Strategic Partnerships: Hitch Your Wagon to a Star

We're all looking for creative and clever ways to accelerate the growth of our businesses. Yes, you could work more hours, raise capital from outside investors to fuel growth, or open new locations — which are all, depending on your specific type of business, tried and true methods of growth. However, wouldn't it be great if you could accelerate the growth of your business without having to do any of these things? If this sounds too good to be true, consider this…

Many times you can catalyze significant growth of your business by "partnering" with a bigger, proven company that can readily provide an important catalyst to your business objectives without you having to take the time, incur the expense and face all of the associated risk. For example, let's say you're a small software firm that has developed a unique product offering. You have a great product, but you don't have mass distribution. You can either attempt to create an effective distribution channel on your own, or you could partner with a company that can benefit by being able to offer your product through its existing distribution. While your per unit revenue may fall in this scenario, your volume stands to increase significantly. You benefit by having access to mass distribution that might otherwise take lots of time and cost lots of money, if it can be achieved at all.

The Many Ways

By "partnering", we're not referring to the literal or legal definition of the word, but are using it more loosely to represent a multitude of ways to form such relationships. You can create such partnerships by licensing agreements, joint venture agreements or distribution rights agreements. A skilled attorney can help you determine the best form of the relationship based on the specifics of your needs and expectations.

Protect….Then Partner

Before talking with any company about your product or proposition, especially a bigger more powerful company, make sure you are properly protected through patents, trademarks or trade secrets, and make sure you enter into a non-disclosure agreement with them. It's fine to make the agreement mutual in most cases, and the bigger company will likely require this. An intellectual property attorney can draft the appropriate document.

Do your homework

When you think you've identified a potential company to partner with, carefully study their product line before approaching them to ensure that your product is complementary and additive instead of competitive. Check out the distribution reach of the company to verify that they in fact have the type of broad distribution into markets that are right for your product. Always confirm that the relationship and financial standing of the company with its customers are in good shape as well. The last thing you want to do is to associate yourself with a company that is in any way going to reflect negatively on you, your product or your business. You can do a lot of fact-finding by just speaking to customers of the potential partner.

Be Crafty

Craft an agreement requiring your partner to meet certain fundamental performance criteria. In the event that they don't perform, make sure you have an "out clause" in the agreement. For example, require that a minimum sales level be met by the company during any year, whether defined by units or sales revenues, in order to keep their rights to sell the product. And, should you have to terminate the agreement, you have a non-compete and confidentiality clause which binds the partner to maintain your sensitive proprietary information and to not use it for their own exclusive benefit. Again, it's critical to use a skilled attorney in these matters to do any such transaction.

If you want to catalyze the growth of your business, try to use a little sense from Ralph Waldo Emerson and "hitch your wagon to a star!" Seek a strategic partnership in which you partner up with a company in order to provide you with something that you don't readily possess and which is hard to create on your own. If done properly and carefully, arrangements like these can be just the shot your business needs to dramatically increase revenues, get your product to market first and broadly, and put you in position to focus on your core expertise while your partner business does the rest.

StartupNation provides expert advice, community forums and resources for entrepreneurs starting a small business, from business plan and life plan development to marketing and sales techniques.

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