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Joint Ventures
Higher levels of trust become possible as collaborators ascend the awareness ladder. Businesses sharing customers require more trust than when they raise awareness together of a shared problem. In the final post in this sequence about collaboration, I explore joint ventures.
Last time, I looked at close collaboration such as shared staff or premises. That type of sharing could result in a merger. Joint ventures are by definition where two businesses work together but keep their identities.
What are Joint Ventures?
For joint ventures, two or more businesses share in some enterprise. For simplicity I’ll assume two businesses. The enterprise gets much more complicated where more businesses are involved. Chances are, where a large number of businesses are involved, some are not in the joint venture but invited to provide a service.
For a joint venture, participating businesses have a stake in the venture and share risks. The split does not have to be equal so long as both businesses have a significant stake.
This implies both invest time and money in the venture. They share profit according to some agreed formula. Normally it’s proportional to investment but there are circumstances where one takes a greater portion, eg if one lends its reputation to the venture.
Customer Initiated Ventures
Sometimes a business enters into conversation with a prospect about a high-end undertaking and realises that although it can deliver a significant proportion of the customer’s requirements, it needs assistance from another business.
This assistance could be and often is delivered through subcontracting. What would be the advantage of a joint venture?
Consider a joint venture where the work to be contracted out is significant, to the extent both businesses are responsible for delivery of the contract. Subcontracting works because if there is failure, it’s fairly easy to recover. Where shared work is substantial, it may be better for both businesses to shoulder responsibility for completion. Close collaboration might be essential for success and so the initiating business needs someone they trust with a stake in the contract.
The prospect may be aware one business working alone cannot deliver the work. They will contract with a credible joint venture. They may be happy for businesses to choose their own venture partners, probably wise where trust is crucial to the success of the venture.
Shared Projects
Alternatively, the joint venture might come from planning a new enterprise between two businesses. Their biggest problem is where the businesses have very different understandings of the venture. They start out apparently close and then discover they are poles apart.
So, it’s important to discuss the venture in depth. Are both talking about the same thing? This need not take up much extra time because even with complete agreement, you need to assess the viability of the venture. Testing the idea allows ample time to test the partnership.
Where you share premises and/or staff, joint ventures may seem a natural development. However, just because you support and inspire one another, it does not follow joint ventures are easy. If you work together in other ways, you understand how the other works. It may seem joint ventures are a natural development but choosing projects for collaboration should be done with care. Are we likely to pull together or pull apart? If one project won’t work, maybe another will.
This completes the sequence about collaboration between
similar businesses.