We distinguish two types of cooperation: partnerships and alliances.
Partnerships
It is rare that a novice entrepreneur possesses everything he needs to successfully start his business. As a rule, the following knowledge areas must be covered in a company by individuals that have the necessary competencies:
1. The interest and ability to manage and control the
finance of the company (the manager);
2. The ability to sell (the salesman);
3. The know-how and ability to deliver a working product
In order to acquire these different competencies, it is necessary to find business partners. Selecting partners is a risky endeavor, especially because once you have partners, it is difficult to buy them out, if need be. Moreover, you must share your earnings with them and you must do so even when the value they bring into the company is not in line with what they want in return. Therefore, think carefully before deciding who might become your partners. When setting up your team, consider the following issues:
- You are opting for a partner, because you see that you are missing an essential
competency, a competency you do not have. This means that you are vulnerable
and must be able to trust your prospective partner. Naturally, the matter of trust
is equally important for all parties;
- Each partner must be responsible for one core issue. It should not be necessary
to control each other's work;
- Look for like-minded people. People that share your vision for the future of
the company.
You are recommended to make these partners co-owners. In doing so, you share the risk and you anchor the knowledge
and know-how your partner(s) bring(s) into the company. In other words, by making your partners co-owners, you mitigate the risk of the necessary knowledge and know-how leaving your company quite easily. Keep in mind that investors always want to see if the knowledge and knowhow that is needed to make your company successful is available in the management team of the company.
Besides these partner selection criteria, you must also consider the legal nature of the partnership contract.
Independent of the specific type of legal framework, consider the following:
- Property rights: if there are unequal shareholders, you should
see to it that the weaker shareholder is not always overruled;
- The buy-out provision. The so-called ‘divorce’ clause;
- To what extent the partners are prohibited to do business outside the
partnership;
- The authority to bar third-party involvement.
Strategic Partnerships: alliances
You are recommend to, as soon as possible, search for alliances that enable you to manage an accelerated and less risky development of your company. This counts as much for product development as for marketing and financing. Cooperation in alliances is based on strategic business objectives and not solely on economic benefits. A strategic partner can be a (major) client that indicates to buy the product if it meets certain standards; a distributor that is ready to co-finance the development of the product in exchange for a reduction in the wholesale price; or a user that contributes in financing the research cost in exchange for preferential rights. If you find such strategic alliances, develop them with care. Do not consider getting a nickel for a dime. Vital to partnership alliances is mutual trust. Furthermore, in an alliance there should be a prospect of future gains for each partner.
It is not always necessary to consider alliance partnerships. An entrepreneur can sometimes, with a little bit of external help (e.g. advisors), manage to develop his/her company successfully.
If you are looking for alliance partners, always consider that there should be something ‘in it’ for the partner. Goodwill alone is not enough. Also consider that – especially at the start – it’s good to be generous, because often you need all the help you can get. But keep some privileges for yourself for later, so that they can come in handy when you are big and strong.