Samuel Poss

When planned and executed correctly, strategic partnerships can be invaluable. They are increasingly used to propel businesses to new horizons of profit-making and expansion.

But they can also be fraught with danger.

Before you enter into a strategic alliance, it's crucial to understand the risks, benefits and legal ramifications.

A strategic alliance is a relationship among two or more parties, which they see as vital to their business goals and is governed by nonstandard documentation because of the complexity or novelty of the relationship.

What most alliances have in common is the ability to allow businesses to create synergies and move quickly through an effective blending of skills, financing, technology, infrastructure, product lines, market penetration or other assets.

As the daily developments in e-commerce demonstrate, flexibility and the power to move at Internet speed are more important than ever.

In one basic form of alliance, two manufacturers may have complementary products. But if one has a larger distribution capacity, they may join forces in a manufacturing and distribution venture.

Or a software company with innovative business software may enlist the funding or infrastructure resources of a large potential user in return for an initial exclusive license or a royalty on the licensing of prototypes.

Indeed, the possibilities of strategic alliances are limited only by market forces and the creativity of the people who conceive them. But it's important to remember that a strategic alliance is not an off-the-shelf product. It takes creativity, planning and analysis to shape and negotiate the relationship.

It's important to fully examine any such deals before moving ahead. When considering a strategic alliance, ask yourself these questions: What is your strategic goal in forming the venture? Does it fit with your business plan? Most importantly, is your potential partner right for you?

Do not forget that the alliance can also fail because your company is not right for the alliance. A strategic checklist of goals, risks and other fundamental issues is a valuable tool throughout the planning, negotiating and operating phases.

When considering a strategic alliance, you should first develop and prioritize your list of partner candidates. Study their track records and foreseeable business needs. Evaluate how the size and strength of your partner, relative to your business, might impact the relationship.

Consider the stage of development of the partner and whether it may become a target for an acquisition or seek a merger in the near future.

Prev

For reprint and licensing requests for this article, CLICK HERE.