One of the most important classes I took at the Wharton Business School was on Strategic Alliances. Out of 8,000 security firms in the world, 95% report less than $5 million dollars in revenues. They are mostly “mom & pop” companies. The Executive Protection industry is a small niche operating with only 1-2 main accounts forcing the owner to work the executive protection detail vs running his business. So how do you get to the next level with your company? By creating new growth! In a Harvard Business School Bain Consulting study 7 out 8 companies failed to achieve profitable growth even though 90% of those companies had detailed strategic plans. 96% of all business fail within the first 10 years and lack of growth within the company is a major contributor, creating a significant concern for companies that are strictly dependent in executive protection service to grow & survive. Unfortunately most will not survive or have to provide other services just to breakeven.
So what is a strategic alliance? A strategic alliance is a cooperation arrangement between two or more organizations designed to share a strategic goal. Whether to directly increase profits or simply for exposure, the ultimate desire result is growth of both parties involved. There are two types of alliances: shared equity and non-equity alliance. A great example is an alliance that I have built is with an insurance firm that specializes in clients of high net worth. The alliance is based on holding joint events where we set a number of lunch seminar talks. We are not competitors but targeting the same clients, and we each have our own marketing materials. Our target goal is 40-50 attendees typically held at a 5 star hotel or restaurant to translate our high level premium brands. There is then follow-up after the event & the goal is to turn the events into new business.
A study done by my Wharton Professors, Harbir Singh & Preshant Kale, revealed that the top 500 global businesses have on average 60 major alliances. There are risks & almost half of them fail, but hey have achieved 25% higher long-term success & four times market wealth upon the announcement of their alliance.
The realities of the alliance are that both companies must build trust between each other. They must find ways to operate even though there are cultural differences. The first two years of the alliance is the highest risk. There must be buy-in from & commitment from the executive level. There cannot be a hidden agenda by either company.
Both companies must set time to meet & constantly work on the alliance & they must communicate all the time. Strategic alliances are great for small to medium size businesses to accelerate growth & do not have the marketing budgets to compete against large companies. The other advantages that small companies have is that they do not have the company politics & layers of management that sometimes slow the process down as well as sometimes sabotage the alliance from working together. Small to medium size companies need to be innovative & creative to increase revenues & create growth. If you are considering a strategic alliance with a target company I would suggest that you set up a meeting & use the outline below are some of the guidelines to explore working together for common goals. Each company has some great strengths but also weaknesses. The alliance company you are considering can be that you tap into each others strengths for creating growth. It could be used to create one marketing team & business development people to share resources & to keep your costs low. Another idea is you may want to use one company’s technology that can help you & you have a strength that may help the other company. Strategic Alliances do have a tremendous value to compete in today’s complicated business world. I would suggest you use the outline below to use when forming an alliance as well as making sure that you are aware of the past problems that have cause alliance failures.
An outline for Strategic Alliances to create growth
- Non-disclosure agreement
- Executive Summary of what the alliance will promise and execute by all parties
- Do the cultures fit or clash?
- Strategic budgeting & cost to do that
- Shared information
- What is proprietary and what is not
- Equity distribution
- Value proposition to the clients
- What are the individual company goals
- Clear performance metrics, benchmarks, and measurements
- Length of alliance
- Communication to the public
- Covenant not to hire each others employees
- Meeting- How often do you meet? My suggestion is monthly
- Each meeting we should have a clear understanding of task ownership and estimated time of completion
- Each partner should write a press release on what we are doing then compare
- Create value to each companies’ clients
- Cross sharing of clients
Potential problems with the alliance
- Poor communication of individual company goals
- Company cultural conflicts
- Change in industry or environment, such as the economy
- Poor organization with partners
- Poor strategy analysis
- Hidden agendas
- Changes in the industry
- Ego’s & stubborn behavior
- Poor negotiation skills
- Maintaining focus on the alliance & have boundaries
- Do not try & steal clients
- Disproportionate equity in the alliance