What are Strategic Partnerships?

Strategic partnerships are formal agreements between two or more businesses with the primary goal of achieving specific objectives. The objectives include entering a new market, launching a new product, or sharing resources. Strategic partnerships differ from other types in that they are formed to create long-term business relationships. The basis of the “strategic” nature of the partnership is that it’s a choice. It’s a choice over other potential businesses that you could dedicate the level of commitment to. This is the critical part because it means choosing one (or a few) over others.

For a strategic partnership to be successful, the partners must have complementary strengths and a clear division of labor. Moreover, it is essential that the partners share the same business philosophy and that there is mutual trust and respect. When these conditions are met, strategic partnerships can be an effective way to achieve shared objectives. The core of any strategic partnership needs to be built on trust. Within a strategic partnership, you are “showing all of your cards,” and so it needs to be a strong relationship.

For example, when Apple first launched the iPhone, it formed a strategic partnership with AT&T to sell the phones through AT&T’s wireless network. Another example is when Walmart partners with a grocery delivery service like Instacart. By partnering with Instacart, Walmart can offer its customers the convenience of online grocery shopping without investing in the infrastructure needed to build its own delivery service.

Strategic Partnerships vs. Strategic Alliances

Strategic Partnership and Strategic Alliance are often used interchangeably, but there is a subtle difference between the two.

A strategic partnership is when two businesses come together to help each other with a common goal. For example, suppose company A is good at making product X and company B is good at selling product X. In that case, they might form a strategic partnership where company A provides product X to company B at a discounted rate so that company B can sell it at retail price and both companies profit.

A strategic alliance is when two businesses team up to work on a project, but no financial exchange is involved. An example would be if company A and company B joined forces to create a new product, XYZ. They would both contribute their knowledge and resources to the project, but neither company would benefit financially from the project itself.

In summary, a strategic partnership is an agreement between two companies to achieve financial gain, while a strategic alliance is a collaboration between two companies without any monetary exchange. Though, it’s important to note that within a strategic alliance, the outcome may provide financial gain indirectly. The key here is that a partnership is first focused on revenue generation, while an alliance is secondarily focused on revenue generation.

How to establish a successful strategic partnership

So you want to establish a successful strategic partnership, do you? Well, it’s not as easy as just putting two businesses together and hoping for the best. There are a few things you need to consider before making that leap. Here are a few tips:

1. Define your goals.

What do you hope to accomplish by forming a partnership? Once you know what you want, you’ll be better positioned to find someone who shares your vision.

2. Do your homework.

Get to know potential partners before making any commitments. Meet them on a live call or in person, learn about their businesses, and ask for references.

3. Be upfront about expectations.

Be clear about what you expect from the partnership, and make sure your expectations are realistic. Remember that a partnership is a two-way street, so be prepared to compromise.

4. Protect yourself legally.

Before signing any partnership agreement, consult with your legal team who can help you understand the implications of the partnership and draft contracts that protect your interests.

5. Establish effective communication.

If the partners don’t have regular check-ins and opportunities to provide feedback, it can be not easy to course-correct them when things go off track. 

There’s no one formula for a successful strategic collaboration, but with these few key ingredients.

Types of Strategic Alliances

Joint Ventures

A joint venture is basically when two companies team up to offer a product or service. Usually, each business brings something different to the table and can reach a wider audience than they would on their own. For example, Company A makes awesome sneakers, and Company B owns a popular chain of sporting goods stores. If they team up, Company A can get their sneakers in front of many potential customers who might not have known about them otherwise. It’s a win-win!

Of course, risks are always involved in any business venture, so it’s essential to do your research and ensure you’re getting into a joint venture with a company you trust. But overall, it can be a great way to grow your business.

For joint ventures, a contract is mandatory. It legally combines two or more companies for a limited time in order to produce a specific outcome.

Equity Strategic Alliances

Equity strategic alliances are equity investments where two or more companies cooperate in a strategic alliance to exploit economies of scale, share risk, or access new markets. The equity investment can be in the form of equity (e.g., common stock, preference shares) or quasi-equity instruments (e.g. equity-linked bonds). The cooperating companies usually have complementary strengths and weaknesses that they hope to offset through the alliance.

For example, a company with strong product development capabilities but weak marketing and distribution channels may form an equity strategic alliance with a company that has strong marketing and distribution channels but weak product development capabilities. The equity investment gives the companies a financial stake in each other’s success and alignment of interests. 

Non-Equity Strategic Alliances

A non-equity strategic alliance is a partnership formed between two companies in order to jointly pursue a strategic goal. Unlike an equity alliance, in which each company owns a stake in the other, each company in a non-equity alliance retains full ownership and control of its own business. While equity alliances are often formed with the goal of eventually merging the two companies, non-equity alliances are typically designed to be more flexible and allow each company to retain its independence.

Nevertheless, non-equity alliances can be just as beneficial as equity alliances, providing access to new markets, technology, and resources. In today’s increasingly global economy, non-equity strategic alliances are becoming an increasingly popular way for companies to expand their reach and capabilities.

Finding the right strategic partner

It can be tough finding the right strategic partner. You want someone who shares your vision but who also brings their own set of skills and ideas to the table. It’s a bit like dating, really. You go on a few dates, test the waters, and see if there’s a spark. And hopefully, by the end of it all, you’ve found someone you can build a lasting relationship with.

But like in dating, there are a few things you should keep in mind when looking for that special someone to help grow your business. You’re not going to find a business partner by sitting on your couch watching Netflix. You need to get out there and mingle if you want to find someone who shares your vision. 

Any successful relationship is built on trust, mutual respect, and a shared sense of purpose. But when it comes to business relationships, finding the right strategic partner is also essential to your company’s success. How can you know who to trust with so many potential partners?

First, make sure you’re on the same page when it comes to your goals and values. There’s no point teaming up with someone whose values clash with your own. For example, if your partner is heavily focused on only generating revenue from you (versus with you, through delivering more value to end clients), then there will be misalignment. Always discuss goals and align them earlier rather than later.

Second, take the time to get to know each other and ensure you’re compatible. You don’t want to find yourself in a partnership full of arguments and disagreements.

Lastly, don’t rush into anything. A strategic partnership is a big commitment, so be sure you’re both ready for it before taking the leap.

Of course, finding the perfect strategic partner is easier said than done. But if you keep these things in mind, you’ll be well on finding the right partner for your business.

Benefits of strategic business partnerships

Access to new markets

It’s time to stop thinking small. Get in touch with your entrepreneurial side and work together with other companies that can help you achieve greatness! By teaming up with another company, you can enter new markets that would otherwise be inaccessible.

Imagine the network your partner has built – all of the nodes they are connected to – entering into a close partnership allows you (and your partner) to cross-pollinate and tap into these network effects across markets.

Improved product offering

In a world where it seems like there are more and more options, how can you make your product stand out? A strategic partnership allows you to complement your existing product offerings and create a more comprehensive offering for your customers.

The important part here is that your client likely already has a need for your partner’s solution. Showing that you’re in partnership with them allows your client to do less thinking when making a decision on how to improve their business. They trust you, and you’re showing them the way to enhance their business.

Expand your stakeholder base

You can’t grow without securing the loyalty of your stakeholders. That’s why it is essential to have strategic partnerships and work with people who share similar values as you, so they will be more likely than others to expand their stakeholder base too.

You tap into the expertise of an entire other business. The talent that they’ve hired, working alongside you towards the established common goal, reduces the need for your business to hire talent. Further, you learn and can implement pre-established systems that your partner has already “figured out” within your industry.

Diversify your business portfolio

By teaming up with a complementary business, you can add new products and services to your lineup, which can help to reduce risk and improve profitability. What’s more, combining forces can also give you a competitive edge by giving you greater buying power and economies of scale. 

This keeps things fresh for clients and opens up new opportunities for you to bring them even more success. This could be as simple as offering your partner’s solution to your clients with a joint value proposition, where your business doesn’t need to develop an entirely new offering—you use your partner’s existing offering.

Build Relationships with a Strategic Partnerships Path

Sure, you could try to go alone, but why not team up with a strategic partner who can help you reach the finish line faster? BD Paths can help you find the right partner and develop the perfect partnership strategy for your business. With our partnerships consultation and resources, you’ll be able to get ahead of the competition and achieve your goals.