The Ultimate Guide to Creating a Joint Venture

How to form a Successful Joint Venture

A joint venture, sometimes known as a strategic alliance, and even occasionally, albeit incorrectly, referred to as a business partnership, is being increasingly used by businesses that want to explore new opportunities, find new leads, attract new customers and take sales to new levels. But before diving into a joint venture, be sure to plan carefully and consider all the consequences before signing on the dotted line. Although joint ventures often do not involve upfront costs, they do require an investment of time, effort and resources to make the venture work.

Joint ventures – if properly identified, structured and implemented – can allow your business a competitive edge through accessing your joint venture partner’s resources, contacts and knowledge. By increasing your resources and capability in this way, you have the opportunity to boost the growth of your business. A joint venture agreement may help you to access different channels of distribution, more effective sales and marketing methodologies, a greater array of products, a bigger database of prospective customers.

But how can you form a successful joint venture?

Think creatively about potential relationships, without necessarily limiting who you consider partnering with. By finding the right partner, you could open up a whole new customer base for your product.

Define your outcome. what do you want from the relationship? Access to a particular market? New customers? New or improved products? And what are you willing to give in return? Once you know what you want to achieve, you may want to trial the JV relationship on a small, pilot basis to confirm that the desired outcome is, in fact, achievable.

Decide who you want to partner with. What type of organisation would be best suited to help you achieve your outcome? What resources, skills and knowledge, or products must your prospective partner have?

Before you commit, verify your potential partner’s reliability and financial position. When considering a prospective partner, ask: How well does their company perform? Are they financially stable, or do they have any credit problems? What is their reputation in the industry? Are they motivated and committed to making the JV work? Are they trustworthy, and do they run their business ethically? How comfortable are they with the idea of working in a business association with you? Do they already have strategic partnerships with other organisations and if so, how will it impact on you? How strong is the company’s management team and how well do they perform?

Define the basic elements of the joint venture. From a practical perspective, what is required to make the JV work? Work only with business partners that are as motivated as you are to make a success of it, and are willing and able to make the necessary investments, whether that may be time, money, staff, skills and knowledge etc.

Ensure that the relationship is financially advantageous to both you and your business partner. Unless you both stand to benefit, the associate that feels they’re on the losing end will lack motivation, will not want to make the necessary investments, and the JV will fail.

Make sure you have signed a suitable Joint Venture Agreement. Try to make the terms of the agreement as streamlined as possible. Be clear about who is required to do what, and what each party stands to benefit. Keep it simple and easily understandable, and make sure that both the process and the practical operating issues are addressed.

Joint ventures, or strategic alliances take time and energy to set up and run, but they can be hugely advantageous to your business if implemented properly.

 

Please note that this information is supplied for general information and does not constitute legal advice. It is advisable for you to contact a legal practitioner for guidance in respect of your unique requirements.