Implementing a Strategic Partnership

When business is slow and consumer spending decreases, solidarity between entrepreneurs can help drive sales and possibly cut down on marketing costs.

“There is potential in strategic partnerships to operate at lower costs through shared services or joint purchasing,” says Leonard Greenhalgh, professor of management and director of programs for minority and women-owned business enterprises at the Tuck School of Business at Dartmouth College.

Owners can form strategic partnerships with companies that sell complementary wares, those that sell merchandise that is entirely unrelated, or even form an alliance with a business that sells the same merchandise or services as theirs. A complementary alliance, for example, would allow a business that supplies parts for a home construction project to work in tandem with another business that provides the installation.

“Most minority-owned businesses are small. Ninety-six percent make less than $100,000 per year in annual revenue,” Greenhalgh says. By combining the capacities of two or more struggling small businesses, the new entity will function as if it were much larger and provide a more complete solution for the customer.

When her sales dropped by 20% in 2008, Nicole Jones, owner of Chicago-based shoe store Sensual Steps Inc., realized that she needed to unite other businesses in her predominantly black community to build awareness and drive traffic to their stores. The strategy had worked for her before.

Her shop is located in Bronzeville, an area that after several decades of blight has struggled to develop a strong customer base. Back in 2006, on the one-year anniversary of her company, Jones took the idea of driving traffic literally. She rented a trolley for $600 and had the trolley take shoppers between five different Bronzeville businesses for four hours. The strategy brought in $10,000 for her store that day and introduced her to clients who didn’t know her store existed. It benefited the other businesses as well.

This year, Jones and other business owners, along with the Quad Communities Development Corp., started UB2, United Bronzeville Businesses, a nonprofit organization created to strengthen the Bronzville business corridor. “All of our businesses were suffering [as a result of the recession]. Some stores were trying to make the decision to either close down or stay in business” Jones says. “We decided to pull together in a collective effort to share resources, share networking opportunities, and entice people to come to Bronzeville to shop.

Each of the 10 businesses involved has agreed to pay $150 towards a major media event on Sept. 25 and 26. Each store has begun

carrying a huge UB2 poster that advertises all of the Bronzeville community stores. The local restaurant, bakery, and liquor store will provide complimentary appetizers, desserts, drinks, and run the trolley tour again. In addition, they want to make a movie about their shopping district to be played on local television stations. Through cooperative strategizing the group plans to spend only $1,500 dollars for a two-day event that typically costs more than $5,000.

“Anything we can do to share resources and prevent costs is what we [will do],” says Jones, author of Dare to Walk in My Shoes: Confessions of a Sole Queen (Jones; $14.95), a self-published book about entrepreneurship.

But for Jones, 37, whose store grosses $280,000 a year, strategic partnerships are a way of life. Since her first week in business she has held three to four “Shoe Soirees” at Sensual Steps and in clients’ homes every month. During her parties she advertises other businesses in exchange for complimentary products and services to offer her clients.  Plus, she regularly attends promotional parties thrown by other local businesses and sometimes permits them to hold events at her store. Though critics told her she was foolish, she has even gone so far as to co-market her store on flyers with other small shoe stores in the black community, saying that working together cut her advertising costs in half.

If your company is on the fence about whether to build a strategic partnership, take these tips into consideration:

Identify your competitors. By understanding the competitive space, partnerships can better decide what resources they will need to combine and in what ways.

In Jones’ case, Greenhalgh says that Sensual Steps and her strategic partners are marketing against the nationally branded stores and malls that pull customers and their dollars out of the Bronzeville community. By forming UB2, the Bronzeville store owners are showing residents that when they shop in Bronzeville they will benefit from a variety of stores and that everything customers want or need to shop for can be found in the community.

Ask yourself, what makes this partnership profitable? Creating greater value for the customer should always be the purpose for any partnership. “You need to look at what is going to sway the customer to do business with [your new team] as opposed to the competitor,” says Greenhalgh. Determine if profits will be made from one group project, or if the financial gain will come as a result of decreased overhead, fees, or energy expenditures over time.

Write a detailed plan.

After you’ve come up with an idea, set up a meeting with the potential partners and explain what you want to do and how they will profit from it. “People are skeptical,” says Jones. “The more information you share the better.”  Outline how much money or the types of services that you expect them to contribute and estimate the return on investment for each partner.

Don’t lose control. Partnering with a company as opposed to a legal merger or acquisition is the difference between dating and marriage, says Greenhalgh. Every partnership you enter is a risk that can leave you liable since your partners can drop out at any time. Ascertain the legal ramifications of any agreement that you enter whether they are formal or not.

Consider forming a Limited Liability Partnership (L.L.P.). Under an LLP, all owners  have limited personal liability for business debts. Forming such a partnership will keep any one partner from being bound to the performance of others in the alliance.

Resources

Return on Investment Calculator — Predict the anticipated ROI for partnering with another company.

Promotion Calculator — Identify how much a particular promotion will cost you with or without partners.

Buyers Co-operative — Consider joining a buyer’s co-op which will provide cost savings.