If you’re serious about growing your business, then you should consider the power of using joint ventures. Joint ventures can add another dimension to your business. They can significantly increase your strategic position in the market, increase a prospect’s perception of your business and reduce your advertising and marketing costs. They can also lead to a profit explosion.
Of course, whilst there are many benefits, there are dangers too, so it is important to take the time to get to know your potential joint venture partner. Whilst they may appear to be ideal for you, you must still carry out due diligence on them. Ensure every meeting is documented and both parties agree the minutes in writing so that you have a clear record to refer back to. Always negotiate with a divorce in mind. This way you ensure you cover every angle and document it.
If you proceed into a joint venture then you will need to consider taking legal advice. The most important aspect of any partnership is what happens when you disagree or one party wishes to end the agreement. Sometimes there is just a disagreement regarding the meaning a person places on a statement. That’s why it’s important to be very clear and specific in all correspondence.
How many ways could you joint venture?
There are many forms of joint venture you can have with another company. The most important aspect of a new joint venture relationship is that it is a win-win scenario. Here are just a few ways you can JV…
1) Joint advertising campaign
We see this on television advertising, for example, where there is a main advert for say a washing machine and then they recommend the type of washing powder to use with the machine. No doubt the washing powder company contributes towards the cost of the advert. You could find ways to advertise your products or services and do exactly the same by finding a company that sells complimentary services. If you advertise in good places and there is the chance for them to gain business, then it can be a good move for them as they are sharing the cost of the advertising.
2) The bonus
Use another company’s product or service as a bonus offering on an advertising campaign. This is different from the first example. Here you are paying for the advertising and arranging a special price on the bonus product or service.
3) New combined business product or service
Create a new business from the joint resources of two companies. This new entity may be domiciled on one property or could use the production capability of one company with the sales team of another. There are so many ways to make this work and it’s simply using the best resources of each company. Generally these companies take only a small amount of setting up in terms of capital as the existing resources such as people, office space and machinery etc are already available.
An alternative here could be to utilise a company’s production plant and add a night shift which is purely for the production of the Newco’s product. Here, new staff will be required, however the plant and its running costs are already covered. This means the plant is better utilised providing a superior return on investment for the owner of the plant. Now there is a new contribution towards their overhead and the assets are returning a greater yield by being operated for longer periods.
4) Using one company’s distribution channel
This could be a physical distribution. Company A and Company B sell complimentary products to the same customers. Rather than two sets of drivers, vans etc company A distributes company B’s goods. As company A is already scheduled to visit specific customers, it’s easier and more cost effective to deliver more products to the same customer at the same time. The companies then share distribution costs which effectively reduces the cost to both the companies.
5) Host-beneficiary scheme
My favourite joint venture is what is known as a host-beneficiary scheme. This is when one company (company A) piggy backs off the other (company B) to market their goods through company B’s data base. This is potentially highly profitable for both companies. Company B has a great data base and markets to their customers frequently. In one of their marketing messages they endorse company A and attach/include marketing material from Company A. Company A contributes towards the cost of the mailing (unless it is electronic and doesn’t incur a cost). However, they may still pay company B for the time and staff resource setting up the mailing. As the reader is a customer of Company B they are more open to recommendations and therefore more likely to buy company A’s product. When the sale is recorded company A pays Company B an agreed fee for the business introduction.
This method of joint ventures can be highly profitable and very lucrative to both parties. The data base remains the property of the owner at all times and therefore data is not shared which of course would contravene data protection laws. Company B could be paid a one off fee or there could be continuous arrangement whereby they receive commissions for the lifetime of the customer with Company A. Therefore Company B has received payment for the set costs plus sales commissions thereafter. This is good profit generation.
Company A has benefited by using a low-cost route to market. They receive endorsement from another company with a similar data base which means their cost of acquiring a new customer is significantly lower. It is also likely that the customer will be acquired faster than their conventional marketing and therefore they make better profits, faster!
Successful joint ventures take time because it’s important to find the right company to do business with. However, when you find a good company who also wishes to develop and expand, it’s amazing what you can achieve. Take time to cover all the detail in writing and then work out a plan to make the JV work for both of you.
If you find one joint venture works then why not establish a number of them? This will allow you to expand is so many ways. As I said earlier, joint ventures can be incredibly lucrative financially, and also in terms of lifting your strategic positioning in the market. So, take time to develop the right strategic partners or joint ventures for your business. It’s one of the fastest ways to grow any business and obtain almost overnight credibility.
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