Starting a business by allying with a larger company can give a new business a significant head start. The alliance can be in the form of a partnership of some sort or an independent contractor relationship, with or without the larger company investing in the smaller company.
Joint Ventures and Alliances
The term alliance has come to mean anything from a simple transactional relationship between companies to supply goods or services to a licensing or outsourcing relationship with the smaller company. This is done for strategic reasons—both companies get what they want out of the relationship by being bound closely together without a merger.
Larger companies, for example, are supporting and even funding small company startup and growth for a variety of reasons:
- As a pipeline for the larger company to get new products and services to customers
- As a low risk way for larger companies to try out new ideas and be more nimble
- As a pipeline for smaller companies to provide research and development, innovative products/services, quick response time, short term labor, etc. to the larger company and its customers
Small firms must ensure that their larger partners have the same intent, expectations and vision for the alliance. If these are divergent in the beginning, or become divergent over time, the alliance is not likely to succeed. Commitment of time and resources, and leadership buy-in from the larger company are key to the smaller company’s success. Small companies, likewise, must be able to match the larger company’s technical and business competence to be and remain desirable fit for the larger company.
Many medium sized and some larger companies use small companies for distribution and/or sales of their products or services. This gives often a small company a number of distinct advantages over going it alone:
Low startup cost
Marketing materials, strategies, pricing and experience provided by the larger company
Help in establishing and managing a territory
Products/services that have a recognizable name
Healthy commissions and other incentives
With either one of these approaches the same thinking, planning and execution is needed as is mentioned in the discussion of Starting a Business on Your Own. In addition, the small business owner must carefully evaluate the success, future, track record, players and commitment of the larger company. Get legal representation in negotiations and contracts with the big boys.