Business Partnerships and Reducing the Risks

Business Partnerships: Advice from a Globally Experienced Small Business Lawyer

Forming a successful strategic partnership with another company should only occur when there’s a minimal chance that the company can later become a competitor. Of course, this isn’t the only criteria you should use to evaluate such a liaison. If you are considering a strategic alliance, an experienced start-up and small business lawyer can help you take account of all the advantages and create solid risk mitigation strategies.

The objective of a strategic partnership is to maximize the mutual benefit that two (or more) companies can gain from working together, while minimizing any associated risk. Experience is the best teacher, which is why gaining knowledge from skilled people and becoming familiar with the workings of mergers and acquisitions, takeovers, and strategic alliances is so important to help your company navigate the unknowns of deep and potentially treacherous waters.

The following is a discussion of the more common risks associated with a strategic business partnership, as well as a few suggestions on how to avoid them.

 

1. Establish a Business Partnership Plan that Optimizes Sharing

One of the most pertinent risks in any business partnership is sharing too much by way of resources and valuable knowledge. If you are inclined to share trade secrets, always be aware that your business partner might have cause to use these against you down the line. Be aware and be prepared that the day could come when the benefits of using this information could outweigh the benefits of your partnership.

To combat this, the strategy you and your small business lawyer draft in the planning stages must minimize the sharing of such important information. How much can you convey, and still meet pre-set organizational objectives? This is something that you decide on before meeting with the other company to hash out the details of the business partnership. It is dependent on the overall capabilities of your company, as well as the benefits you intend to confer and experience with the other company. Never share more than is necessary to allow your combined efforts to maximize the product or service you provide to the customer.

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2. Not Paying Attention to the Process Reduces the Effectiveness of Your Partnership

Because of the often amicable nature of such a partnership, it is easy to be tempted to take shortcuts after the partnership is established. Resist the temptation at all costs. For your risk mitigation strategies to be successful, it is imperative that you adhere fully to the checks and balances that you and your legal counsel laid out in the planning stages. This includes holding fast to the incentives and penalties for the specifically defined alliance activities.

Much of this process can be easily supported by clearly defined roles. Make sure that your employees and the employees of your partner are well-aware of their shared and separate responsibilities, so that future surprises are eliminated, or at least minimized. Of course, since the results of your partnership can be quite dynamic, changing in response to the business environment, it usually isn’t possible to completely eliminate such occurrences. But this is where having capable team members comes into play. The teams’ interpersonal traits and operational attributes can be the glue that holds everything together on a day-to-day basis, and when they have a high level of adaptability, they can help ensure success for whatever lies ahead.

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3. An Inflexible Program Often Leads to Failure

As such, the solution to this is straightforward and was hinted at above: put together a capable management team. Inflexibility – especially in the team makeup – makes both parties in the strategic alliance less capable of tackling the complexities that are sure to arise.

Below are a few important risk mitigation strategies that should not only be clearly defined in your plan but should also provide you with flexible options:

The goals of the partnership, and how they mutually benefit each party. These should be stated explicitly and specifically. To this end, there should be a sound process of measuring the markers you set for success, as well as periodic progress reports (meetings, etc). And you need a protocol for making adjustments if the goals are not being met.

What are the obligations of each member of the team in the partnership? Every relevant aspect should be laid out, understood, modified agreeably and accepted before the partnership proceeds. Resources, direct cash, employees, technologies – everything that will be of importance, and how much each side will contribute.

A mechanism for exiting the partnership should be discussed. If the terms aren’t met as it proceeds. Basically – concoct exit strategies to minimize damages to either party.

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4. Be Aware of Legal Ramifications

Sometimes, you may form a strategic business partnership with a foreign company, or a company in a different jurisdiction where small but important legal differences can create loopholes that are only beneficial to one company. You don’t want foreign confiscation of your intellectual property to tie you up legal processes for years and years. Sometimes, you can have no legal recourse if a foreign government shuts you down and keeps the benefits for itself.

Although the above sounds catastrophic; it can be avoided with due diligence beforehand. Make sure you understand the rights you have to proprietary information. If a liaison with a foreign or unfamiliar company seems – on paper – too mutually beneficial to pass up, it probably needs an in-depth professional review. This is precisely where a globally experienced start-up and small business lawyer can be invaluable.

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5. Making Sure the Companies Are Not too Imbalanced

By this, we mean that the partnership shouldn’t be uneven This often leads to failure for one of the parties, as the more capable company essentially bends the weaker one to its will. Although there are markers by which to determine this in the beginning, it’s also important to know when to terminate the partnership. The triggers for this decision should be documented in your exit strategy. This helps protect you from having to salvage a struggling relationship, and continuing to lose money and render a poor customer experience in the process. It also helps avoid future imbalances on the part of either party.

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6. Create Markers of Profitability

The most important reasons for a business partnership – indeed, for business, in general – are profitability and customer satisfaction. Your partnership should be customer-centric, which allows the other benefits to take root and grow. To this end, it is instructive to create markers of joint profitability for the collective union at the outset, in order to certify the need for one in the first place. After all, there’s no need for a partnership if there isn’t an increase in the financial standing of both companies – greater than if the two companies continued on alone.

There should be timeframes set for seeing these expected returns so that you know your mutual efforts aren’t going to be too costly in the long run. This covers how you’ll pool your resources, as well as how to handle on-the-fly changes to take advantage of a recent or anticipated development. Oftentimes, you’ll reward your key employees periodically as these goals are met.

As long as you embrace the importance of taking a disciplined approach to forming a business partnership, you stand an excellent chance of reaping mutually beneficial results. These will most pertinently make themselves known as improved customer experiences, leading to profitability for both companies involved.