Business Success and Partnerships

I was meeting with a friend the other morning about a new business idea. His idea was awesome and could really change some of the cooperation and communication in his industry. He was having doubts about his idea though because many of his peers kept saying, "Oh that will never work because people won't risk losing profits by working with you."

For clarification I've left my friend's name and the industry out of the post because he hasn't yet got the company off the ground. But he's got a doozy of an idea!

We had a great conversation on how to overcome this problem which made me think about the concepts of launching a new company where partnerships are a must (which is just about any company). Currently my biggest client is because of a reference from a company that offers the same consulting services, but without a portion of very specific expertise that I have. The company is probably losing $30,000 to $50,000 in revenue by referencing me. However, if I can help turn things around then their upside revenue will exceed $2,000,000 with the client. If I can't turn things around the risk is $50,000, but their annual revenues are beyond $800 million so no big risk for them.

The point here is that if you can create an upside with little or no risk for your partner then you really create a win-win scenario. My example is maybe not great because their is no risk for me, but that is beside the point. Here are a few things to think about when creating a partnership that you need.1. What is your motivation in creating the partnership? This is an important question because your motivation MUST be something other than you make money. Is there a bigger benefit that helps you, your partner, and your joint customer. A partner will see right through you if a big motivation is not to help them make money. Guy Kawasaki says a key element of any new business must be "to make meaning", and that is this point. The partnership must help make meaning for all involved.

2. Evaluate the value of each partnership and ensure the returns are balanced for you and the partner. If the upside value is almost all yours, then almost all returns may need to be your partners. If the upside is all your partners, then almost all the returns may need to be yours. Don't not do a partnership because there is little direct profits. There may be indirect profits (see #5)

3. My dad always taught me "Pigs get fat and hogs get slaughtered". It is easy to get caught up in squeezing the partnership for all it's worth. Fight that urge and take what you should versus what you can.

4. Figure out a way to make the partnership low risk. For example, if you want to sell another persons product they will probably not risk losing revenue to your gain. In this situation figure out a minimum sales number before you take profits. This way your potential partner only gives away a portion of the profit when they sell enough to accept it. You can also build in levels of profit sharing here where the more you sell the more profit you get.

5. Recognize that recognized names can bring customers. If you are the little dog in a partnership the big dog may get you leads because they are the big dog. In follow up to point #2 it may be beneficial to just have the partnership and take little (or even no) profit. Rather negotiate an endorsement of some kind. Free press from an influential person and/or company can bring bigger revenues and encourage other partners to join. Creditability for any new business is huge. Acceptance and endorsement from credible sources is priceless.

My final note is don't quit because people don't like your idea. Talk about it with people. You'll be amazed how the idea changes through each conversation. You will turn it into a great idea or realize it probably won't work and scrap it for a better idea.