A business partnership is a legal relationship formed between individuals or businesses. It can have varied purposes, such as brand expansion, creating new products, providing better value to the customers, business growth, gaining visibility, increasing profits, etc.
More than 57% of organizations leverage partnerships to grow their customer base, while over 44% of businesses do so to gain valuable insights, ideas, and innovation. Read ahead to discover the benefits of having a business partnership and the right practices to successfully form and maintain them.
Key Partnership Benefits
Partnerships benefit all stakeholders: business owners, employees, investors as well as customers. Because through partnerships-
- Businesses can broaden their addressable market
- Employees can gain new perspectives and expertise to increase their product development expertise
- Customers can benefit from the various product offerings of the different organizations.
Moreover, having strong partnerships can complement each other’s brand offerings and strengthen both sides.
For instance, when Uber partnered with Spotify, the former got a significant competitive advantage over other ride-sharing companies by offering entertainment and controlling the radio during the rides. At the same time, Spotify got access to an additional audience base who may have never heard of the music streaming service!
There are various other ways you can benefit from business partnerships, such as
- Partnerships allow you to grow and learn from another’s perspective and implement that wealth of knowledge to build your brand in the future.
- By increasing your lease of knowledge, expertise, innovation, and resources to make better products and reach a wider audience, partnerships can grant you a strong competitive advantage.
- When brands with the same goals and visions join you, your brand’s influence and strength grow rapidly. You can hence deliver more qualitative services and better products to your customers and enhance your business’s credibility and brand image.
- Division of work and responsibilities among the partners based on their expertise and skillset leads to efficient management and, consequently, higher profits. Less workload further paves the path for diversification of work and overall organizational growth.
The ownership and management of a limited company are often split between directors and shareholders. The latter’s preferences can constrain the former’s pursuit of business growth. By contrast, in a partnership, the partners both own and control the business.
They are free to pursue what’s best for the business according to them, without any interference from the shareholders. This makes partnership businesses more flexible and quickly adaptable to changing circumstances.
Common Partnership Mistakes
With over 75% of the world’s trade flowing indirectly, partnerships have become increasingly vital for business growth. But business owners do not often follow the right practices to build long-lasting and successful partnerships. They often cause huge problems for their organization by working with poorly-aligned partners.
As per statistics, managing partnerships is a big challenge for more than 73% of companies. Over 60-65% of partnerships fail because of various common mistakes, including-
- Choosing the wrong partners
- Over-promising to get the deal
- No transparent and honest communication
- Lack of trust
- Unrealistic expectations
- Non-alignment of objectives, values, and goals
- Having no partnership management strategy
- Lack of clarity about roles and responsibilities
The Most Effective Practices
To start a new partnership, strengthen its foothold, and help it thrive in the long run, you must-
Have a Legal Partnership Agreement in Place
Often, partnerships are informal agreements between the parties. They can cause problems during disagreements. Thus, such agreements are easy to set up but hard to maintain in the long run. Hence, you must draw up a partnership agreement and consult with an attorney for legal advice. This is the best way to protect the interest of both parties and do what’s best for the business.
According to the Small Business Administration (SBA), the agreement must include the following:
- The type of business
- Equity invested by each partner
- How to share profits and losses
- Partners’ pay and other compensations/bonuses
- Distribution of assets upon business dissolution
- Provisions for dissolution of the partnership if either partner leaves or the business is sold
- Parameters of dispute settlement
- Settlement of the business in case of unforeseen circumstances
- Authority, and expenditure restrictions
- Expected partnership length
Decide How to Manage Finances
You must decide with your partner how each of you will handle the possible financial risks in the venture. An example of such a risk could be your chosen business financing method. There is usually more risk in debt financing than in equity financing.
Another financial risk is exhibited in a limited liability company, where the owners are not responsible for the debts if a business fails. Moreover, most businesses don’t make a profit in their initial years, as new businesses often don’t have the cash to pay all their dues.
Hence, while making the financing choice, you must ensure that all parties understand the financial risks, pay expectations, and know how much they are responsible for. You must also clarify how you and your partner will make your ends meet, if they are comfortable with taking debt or contributing their personal income to the business, etc.
Use the 8 Vectors System
The eight vectors system is one of the most effective systems to help you build successful partnerships. It provides you with the critical factors that help align the parties and sustain the relationship at all organizational levels.
To discover these key vectors, click the link below to download the Quick Reference Guide (QRG) for forming and running successful partnerships. Find out more about leveraging business partnerships the right way by contacting the best sales growth consulting in Bangalore.
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