More perfect unions

Written by Jennifer Rivkin

Barb Gamey found dozens of new clients. Linda Collier quadrupled sales in an export market. Cynthia Richards grew annual revenue by 15%. All three rank among Canada’s Top Women Entrepreneurs — and all three have used strategic alliances to boost their businesses significantly.

In fact, more than a third of the 2009 PROFIT W100 say that they’ve gotten a leg up through strategic alliances — formal collaborations in which unique resources and capabilities are shared between organizations to create a competitive advantage. Of course, like marriages, strategic alliances have their privileges but also have their pitfalls. They demand a significant investment of managerial time and resources, so jumping in without doing your homework can be costly and ineffective. Take these five lessons from the W100 — think of them as premarital counselling — to ensure a fruitful union.

Marry for the right reasons

Before you consider a collaboration, define your goals and determine whether, in the long run, it would be better to build internally or partner for that capacity. If you’re trying to fill a gap in your business that will be essential to your survival, you might want to do it yourself. However, there are many situations in which it can be more practical — and profitable — to form an alliance.

Three years ago, Barb Gamey (No. 41 on this year’s W100 list of Canada’s Top Women Entrepreneurs) determined that a partnership would be critical for business development in the U.S. “We needed it because we aren’t in the U.S. talking to U.S. companies ourselves,”says the president of Winnipeg-based Payworks Inc., a provider of Web-based payroll software. It wasn’t long before she aligned Payworks with the third-largest provider of payroll services in the U.S. Fortuitously, the U.S. firm had already identified its lack of a Canadian component as a sales impediment; and, because payroll services is a volume business, an alliance was particularly helpful even for the larger firm. The companies set up a system in which leads are traded back and forth.

“They have U.S. companies with Canadian employees,”says Gamey. “We encounter Canadian companies with U.S. employees. So, we refer the U.S. component to them, and vice versa.”

Catering to U.S. clients on its own would have forced Payworks to program its software application to address the differences between Canadian and U.S. laws, payroll calculations and banking infrastructure. “We haven’t built the capability to go into the U.S. market,”she says. “For me to provide an equivalent service and to be able to deliver payroll services in the U.S. like my [large Canadian] competitors do, it made more sense to partner.”The partnership has provided new clients and additional revenue for both organizations — accomplished at little out-of-pocket expense.

Similarly, Linda Collier (No. 65) concluded that she needed a strategic alliance in order to take advantage of considerable business opportunities in the Far East. Two years ago, the president and CEO of transportation company Tri-ad International Freight Forwarding Ltd. developed a partnership with a company similar to hers that operates in China and India to develop opportunities for both companies in each other’s markets. Profits are split 50/50 between the partners. The alliance ensures better service for each partner’s clients. The companies work together to make sure that freight is moving seamlessly between the countries for clients that are importing or exporting between them.

“We wouldn’t be able to do it very effectively without a strategic alliance,”says Collier. “We’d be relying on either airlines or steamship lines to try to fill in the different pieces. With the alliance, we’re sharing profits, so our partners have it in their best interest to ensure freight is moving cost-effectively and on time.”

The partnership has allowed Mississauga, Ont.-based Tri-ad to benefit from global business while circumventing some of the risk and expense of international development, including barriers to entry such as language and cultural differences. Since the partnership has been in place, Tri-ad has quadrupled its Far East business. The company has also improved margins by 36% in the foreign markets in which the alliance applies, driving down pricing by going in jointly with the partners to build contracts with airlines and steamship lines.  “Once we developed these alliances,”says Collier, “our overall margins improved in these markets, compared to no margin improvement in markets without alliances.”

Don’t settle until you find your perfect mate

To find potential partners, get referrals from other businesses, search industry organizations or network at conferences. Once you’ve found several with potential, take your time to establish the best fit. “There’s an extensive due diligence you should do in advance to get a 360 of the company,”says Gamey.

It’s essential, for example, to investigate your partner’s corporate culture. “So many relationships fail because of culture clashes,”warns Gamey. “If the other business you’re working with doesn’t have a cultural fit with yours — it moves too slowly or they don’t understand your brand or how decisions are being made — it’s going to be very difficult for both partners to function within the framework of the alliance.”

Getting a good sense of the potential partner might take some effort. Beyond meeting with the principals, see if you can chat with suppliers, customers and employees — perhaps even look at the results of customer or employee surveys — to get a more rounded picture.

Cynthia Richards (No. 44), president of Toronto-based event-management firm Event Spectrum Inc., says getting together with potential partners to “show your stuff”is important in deciding if there’s a good fit. “Sometimes there just isn’t a confidence in moving forward,”she says. “You really have to go with your gut.”

Richards has used her intuition to partner with firms that provide services complementary to Event Spectrum’s, including PR, staging and production, decor and marketing. Richards estimates her strategic alliances bring in 15% to 20% of her company’s revenue through referral business and the ability to service her clients’ varied needs: “It’s amazing how alliances can open doors.”

If the initial meeting with your partner is successful, Richards recommends you work together on a few small projects or proposals before sealing the deal. A failed alliance taught her to take at least six months to “date”by joining potential partners on sales-pitch meetings, for example. And if you get a sense early on that the partnership has problems, don’t waste valuable time and energy trying to fix the relationship — just find a new one.

Sign a prenup

Even if the nature of your alliance is informal, cover all your bases with a formal agreement. The more you get in writing in the honeymoon phase, the better. The contract should cover goals, expected outcomes, management structure, operational procedures, what each partner will contribute, how revenue or profit will be shared and privacy issues.

After a few failed partnerships, Gamey has learned that formal is better. “In the very early stages of our company, we were fairly informal, and that was likely why a couple of alliances didn’t work out,”she says. Now, she negotiates everything from the processes for moving business leads back and forth and how monitoring and compensation will work to how the alliance will wind down and how they’ll communicate with mutual customers if the need arises.

“Do all of that up front,”she says. “I think that’s key to making sure that you’re going to get the deliverables that you expected and your partner’s going to feel that there’s continued value in the relationship so it can continue on.”

Shantal Feltham (No. 34), president and CEO of London, Ont.-based clinical research company Stiris Research Inc., also believes strongly in setting ground rules for her alliances, which are with other research firms in Australia, New Zealand, Europe and India. She formed these partnerships after having to turn down numerous bid proposals that involved research outside North America.

Stiris and its partners now work together on studies that require global coverage. Each partner is responsible for conducting the clinical trial in its area and reporting back to a project manager at whichever company brought the bid to the table. Because working together over such great distances is potentially complicated, Feltham and her partners took a full year to set up partnership protocols — from the calibre of people they use on their research teams and how they market one another and do bid proposals to who takes the lead in global studies.

“We had to take the time to lay out some policies and procedures so we could be organized and present as a great big company without having to be a big company,”says Feltham. Customers work with one contact person on a job, so they experience the ease of dealing with a single organization instead of multiple ones. But Feltham believes that because the alliance members are small and independent with less rigid standard operating procedures and red tape, they’re more flexible than the big guys.

The partnerships are working out well, but Feltham had the foresight to protect her business in case the alliances sour. “From the outset, the agreement has been that none of us is looking to take over or purchase any of the others, and nobody can be looking to expand in anyone else’s area,”she says. If the alliance disbands, no partner can touch another’s customers for two years.

Keep the lines of communication wide open

Establishing mutual trust and respect is critical to a sustainable alliance. Take it from Collier. Her company was involved in a strategic alliance with a very large U.S. freight forwarder for about four years. It started off strong; but soon, communication slowed on both sides and visits stopped for almost a year. “I didn’t act on it, and the relationship was affected. Money issues started and service failures continued,”she says. Soon, “the discussions started to get ugly, and, sure enough, I was issued a Dear John letter.”Collier feels the situation could have been avoided had there been better communication — especially face to face.

Successful partnerships hinge on frequent meetings to discuss issues that inevitably crop up, to ensure that goals are being met and to keep up the partnership’s momentum. The good news is that it gets easier as you go. Collier explains that monthly meetings were a necessity during the courtship and implementation phases of her current alliances, but quarterly meetings now suffice.

“In the beginning, our partners were holding their cards very close to their chests,”recalls Collier. “We had to break down those barriers. We would travel and spend a lot of time with them personally, whether it was dinners or entertainment, just building that trust.”

This type of effort will prove worthwhile. You’re going to be disclosing confidential aspects of your company to your partners — so, if there isn’t a great deal of trust on both sides the alliance won’t work.

“When there’s any hint of dishonesty or things that are bothering you, get them out [in the open],”says Collier. “Get on a plane. Sit in front of somebody. Talk about the issues. Don’t let it go.”

There’s a bonus here: ongoing communication can expose you to new knowledge and expertise. Collier has found that visits to partners’ regions have been important for mutually understanding target markets. You can and should use your alliance as an educational tool. Feltham has gleaned insights on selling to new clients because each of her partners has a unique sales approach and presentation: “I’m learning great things from people in other countries who do the same thing I do.”

Get everyone on board from the outset

Senior management’s commitment is crucial to a successful alliance, but engaging employees will ensure that you get the most out of it. In some cases, the partnership needs to be at the top of everyone’s mind for it to work. Gamey’s alliance with the big U.S. company would fail miserably if her employees weren’t well aware of it: “When a sales rep encounters an opportunity where this is a potential solution — where someone mentions they have U.S. employees — they have to remember that they have that tool in their bag.”

Collier estimates that Tri-ad put 1,000 hours into getting its alliance going, and a good portion of that was dedicated to educating her salespeople on how to sell the new market to clients.

Feltham also takes time to share information about her alliances with her employees on an ongoing basis and ask for feedback. Goals are measured with weekly summaries and the progress is shared in update meetings with everyone from admin staff to VPs.

But there has been some resistance. It has been challenging, for example, for Stiris’ staff to adapt to reporting to a project manager at a different company. “People within the company worry about the alliance affecting job security, so that’s what we have to get over.”

It helps that they’re seeing the fruits of the alliance, which has spawned three proposals over the past year. Says Feltham: “The alliance doesn’t affect my day-to-day or cost me anything up front, but, suddenly, it takes me from being a small company to a global company.”

Originally appeared on PROFITguide.com