A "strategic partnership" is basically an agreement between two parties to share or exchange resources aimed at achieving underpinning objectives. A strategic partner can help you develop your human capital and other business facets to further enhance your competitive edge. Essentially, these associations can also provide your business with the avenue to expand beyond your current resources and capabilities. This includes securing a larger footprint in the market or entering into a new market that may otherwise be impenetrable.
Strategic partnerships exist in different dimensions. They can range from sales and business development partnerships, such as "joint events" and "cross marketing", to revenue sharing from "joint ventures", all the way to "equity partnerships" and so forth. In addition, as a small or medium size business looking to break into the market or expand significantly, a strategic partnership will be able to offer you several advantages that more traditional financial institutes would usually not be able to.
This includes specialised mentorship, adding operational and even "hands-on" value, access to large amounts of capital as frequently as required to meet strategic objectives, and the list goes on. The different stages of involvement and investments along the way also allow you to test first-hand how effective the partnership is, and whether you would like to commit to further involvement. If you are a start-up enterprise with great potential for rapid expansion and high ROIs, but needing large amounts of seed capital, then you can seriously consider private equity and venture capital partners. These equity partnerships in your growing business can help to greatly strengthen your market position with a view to a healthy exit strategy for investors seeking the "unfair advantage".
One of the most important roles of a strategic partnership is to increase the exposure of each partner. Two complementary brands that combine forces can, for instance, produce a marketing influence that impacts the entire industry! A classic example would be when a sports league decides to take on an established clothing manufacturer to create the league's official uniforms. The marketing effect of these two names in the industry culminates into greater brand awareness for both entities.
Strategic partnerships create synergy
Synergy is the idea that the combined value and performance of two companies will be greater than the sum of the separate entities.
Let's assume that you own a car wash business and you constantly have to purchase soap. The amount you pay is too high in your view, and it takes three days for delivery. Now there is another distributor who has just moved into the area who is smaller, but would like to do business with you. This supplier will provide the same soap at a 25% discount if you display a sign at the car wash that advertises his soap. Since soap is a primary expense, you would be happy to lower your cost by 25%. The supplier benefits in the sense that he can advertise his new product at no 'direct' cost to him. This is an example of synergy working for both owners of each business. A "win-win" scenario with a greater 'multiplied' effect on revenues that would otherwise be impossible in isolation.
Pitfalls of strategic partnerships
Unfortunately, there are few other ways to instantly destroy your credibility than by partnering with wrong companies or in the wrong way! So again, ensure that you conduct a thorough due-diligence into the background of your partner and the viability of the agreement. Other 'disadvantages' include sharing of profits, opportunity-cost of other projects, barriers to alternate financing, creating a competitor or potential competitor, and unexpected disappointments as with any partnership.
Although there are some significant disadvantages attached to strategic partnerships, the advantages are considered more substantial. A carefully selected strategic business partner can help you bridge the gaps in your small business as well as open doors that would ordinarily be unreachable. So in closing, do not shut the door on exploring strategic partnerships; carefully think about your business' needs and your ultimate growth plan!