Growing your business through an Alliance
9th July 2011
Businesses looking to grow should consider forming a business alliance as an alternative growth strategy.
Alliancing or outsourcing as it is more commonly known is being used more frequently as a modern method of addressing the ongoing need for a business to grow and evolve, while managing the increasing costs including those of labour.
One of the main benefits of alliancing is that it allows you to expand your service offering and leverage off a complimentary partner's clients, products and services, while maintaining your own core business focus.
There are three main types of alliances you can set up:
1. Transaction based alliance
Under this alliance you and your alliance partner refer business to each other and then you each go about doing the work separately without sharing any of the revenue. This is a more loosely formed arrangement.
2. Income alliance
Income alliances are a more formal arrangement, best suited to businesses that want to add value to the service they offer and grow revenue at the same time. Income alliances involve the sharing of income between the two businesses and an agreement is entered into which sets out the details of how income will be shared, as well as the amount and timing of payments.
3. Capital alliance
This alliance requires a higher commitment to the relationship with your alliance partner, but has the potential to provide higher and longer term returns. The arrangement involves the creation and sharing of capital and ongoing returns and the alliance is established through a separate entity with a joint venture agreement between the two parties.
Before pursuing a business alliance there are a couple of issues and questions you need to consider:
- Be clear about your objectives: Why do you want to enter into the alliance, what are the commercial opportunities and why can't you provide the additional services?
- Understand as much as you can about the other business: What do they do? What is their full range of products and services and how do they offer them to their clients? What is their target market and plans for developing it apart from the alliance?
- Make sure your businesses compliment each other well: Are your business objectives aligned? Are you entering into an arrangement with likeminded business owners? Do you share the same ethics and values? Will the staff and cultures of each business compliment each other? Do you have similar views on how you conduct business?
- Align your expectations from the outset: What does each party expect from the alliance? What will you expect from each other? Who will perform what role? How are you going to ensure you meet these expectations? What are you going to do if they aren't or can't be met?
- Check the alliance makes sense financially by conducting a cost/benefit analysis: What time and financial investment do you need to make for the alliance to work? What return do you expect for that investment? In what timeframe?
- Confirm your understanding in writing for formal alliance relationships: When will you commence the relationship? How will you go about pursuing client opportunities and managing client targeting and relationship management in a coordinated fashion? What are the terms of financial management, splitting costs and sharing the financial rewards? What are you financial, legal and compliance obligations and who will management them? How will you keep each other informed of progress? How will you manage termination of the arrangement?
Treat the alliance arrangement with a level of care and consideration that you would if you were starting up a new business or taking on a new business partner during these early stages. It will help you to establish the arrangement with greater comfort, confidence and ensure you have the potential to achieve the growth and returns you expect.