Alliances
It takes time to get bigger, so smart start-ups leverage the strength of like-minded partners. Here Mike explores the characteristics that make a great partnership, even when they’re much bigger than you!
According to some researchers, the ability to form alliances that work is the single most important factor in the success of a new business. We’re not sure that’s provable – how do they do these experiments? – but certainly agree it’s among the key factors.
We meet so many ‘Lone Ranger’ entrepreneurs, determined to go it alone. There’s a look they have, a kind of overwhelmed determination. If only there were 275 hours in every day, they’d make this work!
But there aren’t. So you build the team around you – your cornerstones and those bright ‘dream teamers’. Great. But there’s more devolving to be done. Out there are businesses with whom you could create fantastic ‘win-wins’. You need to be looking for them.
Generalizing massively, there are two basic types of alliance that the start-up can make. One is with a much bigger company, the other with someone of similar size.
The much bigger company can be the perfect partner. They have resources you can only dream of, best of which is access to huge numbers of customers who want your type of product. The key question you have to ask, of course, is ‘what do they stand to gain from allying with you?’ In the baldest terms – something Chris is an expert on – the answer is that you’ll save them money or increase their revenue. All businesses are perpetually looking for ways to do this; think of a really convincing way you could help them, then announce yourself to them.
For example, retailers are always looking for ways to brighten up their stores and attract people in. If you can feature your amazing new product there, and get some PR as you do so, then you’ll be of real assistance.
The other type of strategic partner is someone around your size, who has a skill or access to a market that is complimentary to yours. Your delivery or finance cornerstones are the people to consult about this. Beware of buying close customer relationships: these can vanish very quickly.
In both types of alliance, there are three magic words: realism, mutuality and empathy.
Realism is not always entrepreneurs’ strong suit – that’s why cornerstones are so valuable. It is essential in alliances, both with regard to your own strengths and weaknesses, and to those of the potential partner. So often a partner appears to have exactly what you need: that manufacturing capability, that customer recognition, that market clout… But do they really have as much as you want them to, and will they actually let you in on the act? You must know, not just hope.
Mutuality refers to our old friend the ‘win-win’ (one of the few terms in managementese that we like). What’s in it for your partner? Alliances are often described as ‘getting into bed’ with another business, and the metaphor has a sad aptness. Old-Bloke-in-a-Mac Ltd may well want to make a strategic alliance with Kylie Minogue PLC, but is the desire mutual?
Empathy is about the ‘soft stuff’ – culture, values and so on. Every year, another firm of consultants produces another report showing that a stratospheric percentage of takeovers and mergers destroy value, despite all the work put in by ‘experts’ in matching the companies. This is, I’m sure, because not enough attention is given to the cultural match of the businesses.
In forming an alliance of small equals, this is by far the most important question you have to ask: ‘do the key people really like each other, as individuals?’
Have a reasonably Victorian attitude to your ‘getting into bed’ activities. Take sensible precautions like ensuring any IP is protected, before you start. Run a pilot scheme, and watch the outcome like a hawk. If things look good and you want to develop the alliance, get lawyers involved to set up the deal – it’s a lot cheaper than getting them in to unscramble an informal deal that went wrong.
If things don’t work out, you have to disengage with the minimum of fuss. If, despite your careful following of the advice above, you ended up allied with someone with the morals of a snake (or simply made an alliance which didn’t bring the benefits you thought it would), please shun the overpowering desire to ‘get your own back’ and instead get on with rebuilding your business. When we look back on one or two characters we did business with, especially at the start of our careers, it feels that the worst mediaeval tortures are too good for them. But luckily we were too busy moving on to waste time on acting out these feelings.
The importance of alliances is yet another proof of the adage that despite the undeniable importance of ongoing paradigm-based strategic meta-planning, business is really about something infinitely more complex, but a lot more interesting: people.