High growth potential is not the same as high growth. One possible big difference here is investment. You may need money to enter a new market, reach new customers, develop new products, improve distribution or increase production.
Yes, indeed, that’s one possibility. Investment can be risky and expensive though, and is often not the only option. Strategic partnerships can offer you a way to grow without having to wait for an investment. Measuring the value of a strategic partnership can help you assess the return you can expect from your investment of management time and other valuable resources.
What can strategic partnerships offer my business?
In our recent Strategic Partnerships Expert Panel webinar, one of the many significant issues which were discussed is knowing how to measure the value of a strategic partnership.
But first, what exactly are the benefits offered to businesses by strategic partnerships? Our webinar discussion yielded four primary outcomes:
- Find money — share resources with your partner to help fund your own growth.
- Build brand — borrow your partner’s “halo effect” in your chosen market or niche.
- Monetise assets — maximise return on investment on your intellectual property (IP) and fixed assets.
- Grow audience — your partner’s audience also becomes your audience in a strategic partnership.
Strategic partnerships also require deeper engagement than more limited marketing partnerships.
Marketing partnerships are great for referrals, quick wins, collaborative campaigns or competitions, and content-sharing. Strategic partnerships are, however, less onerous and more flexible than joint ventures, which typically require a new legal entity. A strategic partnership can include an agreement to share resources, staff, market access and intellectual property.
Measuring the value of a strategic partnership
As covered in the webinar, the value of a strategic partnership can be measured using two key metrics; financial and strategic. Financial value is tangible and can include revenue, leads generated and increases in customer value, increased transaction value or frequency, and cost savings or promotional value. <7p>
This kind of value is what you can see and determine at face value, especially if the agreement involves freely sharing financial statements relevant to the partnership. This is also the kind of value that easily attracts partners. Since the “calling card” is ofa monetary nature, potential partners can more easily assess how they will be able to effectively grow their resources financially through the partnership.
Strategic value is less tangible and might include concepts such as brand leverage, competitive advantage, future value, and access to key assets. The business case for a prospective strategic partnership should also take into account financial and strategic risk factors. These factors can include the opportunity cost of any financial commitment and potential reputational damage from partner issues.
This kind of value, while not easily determined, can possibly have a much greater impact to a business compared to the financial value of a strategic partnership. This is because things such as gaining a competitive advantage, greater market share, and value forecasting already takes into consideration the potential financial benefits as well as other factors such as increased brand influence and awareness, marketability, and access to new markets – factors which are all important for taking a business to the next level. This kind of value also takes into consideration the possible non-financial risks involved. Since we’re talking with working strategically with another business, what they do and the issues they may face can affect your own brand reputation as well.
Finding the right strategic partner and identifying risks
Choosing the right partner is not as simple as measuring money and market share, however. In the webinar, Partner2Grow’s Managing Director, Simone Novello, remarked, “It’s not the biggest database that gets you the best results. It’s the most aligned database.” The expert panel had an extended discussion of the particular challenges of asymmetrical partnerships. When SMEs partner with large, multi-national corporations, it’s critical to read the room regarding communications to ensure that IP is adequately protected.
A lack of reciprocity in information-sharing, deferring to absent authority, and failure to respond in writing on key matters are all alarm bells for SMEs. A ‘win-win’ scenario where both partners are likely to benefit will ensure that both parties are equally committed. Partnerships between companies with different cultures or risk appetites are unlikely to succeed. Geoffrey Roberson, a commercial law expert and Principal at Stacks Champion, highlighted the need for a sound business case, both to underpin any legal agreement and ensure the eventual success of any strategic partnership. “Business planning needs to be understood; the objectives of each and what both parties want to achieve. That’s where negotiating up front before you document it is absolutely critical,” he says.
A truly valuable strategic partnership success story
Strategic partnership success stories are not hard to find. The dashboard indicators are all green for growth at Burra Foods Australia, for example.
In 2009, this South Gippsland dairy processor entered into a strategic partnership with a long-term client, Itochu Australia, aiming to expand production to export in Asia. The resulting site investments doubled total production to 39,000 tonnes in 2011 and won $2.1 million worth of Victorian Government support for an electricity upgrade.
Strategic partnerships are good for business, but governments can see the benefits, too. The number of employees at Burra Foods Australia increased from 80 to 130, and its demand for milk doubled to 150 farmers in a year. Companies which create and sustain jobs can expect to attract investment from more than just their partners.
By 2011, the new partnership had lifted exports from 70 to 85-90% of total product and doubled to $160 million. The partnership with Itochu Australia transformed Burra Foods’ export capacity and global presence in the short space of two years.
In other words, this particular partnership scored high in both metrics of strategic partnership value. The financial side of things is already a given. However, the strategic value, while possibly not that apparent at the start, proved priceless. Burra Foods, with Itochu Australia’s help, gained the nod of the Victorian Government, further magnifying the value of their strategic partnership.
Considering a strategic partnership?
As explained, a strategic partnership can bring both monetary and strategic value to businesses. However, entering one needs careful consideration and research. As such, for those looking for a strategic partnership, it’s best to be updated first regarding partnership issues, developments, and key advice. Viewing our truly insightful Strategic Partnerships Expert Panel webinar is definitely a good start—the information you’ll gain might just prove invaluable. Then, if you need real guidance and other relevant resources for you to develop partnership capability or find the right strategic partnership, Partner2Grow has the right tools that will really help you maximise the opportunity.