allow companies to boost productivity while saving time and effort due to the ready set of skills that are available at their disposal. The company selling the services can benefit from the alliance due to the fact that it opens the door for ongoing work thus allowing them to focus on employee development and retention.

Both companies benefit from having strategic discussions on what to focus on next, from brainstorming ideas together, conducting joint marketing, and in general from using resources that are readily available through the alliance.

The internet has created a global marketplace but it has also brought more competition that if the market place had been geographically limiting. Therefore, companies need to be more and more creative in terms of how to grow and gain an edge over their competition. Strategic alliances help them do just that.

How to form a successful Strategic Alliance ?

From experience I’ll tell you that it’s tough entering into a strategic alliance. Generally I’ve found that companies that lack a strategic plan and vision don’t necessarily get the concept of what a strategic alliance means. They also perceive the requesting company as a threat and in general shy away from even discussing

Sometimes, you may proceed along fine until you begin to discuss revenue sharing or commission structures. This derails a nicely progressing relationship when both companies cannot agree to the commercial arrangement proposed by one or the other.

Therefore, before approaching a strategic alliance, here are some steps that may help you:

  • Define goals and objectives for both companies
  • Define success measures – that means that both companies should list what they would consider a successful outcome from that strategic alliance
  • Clarify what each company will do and clearly document roles and responsibilities
  • Define or create an operating agreement to plan what needs to be done, by whom, by when, etc.
  • Document commercial agreement related to individual costs, revenue sharing, commission structures, operational overruns, marketing costs, etc.
  • Define exit clauses in the event that the strategic alliance just doesn’t work out for any reason
  • Make sure you never operate on just a verbal agreement, document everything to protect both parties
  • Lastly, protect intellectual property because lets face it, we’re dealing with human beings and although a relationship can begin with trust, it takes no time for that trust to change into betrayal


    • In summary, experience has shown that most large companies have understood and successfully created strategic alliances. What amazes me is that small companies and mid sized companies are still moons behind embracing this philosophy and thus are ill-equipped to sustain growth in the face of rising competition.

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