Strategic alliances can be a loose agreement between two people or two organizations with a common purpose. Or, they could be highly formalized, commercial, contract-driven agreements that establish a new entity, jointly owned by two or more parties. Whatever the structure, there is little doubt that alliances can help an entrepreneur launch their idea - especially if they are joining a well-resourced, bigger alliance partner. There are benefits for sure but there are some potholes to navigate.
A common myth around alliances is that because a potential alliance partner operates in the same or related industry they are potential competitors. In most situations alliances are forged around the notion that the alliance partners are interested in the same target market but have complimentary rather than competing interests.

All relationships are based on a degree of give and take. It is no different for strategic alliances. Each party has to give something and get something in return. If you are the instigator, it's important to be clear about what you have to offer the potential partner.

Three essential elements of a Strategic Alliance

  1. Skin. Each party needs to have some skin on the table. This does not necessarily have to be money but each needs to be prepared to dedicate resources to the alliance. Identify what each party brings to the alliance in terms of time, money, resources.
  2. Accountability. Someone from each side needs to be recognised as being accountable for his or her deliverables and milestones in the strategic alliance.
  3. Communications. Good communications are always more about listening than telling. Be all ears. Listen to your potential partners. What they tell you will not only give you clues to their needs but may influence your thinking in ways you've never even imagined. In the formal agreements establish clear lines of communications and establish a dispute resolution methodology in the case of an impasse.

Risks

While alliance building does have many immediate benefits, it can be ruinous if not approached in a strategic manner. The main risks to be concerned about are:
  1. Thinking too small. Too often, a business owner risks the potential partner for an endorsement in return for putting the partner's logo on the company's Web site. That's not strategic.
  2. Being selfish. Thinking only of what the potential partner can do for your company is not going to create an enduring alliance. Strategic alliances have to create a situation where both parties gain something; otherwise, they're not partnerships.
  3. Lack of common mindset & ethics. Business owners, particularly if they have a sales background have some skills in negotiating. Experienced negotiators are generally comfortable working out the terms of a strategic alliance: They bargain for the best price, haggle over share or revenues, profits, and iron out detailed exit clauses. But they should also not neglect compatibility issues between the partners. Alliance partners need to sit in a room and reveal their expectations about how the agreement will work in practice and whether or not their respective way of doing business is compatible with the alliance partner. Without arriving at a true meeting of the minds, the deal they've signed or verbally agreed on may sour.

Final Tips

  1. Discuss expectations before signing off on a deal - it can greatly increase the odds success and reduce potential conflict down the road.
  2. Discuss how fully, formally, and frequently you expect to consult with the other side. Be definite about who will be involved in decision making.
  3. Define how differences and disputes are to be resolved; include nominating an external person to mitigate, agreeable to both parties.