Competition versus collaboration: Which works best for your business? Instead of viewing neighboring companies as rivals, consider networking and collaborating with like-minded small business owners. A successful business partnership can yield a wide range of benefits, such as improved customer satisfaction and increased brand awareness. As a small business owner, I’ve found that trusted partnerships evolve over the years as you develop long-standing relationships with local companies.
Types of Small Business Alliances
Small business alliances take various forms and require different levels of involvement. Some of the most common collaborations include strategic alliances, joint ventures, marketing partnerships, and referral networks. Understanding the differences between them can help you choose the structure that works best for you.
Strategic alliances.
A strategic alliance brings together two companies to share complementary services or products with an overlapping customer base. Strategic alliances generally start with a signed contract to protect both businesses and outline the specific goods and services involved.
Ideally, the additional products or services offered through an alliance will enhance customers’ experiences with both businesses. For example, Barnes & Noble’s alliance with Starbucks stems from the idea that customers browsing for books would also enjoy coffee as part of their overall shopping experience.
Along with expanding customer reach, strategic alliances can secure needed resources. A specialty clothing company may agree to order a certain amount of fabric from a supplier each year in exchange for a purchase discount.
Joint ventures.
Joint ventures allow small businesses to become more competitive by merging resources to launch a new product or conduct innovative research. Typically, the partners agree to establish a separate entity for this purpose.
You may want to enter a joint venture for a number of reasons — such as limiting liability or risk related to the venture, creating a unique brand catering to a different audience, or increasing your ability to compete for a specific contract. For example, the Small Business Administration 1sponsors a program that allows companies to form joint ventures for the purpose of bidding on government projects.
Marketing partnerships.
Marketing partnerships increase brand awareness through cross-promotion among businesses with similar customer profiles. If you’re struggling to expand your reach or find it difficult to come up with fresh content, a marketing partnership offers the opportunity to combine forces with another business or influencer.
To source these partnerships, think of services or products related to your company’s offerings. If you own a small gym, you may want to reach out to retail shops in the community or local brands focusing on fitness gear. You could agree to feature each other’s products in your places of business or tag each other when posting on social media.
Referral networks.
As a small business owner with property management responsibilities, I maintain a list of local contractors we’ve used in the past. This provides a record of trusted resources we’ve enjoyed working with and would happily refer to other businesses in our network. While many small business owners build informal referral networks over time, it’s possible to take steps to reap higher benefits from this type of professional alliance. If you’re looking to grow your customer base, consider creating an incentive program, such as offering discounts to customers or vendors in exchange for new customer referrals.
Finding the Right Alliance Partners
Rather than jumping into an alliance with both feet, take the time to develop a business network in a manner that will lead to a higher chance of success. When approached by others, ask questions to understand the motivation behind their proposed alliance and its potential benefits. To create an optimal partnership, identify businesses with similar values. If you aren’t familiar with the company, research its reputation by reading online reviews, visiting them on-site, and speaking with its customers.
In my experience in vetting contractors, sometimes what I’ve found has been eye-opening—a few red flags that would have been hard to spot otherwise. And in the end, at times I was able to avoid partnerships that would have possibly been more trouble than they were worth. Does it take time to do your homework? Yes. But that time invested upfront can save you from costly mistakes down the road.
If you move forward with an alliance, don’t hesitate to communicate your individual goals as a business owner. If you feel more comfortable formalizing a small business collaboration, ask an attorney to draw up a contract. Or, at the very least, make sure to record the pertinent details in writing. On an ongoing basis, it’s a good idea to review each of your business partnerships and determine if your participation still makes sense.
Benefits of Joining a Small Business Alliance
Small business alliances have given my company many important benefits, such as customer referrals, competitive pricing on services, and shared knowledge about the local market. The benefits of networking with other local businesses also come into play when you need a specialized product, like cyber liability insurance for restaurants. Reaching out to other business owners in your area may generate referrals for services such as accounting, graphic design, or commercial cleaning and maintenance.
Based on your business needs, you may want to enter an alliance to receive one or more of the following benefits:
Expanded Market Reach: According to a recent survey,2 60% of small and medium business owners ranked “finding new customers” as their top marketing challenge. Partnering with other small businesses for cross-promotion or setting up a referral network allows you to tap into new segments in the local market.
Resource Sharing: As a small business owner, you know that every dollar counts. Sharing the cost of a marketing campaign or research and development can help you stretch a tight budget. You’ll also make better strategic decisions by sharing knowledge with other industry professionals, such as builders who understand the cost of construction and real estate brokers with eyes on the local market.
Enhanced Brand Reputation: Associating with reputable businesses in the community often boosts your brand in the local market. That’s why a small custom cake baker may ask for referrals from popular wedding venues.
Cost Savings: A successful alliance can potentially reduce operational costs through economies of scale. If you’re paying an influencer to post your handmade fashion on social media, consider approaching local restaurants about using their location for a photo shoot in exchange for splitting the costs. Or you can organize a spring fair in a park and invite other artists and vendors to participate if they’re willing to help cover the price of the event.
Increased Innovation: Like a perfect food and drink pairing, a harmonious collaboration can foster creativity and spark something exciting and new. Combining skills and knowledge may lead to product breakthroughs, such as Adidas and Allbirds’s joint venture to create a running shoe with a lower carbon footprint.3
Managing a Successful Alliance
As with every business relationship, communication is the key to success. Ask questions before agreeing to a project. And always weigh the potential pros and cons of the alliance opportunity.
Establish clear goals: The roles, responsibilities, and monetary contributions for all parties involved should be hammered out and agreed upon before committing to a small business alliance.
Maintain an open line of communication: In addition to catching up through phone calls, texts, or emails, you may want to schedule regular meetings with your collaborators to discuss the state of your projects.
Address issues as they arise: Handle conflicts or challenges proactively. Have procedures in place so you know who to contact at your partner’s business when something isn’t working as planned. You should also designate responsibility for the alliance to someone in-house. This avoids a lack of ownership of the project, which could result in issues slipping through the cracks.
Schedule performance reviews: You should review your business partnerships periodically with clear metrics, just as you evaluate other facets of company performance. Did the collaboration meet cost expectations, or were you significantly over budget? Can you calculate the additional revenue and profits from the joint venture? How does the alliance compare to the relative costs and profits of other business opportunities?
Regularly evaluating the alliance and making adjustments as needed will help ensure that your continued participation is worth it.
Small Business Collaborations Can Forge New Paths to Growth and Success
If your business feels stagnant, you may want to consider entering into strategic partnerships with other local companies. These small business alliances can help you expand your customer base, launch an innovative new product, achieve discount pricing, or secure valuable resources. Exploring these collaborative opportunities in your community may also allow you to achieve your business goals faster and more cost-efficiently.
Interested in learning more about business networking and alliances? Check out the articles below:
10-minute read
Networking Solutions for Small Business
10-minute read
Word of Mouth Marketing: How to Grow Your Business
4-minute read