Strategic Partnerships: Chapter 1
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1. The What of Joint Venturing
“Business once grew by one of two ways; grass roots up or by acquisition. Today businesses grow through alliances—all kinds of dangerous alliances, joint ventures, and customer partnering, which, by the way, very few people understand.” –Peter F. Drucker, Management Guru
When I was a graduate business student at the Amos Tuck School of Business at Dartmouth College, one of my favorite professors always admonished us that “if your business isn’t growing, then it’s dying. It might be a slow, quiet death, but it is still dying.” In fact, many businesses are dying, and those that survive struggle with the challenge of how to grow their enterprises in these difficult times. It seems that since September 11, 2001, a time that changed forever the business terrain in which we must operate, more and more businesses are struggling with how to remain relevant, as well as afloat.
The challenges of growth and success that entrepreneurs face today are unparalleled in American history and maybe even world history. For example, historically, businesses have always assumed that the population of the country would continue to increase over time. This assumption created an imperative to build business models that were scaleable enough to capture this expanding market opportunity. However, if current demographic shifts continue and the birth rate in America continues to decline, we will, for the first time in our history, find our population aging and actually shrinking. The only reason that it is not shrinki8ng now is due to immigration rates. Immigrants tend to maintain the birthrate of their adopted country at least for the first generation.
The other challenge entrepreneurs face in attempting to grow their businesses is the fact that the markets they serve are no longer just local. Today we operate within the world economy and a worldwide competitive environment. Technology makes it possible for any company in the world to compete with any other company in the world for any given market. In addition, the fact that large corporations are ‘right-sizing’ and the number of corporate employees who are pursuing entrepreneurial endeavors is exploding, the competitive environment for small businesses will only become more cutthroat and crowded, resulting in more and more companies chasing fewer and fewer deals. Given the perplexing reality outlined above, what’s your plan for growing your business? This is undoubtedly a topic you’ve considered for many an hour. Ultimately, though, the strategies available for building a larger, more powerful, and more profitable organization narrow down to these three options:
1. Grow organically.
This strategy involves plowing all retained earnings back into your company to scale the operation and develop new markets. Capital for growth under this model can also come from outside sources (e.g. banks, venture capitalists, or private investors). Under this strategy, you use the direct resources of your company to scale operations, develop new products, explore and capture new markets, and lobby political institutions to obtain political favor. While this method allows tyou to maintain the greatest degree of control over your company’s destiny, total self-reliance comes with a significant downside. Having to self-generate all the necessary financial resources to support expansion usually means that growth will be limited and occur at a much slower pace. Your ability to respond to new opportunities will be constrained and given the speed of change in the Customer Economy, it will be very difficult for most firms to keep up.
2. Grow through acquisitions.
Using internally generated capital as well as funds provided by outside investors to purchase existing businesses will increase your capacity to deliver more goods and services to your current market and may help you penetrate new and emerging markets. The growth-through-acquisition model can produce rapid growth, but the challenges of integrating two organizations—especially if the company cultures differ in any serious way—can be significant. In fact, studies have shown that many mergers and acquisitions fail to produce the desired financial outcomes. This is why the business news regularly contains stories of corporate giants divesting companies they bought only a few years ago. This has been a problem especially in the technology sector. As new technologies emerge and smaller companies are started up to commercialize these new technologies, at some point these smaller companies become targets of the larger companies. Unfortunately too many of these ‘shotgun marriages’ end up in divorce court. One example of this phenomenon is AT&T. AT&T has often acquired or built new businesses around new technologies e.g. AT&T wireless) only to later jettison those businesses due to, among many other reasons, incompatibility and a not-so-well-thought-out business integration strategy. In addition to the incompatibility issue, the price of using other people’s money to support acquisitions is that you’re giving over some degree of control to your financiers. As your control becomes more and more diluted, your influence on day-to-day decisions will usually follow suit. Using other people’s capital for acquisitions is not necessarily a bad idea, but it is something that needs to be carefully considered before going down this path.
3. Aggressively create and leverage joint ventures and strategic partnerships, and embrace “co-opetition”.
As you will learn in detail in this book, the benefits of joining with another organization to tackle a shared business goal are many. While not without risks, such partnerships can be the foundation for long-term business growth and success.
Co-opetition is a creative spin on joint venturing and business alliances put forth by Adam Brandenburger, of the Harvard Business School, and Barry Nalebuff, OF THE Yale school of management. In their book Co-opetition, Nalebuff and Brandenburger say co-opetition occurs when a business cooperates with its competitor for mutual gain. This model is very prevalent in the technology economy. IBM, AOL, Apple, and Microsoft have embraced co-opetition as a means of expanding into new markets and even solidifying markets in which they already dominate. When People think of joint venturing and alliances, their paradigm forces them to only consider partners who are not head-to-head competitors. While this is understandable, it may not be smart, especially given the impact that dereguilation, accelerating technologies, and the merging of technological opportunities is having on the world economy.
My hypothesis is that, given the risks, constraints, resource allocation, velocity of change and global reality that define the Customer Economy, for businesses to survive, they must master the art of building joint ventures and strategic alliances. Failure to master this art will result in more businesses experiencing slow, debilitating deaths. Similar to a person dying from carbon monoxide poisoning, this type of death is quiet, often painless, and just slows down your system until you fall asleep—a deadly sleep.
As T. Williams, supplier diversity manager for Toyota Motor Manufacturing North American, told me, “Companies that are more efficient in providing high-quality business services have a much better chance of survival…We all have a relentless pursuit of cost reduction; that is what is driving us now. We must focus on eliminating waste in both conventional and unconventional ways. We have to challenge the fundamentals of how we conduct our business. We have to evaluate what is value-added and what is not value-added in every part of the supply-chain process.” It is that kind of thinking among the leaders of America’s large corporations that is driving the opportunity for smaller companies to join together—either with a larger company or with one their own size—to take advantage of this desire for value-added vendors at all parts of the supply chain.
Exploring This Foreign Territory
Joint venturing is a new concept for many small business owners. But the rationale for joint ventuing has never been stronger, and the number of opportunities to create such partnerships has never been greater than they are now. Thoroughly understanding the terrain of the joint venturing world, which may now be foreign territory to you, will help you avoid missteps and achieve success faster.
Joint venturing requires you to reach out into the business world and establish the kind of close relationships where breaking bread together is a welcome activity. Sharing a meal with your potential joint partner in a relaxed atmosphere fosters the kind of candid business and personal discussion that lets you truly get to know each other. Getting to know each other on this level is essential, as I will discuss in Chapter 4. Then later in Chapter 8, I will discuss how to make sure your joint venture relationship remains vital and fun as it goes forward.
As you strive to achieve joint venturing success, you may find yourself facing obstacles. Some barriers may be within yourself and your organization. You may identify attitudes and behaviors that have to be put aside because they would stand in the way of your being a good partner.
For example, if we start with you, the CEO, your attitude and perspective on your business may have to change. The reason you are still in business will be a major factor in determining what your propensity for joint venturing is. If you are in business because you want to create a job for yourself and maybe a few other people, then your business paradigm might not be well suited for a joint venturing opportunity. On the other hand, if your business paradigm is that you want to grow rapidly and build significant wealth in the process, you are probably an outstanding candidate for building joint ventures and strategic alliances.
Although joint venturing of some form is extremely common, not every business is adept at partnering, so you may run up against barriers in the organizations with whom you are attempting to partner. Also, in the new Customer economy, one of the emerging barriers to building alliances is cultural misunderstanding. It is becoming more and more likely that your prospective alliance will be someone who does not look like you, who is not of the same gender, and who may not even speak your language. If you are a member of a minority group or a woman, these barriers may even include cultural attitudes that cause non-minority and non-female business owners to stereotype you and your business. In Chapter 4, I will address this topic in more depth.
It is imperative that you recognize potential barriers as early as possible in the process. Some of these external barriers may be easily addressed through communication and some analysis. Other barriers may be insurmountable, or the benefit of doing the deal may not justify the investment on your part to remove the barrier.
Keep in mind also the importance of taking action on these joint venture opportunities. Contrary to the popular belief that businesspeople are successful because they have mastered the art of making slow, careful, and deliberate decisions, most successful businesspeople also recognize that at some point you must “pull the trigger”. Quick action is also an important key to finding and taking advantage. Of valuable joint venturing opportunities. Quick, decisive action is often a precursor to success in this area for these reasons:
Timing is everything in business. What makes sense today may not make sense next week. The burning need that a customer has today may be totally forgotten about next month. It is a bigger risk to delay doing a good joint venture today than hoping that the perfect one will come through tomorrow. Also, while you’re taking the slow route to decision making, you may be missing out on other opportunities because you’re stuck in idle, unable to make a decision on the opportunity in front of you right now.
There are no absolutely right or absolutely wrong answers. The CEO of a company often is a pioneer in developing new and novel ways to cut deals and to grow his or her business. There is no CEO handbook (at least not yet) and no holy grail that is guaranteed to lead to a successful venture. Often after you’ve exhausted all your due diligence, then it becomes necessary to listen to your gut (aka instinct) and go with that.
Fail fast. Success is really a numbers game. The more you play and engage the more you will win.. If you don’t swing at the ball, you will never hit a home run. If you don’t jump in the pool, you will never learn to swim. Failing is a part of life and certainly is part of business. Accept that reality and learn to fail fast. Failing fast suggests that you accelerate the process of discovery to quickly determine if the path you’ve chosen is indeed the correct one. If it turns out that it is, then God bless you. If not, then cut your losses quickly and move on to the next opportunity.
Defining a Joint Venture
When I hold a workshop on joint venturing, I always start out by getting the audience to agree on a definition of the term so we’re all clear on exactly what we’re talking about. Here’s the definition I present:
A joint venture is the coming together of two (or more) independent businesses for the sole purpose of achieving a specific outcome that would not have been achievable by any one of the firms alone.
If you break that description down, here are the elements that are present in order for a joint venture to exist:
First, a joint venture includes multiple independent companies. Most often, two businesses are involved, but there are instances in which more than two firms link together. Having more than two companies involved is becoming more and more common. Of course there are particular industries, such as real estate, that lend themselves to a joint venturing business model. In this industry, projects are typically so large that they require multiple players.
The word independent in the definition should not be overlooked. The challenges of bringing two totally separate organizations together for a joint venture are considerably different—and usually more complex—than when several divisions of one organization decide to take on a project together. Differences in company values and cultures, business goals, management structures, and many other factors have to be bridged when truly independent companies are involved. It is critical to be aware of this from the very start of discussions about the potential joint venture and all the way through to the ultimate completion of the joint venture’s goal.
A joint venture has a clearly defined business purpose. I’ll talk much more about why this is essential and how to establish the business purpose later, but in essence, a mission for the joint venture needs to be agreed upon up front. Also, this mission must benefit both organizations. A lopsided mission that allows one partner to reap a disproportionate share of the rewards will not lead to success; the major outcome of such a mission will be feelings of resentment and disappointment by the partner that is getting the short end of the stick. Understandably, these types of arrangements tend to be very short-lived.
The mission could not be achieved by either party without the aid of the other. If a company can achieve the mission by itself, little motivation exists for undertaking a joint venture, since such partnerships are not without their own challenges and risks. The interdependence that exists when neither side can achieve the mission alone is what holds the joint venture together and motivates the partnering companies to get over the hurdles that are sure to appear along the way.
Implicit in the requirement for a clearly-defined business purpose is the need to agree on the supporting elements of the business purpose. These include the target customer base, the type of product or service to be sold, the support services to be provided, the vendors to b used, and the prices to be charged for goods and services. In addition, the partners must agree on the specific duties that each will undertake in support of the mission. Deciding who is going to do what—in great detail—before things get rolling avoids finger pointing and disappointment down the road.
The Joint Venture Continuum
Now that we have looked at the characteristics of joint ventures, it’s important to realize that this business relationship can take on a variety of forms.
As you can see, a joint venture can vary in terms of the closeness and cohesiveness of the relationship that is formed between the two organizations. As you read the descriptions below, begin to think about which type of joint venture might be most attractive to you and your organization at this point in time. In other words, what type of partnering arrangement will make you most comfortable? Which one makes the most sense for you current business goals? These are important questions to consider before starting discussions with potential partners.
Here, then, are descriptions of the three points on the Joint Venture continuum scale:
Loosely coupled joint ventures. Two companies in similar industries pool resources to go after larger contracts or enter new markets together. For instance, companies often reach out to other organizations to form a loosely couples partnership in order to meet the specifications of a government contract.
A mutual service consortia, in which consulting firms with various specialties work together on client projects, is a good example of a loosely coupled joint venture. The firms might work together on only one client project for a short period of time while maintaining complete independence in their other business operations. But that one joint client may produce significant financial rewards or add luster to the firms’ resumes that will attract more business in the future. Such a joint venture is a good way for a firm that has not worked in a particular industry but has easily-transferable skills to get a foot in the door with companies in that industry. Such relationships are, of course, not limited to one-shot deals. Sometimes they last for years, with each partner calling in the other on an ad hoc basis. Oftentimes, firms that work together in this way do some marketing together, enabling both firms to present to the world what appears to be a larger entity with broader scope.
Even sole practitioners in some fields joint together in loosely coupled joint ventures. This is particularly true in the marketing profession, where self-employed copywriters, art directors, publicists, website designers, and people in all sorts of marketing-related fields often form virtual partnerships that enable them to attract business from larger companies. With today’s communications technology making such virtual partnerships appear seamless to clients, such arrangements are extremely common.
Another possible purpose for a loosely coupled joint venture might be to allow the partners to access advanced technology that is too expensive for either company to acquire alone. By initially sharing the cost of an expensive technology, each partner can use the technology to ramp up its business to a point where it can ultimately afford the technology on its own.
Moderately coupled joint ventures
Two independent companies move beyond an informal relationship to a more formal one. Typically by this time the two companies have become more familiar with one another and have had a chance to ‘try one another out’. At this point, they like and trust one another enough to take the commitment one step further and two steps deeper. This is defined by a number of critical variables—time, depth, breadth, and willingness to open the organization to exposure.
For example, when two companies emerge into a moderately coupled joint venture they have spent a significant amount of time together and are willing to spend even more time together. While they certainly know more about one another before the relationship started, they understand that more time together is needed. There is no substitute for spending quality time together. This time is not just spent in meetings and conferences but attending a ballgame together, going to dinner, introducing the spouses to one another, being in front of customers together and wooing politicians and decision makers together.
Not only is spending time together critical, but ‘going deep’ with one another is equally important. The old adage “It’s not what you know but who you know is no longer valid in the Network-Centric Value Chain business environment. The new adage, “It’s not only what you know and who you know but how well you know them!” reigns in the new competitive environment.
Going deep means focusing on making an investment in the relationship by taking ownership of better understanding your partner’s true core competencies. How solid is their financial position? What is their real reputation within the vendor community, the industry, and among your customers? What about their infrastructure? Have your engineers had an opportunity to study their telecommunications infrastructure to assure that they are in fact able to handle the increased transactions that would come with an expanding customer base? Does your partner really have the political and business connections that he has been boasting about? The answers to these types of questions will lead you to a deeper understanding of your business partner.
Another requirement of a moderately coupled joint venture is to explore the options of breadth. Usually when two firms start down the path of engaging in some form of alliance, they focus on a narrow spectrum of opportunities. They might first start by introducing each other to each other’s customers (assuming they are in non-competing industries). Or the two companies might begin by reselling each other’s products. As the relationship successfully matures, the two firms will begin to expand the breadth of economic opportunities that they want to work on together.
The final way you know that you’ve moved to a moderately-coupled joint venture is when both companies are more open and more willing to expose their weaknesses. No one likes to expose their weaknesses. To a degree all businesses harbor some form of inferiority complex. However, getting the most out of an alliance requires taking risk with one another, understanding that you could get hurt in the process but believing that you won’t.
Some moderately coupled partnerships take the form of prime-contractor/subcontractor relationships. Outsourcing arrangements in which a company agrees to have another company take over its information technology or marketing function, for instance, meet the definition of a moderately coupled joint venture.
Tightly coupled joint ventures
These extend the moderately coupled joint venture requirements, again defined by time committed to the venture, the depth of the relationship, the breadth of cooperative opportunities that the two firms commit to pursue collectively, and each firm’s willingness to expose its weaknesses to the other partner. Tightly coupled joint ventures usually involve a formal integration of resources, infrastructure, processes, and services.
Commitments in these relationships tend to be high; the partners tend to develop joint activities in many functions, operations often overlap, and the relationship thus creates substantial changes within each organization. When companies in different industries with different but complementary skills link their capabilities to create value for ultimate users, it usually requires a tightly coupled joint venture to make it work.
Another defining criterion for tightly coupled joint ventures is the amount of legal paperwork involved in consummating a deal of this nature. There is heavy reliance on the services of attorneys and accountants and a great deal of time is necessary to exercise proper due diligence. The legal issues of joint venturing will be discussed in Chapter 9.
The beauty of this Joint Venture Continuum is that you don’t have o jump into joint venturing with both feet. You can choose to first dabble with a loosely coupled joint venture to see how you like working with another business to begin with and also to see if you specifically like any particular organization as partner. If you find you are comfortable with a loosely coupled joint venture, then you might choose to move further to the right on the continuum and explore a moderately coupled partnering. Eventually you might even want to form a tightly coupled joint venture.
If you decide your first joint venture was not a good experience, please don’t give up on the whole concept. That particular partner may not have been right for you and your company. Don’t hesitate to try another partner. Like anything worthwhile, joint venturing takes time and effort to master. And while we’re not all born with the whole panoply of skills and attitudes needed to be good at joint venturing, I am firmly convinced these skills and attitudes can be mastered over time, which is what I intend to help you do with this book.
Keep in mind also that the form of business alliance you engage in will probably vary over the life of the relationship and over the life of your company. If yours is a young company just starting out, you might begin with a number of loosely coupled alliance arrangements. This approach will give you enough time to understand your strengths and weaknesses better and become more comfortable with the “process” of identifying and building partnership arrangements. Loosely coupled alliances are low risk. If a company is unsure of itself or of its potential partner, a loose arrangement lets everyone in the arrangement lets everyone in the relationship “try it out” to see if they like it and can live with it.
As your company begins to grow and establish a name for itself, you may want to migrate to business arrangements that are more moderately coupled. This approach does not suggest that you cannot continue with pursuing loosely coupled arrangements, but you will find that the return on your investment in the relationship will be greater when you are able to secure more moderately-coupled arrangements.
Finally, after you have established the business, built market share, mind share, and brand share, you might want to consider taking the business to the next level by either merging your company with another company or by committing resources from your company into a new company into which your alliance partner also puts resources. This third independent company would run like a stand-alone corporate entity, even though it is partially owned by both companies.
Exit Ramp
One final aspect of the Joint Venture Continuum I want to point out to you before leaving this topic is that, as you move across the continuum from loosely to moderately to tightly coupled, your ability to walk away from the partnership without paying a heavy price decreases. I’m going to talk in depth about the importance of creating an exit strategy before signing on to a joint venture later, but for now keep in mind that getting oput gets progressively tougher the closer the relationship is.
In a loosely coupled relationship, the decision to halt joint activities is pretty simple. You wait until the current joint project is completed and then agree to go your separate ways. Complications can arise, revenues may take a short-term hit, and feelings may even be hurt, but generally speaking, dissolving the relationship is relatively simple.
Even with a moderately coupled joint venture, disengaging may not be too difficult, although more significant financial consequences may be entailed. If, for instance, your company serves as a subcontractor for a prime contractor that decides to let you go because it can get a better price elsewhere, this may be a painful financial experience. But your operations are not so intertwined that you couldn’t go on operating on your own.
Case Study
Getting A New Perspective On The Challenge
As Special Secretary for the State of Maryland Governor’s Office of Minority Affairs, Sharon R Pinder heads an office that is in charge of advocating, promoting, and supporting the constituent base of minority- and women-owned businesses in Maryland. Although Maryland is a small state, it has 82,000 minority-owned firms and 112,000 women-owned firms. This gives Pinder a constituent base of nearly 200,000 businesses, which is 50 percent of all firms in the state. She is determined to make Maryland’s Minority Business Enterprise Program a model for other states.
Sharon Pinder has over 20 years of experience successfully leading change for Fortune 500 corporations and as a minority business entrepreneur. As a result of her business success, she has received many honors, including being named the 2004 Distinguished Alumnae of the Year by the University of Maryland, the 2003 Award of Excellence from the Maryland Women for Responsive Government, the 2002 Outstanding Leader of the Year by Leadership Maryland, and one of Maryland’s Top 100 women for 2002.
In her current position, which she assumed in 2003, and in her private sector experience, Pinder has both witnessed and participated in many strategic partnerships. She shares what she’s learned from both her private and public sector viewing posts here.
What do you see going on as far as joint venturing among your constituency?
Pinder: Over the past year in this job, I’ve been encouraged by the growing number of minority- and women-owned companies doing joint ventures or alliances. There have been some best practices that have heightened the awareness of this model. This strategy enables smaller companies to compete with larger firms, and it increases their pool of available opportunities.
Over the last year, I’ve witnessed some creative competitive strategies. The procurement model for the State of Maryland currently consists largely of bundled, multi-year, and competitive bid contracts. Given this environment I’d like to share three examples of successful joint ventures.
One of the State’s primary procurement agencies awarded a major information technology contract to a minority contractor with minority subcontractors. They won this competitive bid contract against some of the country’s top industry information technology leaders because they had the right combination of skill, expertise, and business savvy. As standalone companies, they were successful in their own right. Any one of the companies could have been the prime contractor. They made a decision to partner and determined the right combination of leadership and teaming that resulted in the win.
Another agency put out a request for proposal (RFP) to provide specialized transportation services. This was a multi-million-dollar, multiyear contract that was about to expire. During the duration of the previous contract, there had been several minority subcontractors that participated on the contract. For the new RFP these subcontractors decide to pool their collective experiences and resources in an attempt to win the contract as a prime. They felt the timing was right, and they had the customer relationship and multiyear experience in delivering the services on the contract. They also recognized their competitors in this bid were companies that were much larger and had more experience, and in some cases, their competitors held similar contracts in other states. They put together an excellent proposal. Unfortunately, they did not win the contract but only because the State reversed its decision to unbundled the contract. I am confident they will find other opportunities as a group.
One of the most fascinating ventures I’ve watched included a group of individuals that had built very successful businesses in very different business acumens. Their acumens included real estate, healthcare, financial investment, and construction. Although they were successful in building their individual businesses, they decided to form an alliance for the purposes of leveraging resources to conquer a different business model. When we met, they were looking into a variety of business opportunities, including franchising and commercial real estate development. They represent a best practice of thinking outside the box and expanding their business horizons. These entrepreneurs understand the upside of joint ventures and have the wherewithal, creativity, and resources to pursue large complex deals.
Do you see facilitating alliances and joint ventures as being part of your strategy to help women and minority businesses in Maryland to scale quickly?
Pinder: Absolutely. I firmly believe that business is about turning good relationships into money. Our primary goal as a business-friendly state is to foster an environment that supports the growth of all businesses. Governor Robert L Ehrlich and Lt. Governor Michael S. Steele understand the importance of providing the infrastructure and procurement opportunities. The State of Maryland spends billions of dollars in procuring goods and services. Our strategy is to devise solutions that will ensure the sustainability and survivability of minority- and women-owned businesses. In 2004, we saw an opportunity to level the playing field by designating, via legislation, a portion of these dollars (10 percent) exclusively for small businesses. Minority and women-owned businesses are the direct beneficiaries of this landmark legislation, passed during the 2004 General Assembly session. This, coupled with the 25 percent MBE goal, Strategically creates a ‘sandbox’ that enables minority-and women-owned businesses to compete in a more open environment. It opens the door for these businesses to engage in business practices as alliances and joint ventures in order to broaden their base of business.
Even with all of these reforms, Maryland still has one of the most complex procurement programs. The quickest way for firms to gain entry to state procurement opportunities remains to partner with firms that have already mastered the system. To further encourage more partnering, The Governor has also created through Executive Order the state’s first mentor-protégée program.
To facilitate international partnerships, we use trade missions. Over the last year, the State of Maryland led two trade missions aimed at minority- and women-owned businesses. The purpose of the trade missions is to provide the opportunity for the state’s women- and minority-owned businesses toi do international trade. In 2003 and 2004, we completed a trade mission to Barbados and one to Africa. Again, this is another avenue to promote joint ventures, partnerships, and alliances, particularly on an international scale.
Are joint ventures and alliances necessary for survival among your constituency?
Pinder: Yes, definitely, because it is about growth. The economy certainly is the primary indicator of how much the State will spend in a fiscal year. The economic indicators have resulted in less spending and have created a sense of urgency for minority and women owned businesses to look at alternative methods for deriving revenue. I often advise firms to really examine their market plans and to carefully make the assessment of what they6 can realistically obtain through public sector procurement opportunities. With this growing trend towards bundling in private and public sector organizations, it impossible for firms to independently compete in a marketplace. With entrepreneurship on the rise, joint ventures and alliances become a great tool to deal with economies of scale for survival.
Have you seen differences in how well joint ventures work when a small business teams up with a very large business?
Pinder: There are several factors that I think greatly influence the trend of teaming large and small businesses. The growing swing in demographics—as the minority becomes the majority—was a rude awakening for large corporations doing business with organizations that suddenly enforced women and minority business goals. As accountability for participation of minority and women owned businesses increased, so did the notion that larger businesses had to begin to accommodate their smaller competitors. The other factor I believe heavily influenced this trend of teaming was the introduction of the Internet. The use of the Internet as a delivery vehicle levels the playing field for small businesses. A smaller company can eat the lunch of a larger company because the smaller companies were more agile and cost effective and could deliver quality solutions faster. During my private sector experience as an entrepreneur, I remember being courted by large corporations, largely because they knew our services could complement their solutions. Additionally, what they valued were relationships we had already established with business entities they were pursuing. The fact that larger companies now see the value of a partnership with smaller business is a paradigm shift in business focus. In the past, the best you could hope for was an appointment with the right person. At the end of the day, what was driving the change in behavior was that larger companies knew they were leaving money on the table.
My personal experience has been that larger companies didn’t initially have a comfort level with letting a smaller business take the lead. They were used to being the 900-pound gorilla. The success of the relationship was mainly driven by customer satisfaction and ultimately, by the players involved on both sides.
How was that relationship maintained during the course of the contract and beyond?
Pinder: Sometimes it was a real struggle. An old business adage sums up one of the biggest challenges: “He who has the gold rules.” However, the key to teaming with a very large business is to ensure the ground rules are established up front. When all participants agree on who is driving the train, success is possible.
In business, we always talk about how success is driven by relationships. This isn’t any different. If the relationship is established and includes mutual respect, then it works. If you are treated as an inferior partner because of your size, gender, or race, it won’t work and the relationship is just more painful than it’s worth.
Have you observed that the big companies have a hard time allowing smaller companies to lead when it makes sense to do it that way?
Pinder: It depends. If the smaller company brings the larger company to the party, they have to dance to their tune. However I have observed that it can be personality driven. If the team or participants from the big company have no experience in true partnership, then it is a problem. I remember working with a Fortune 500 company that showed a certain arrogance as the larger company. This arrogance can lead to exploitation instead of partnership. Always speak with existing partners to ensure you do not partner with a very large business that has a culture that makes partnering with a small business risky.
What attitudes do you see that keep minority business owners from doing joint ventures?
Pinder: Pride of ownership and loss of control are the key concerns among minority- and women-owned businesses. A great number of minority business owners are first-generation entrepreneurs and have sacrificed so much to get where they are in the business life cycle. Unfortunately, the “I must be in charge” attitude often prevents us from taking advantage of opportunities. Loss of control is a genuine concern when you do not have a level of trust with the corporate culture and individuals involved in the deal.
Do you find the pride of ownership obstacle to be more of an issue for minority businesses than for large mainstream businesses?
Pinder: Yes, most definitely. I think some business owners become too personally attached. Mainstream businesses cannot compare to entrepreneurs on this issue. One of the mistakes I made when I started out in the entrepreneur space was that I thought I had to do it all. I had ‘business trust’ issues.
I have seen minority and women business owners lose valuable and dedicated employees, because they didn’t understand the value of sharing the wealth with their team. It takes so many components to grow a successful business. You can’t grow it on your own; s much is tied to your workforce. I think larger businesses better understand the value of their workforce and are willing to provide incentives.
Pride of ownership clouds business judgment, and I’ve seen deal blown because of this fear oif lack of control. I believe that minority and women business owners are becoming more business mature. They understand it is a matter of survival. A lot of what slows us down in terms of joint venturing or other growth strategies is that we just don’t have the experience yet. While the social/economic status of minority and women business owners has changed over the last 20 years or so, we’re still pretty young in this entrepreneur thing. We’ve had great entrepreneurs in the past—my father was an entrepreneur—but most of us don’t have the role models and mentors we need. What we have to do is seek out that angel who has had that experience. It gets back to surrounding yourself with people who can help you through the process.
How do small business owners find their angel?
Pinder: As an entrepreneur, I purposely sought out organizations that took me into areas that were mainly outside my own network. I made myself available for boards and commissions and completed the Leadership Maryland program. Once I established those key relationships, I sought mentors who could help me with my business. I also established a kitchen cabinet of advisors. I have now taken that strategy and applied it in my public sector role as Special Secretary of the Governor’s Office for Minority Affairs.
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