Andrew Morris, CEO of the Academy for Chief Executives, on how small businesses can collaborate for growth.
Most businesses may start with the aim of going it alone. But post-recession, some are rethinking their strategies. With funds still in short supply, a recent IBM survey has highlighted a growing trend for small and growing businesses to get together in forging formal or informal partnerships. These provide opportunities for growth when there’s scarcity of capital, help to mitigate concerns about risk and add value in terms of skills or experience.
Of course, partnerships are nothing new: from barter agreements (still prevalent among even large FTSE businesses) to joint ventures and mergers, businesses have long used alliances as a way of sharing risk and capital while they grow. But alliances can be more than that. We tend to look at partnerships from a selling point of view, but it’s also worth exploring the buying side, too. Purchasing groups may seem a bit old fashioned, but they are easy to set up and worth considering if you want to harness the collective economic muscle of your network.
Other forms of collaboration are also becoming more commonplace. Younger entrepreneurs are less competitive and more inclined to hatch deals informally over a beer. They seem to take a more open-minded approach and are happy to embrace the ‘sharing economy’. This can manifest itself as temporary collaborations that embrace suppliers, customers (through crowdsourcing) and even rivals, (though this is less common). And many based around pooling – not just resources or risk, but expertise. One powerful example of this is PS4’s summer game hit, Hohokum, which came about as a result of a temporary collaboration among game developers, non-game developers and musicians.
A lot of this thinking evolved out of the dotcom era when fledgling internet businesses had no other way to grow. Over time, this approach has started to influence how other (non-Web) businesses operate, although the knowledge industries remain the most typical sector in which alliances are formed.
Today, even theoretical competitors are finding common ground. Independent food entrepreneurs Claire Woodier and Carla Tomlinson pooled their talents to create Love Conquers All cafe in MediaCity.
Or think about two architects based in different cities who can share knowledge and advice, grow their respective networks and still ringfence their own businesses.
But how do you create those opportunities? If you’re set on forming an alliance, do some groundwork. Find potential partners through networking organisations that have a good knowledge of their membership. They can help you to connect with the right people.
Once you’ve identified a potential match:
1. Draw up a list of roles and responsibilities laying out what each side brings to the party. You can do this quite crudely, in two columns, in order to see whether the workload is evenly balanced. Does each side add equal value?
2. That will create the outline structure of the deal. Then set more specific objectives and outcomes and define how they will be measured.
3. Consider the hierarchy of control. For example, who will run meetings? You’re effectively setting up a subsidiary, so you need to establish accountability.
4. Do your mentalities match? You can only find out if you spend time and get your teams to work together. People will be on their best behaviour initially. You can have shared values pinned up on a wall, but it’s only in practice that you’ll see if you’re culturally in step.
Formal alliances and partnerships can mean giving up a big chunk of ownership and control, so balance that against what you gain in terms of marketing or sales expansion.
If you feel at any point: ‘I just can’t work with these people because they think so differently’, or if you have imbalanced roles and responsibilities, your alliance may melt down.
Have a non-disclosure/non-compete agreement (NDA) ready to sign, but strike a balance here: trust will breakdown if your NDA is lengthy and over-complicated.
Allow for an initial conversation to see if you want to continue with the arrangement. Aside from anything else, it’s a good way to establish if a potential competitor is sniffing around your market.
How formal your agreement becomes depends on opportunity and scale. This will inform the scope of the NDA and when it’s introduced. I don’t believe in thrusting an NDA at someone initially because it assumes a lack of trust. First establish if you have common ground, then later suggest something more formal.
Always start from a point of trust and integrity, but be aware that others won’t always share that attitude. People don’t forget if they’ve had their fingers burned before and will be less trusting as a result.
Watch out, too, for leadership clashes. Alliances very often fall down because of a clash of egos at the top. As a consequence, all the hard work of the foot soldiers goes out of the window.