A complete guide on how Michael Lane, Director of Success Resources, achieved almost $2 billion in revenues through 560+ ventures.
Note from Michael:
This guide was first published on Insane Growth based on the transcript from my talk at the Peak Mastermind Panel.
I hope that you implement these lessons into your business and learn to look and think differently at how you do deals and how you grow your business. Tell me about it, message me on LinkedIn.
Over the past two decades, Michael has been responsible for implementing and managing hundreds of successful joint ventures to grow the reach, revenue and impact of Success Resources.
Working with some of the biggest brands in the industry, he’s established himself as the go-to expert on anything and everything to do with growing a business through the joint venture partnership model.
What’s covered in this article:
- What is a Joint Venture
- Step 1: Is a Joint Venture Right for You?
- Benefits of a Joint Venture
- Why Joint Ventures Can Be Risky
- Types of Joint Ventures
- Step 2: Getting Ready for a Joint Venture
- Define Your Superpower
- Establish Your Authority and Expertise
- Always Remember the Big Picture
- Step 3: Finding the Right Partner
- The Three Wins
- Create a List of Potential Partners
- Making a Checklist
- Bonus: Even More Tools to Evaluate Partner-Fit
- Step 4: Pitching Potential Partners
- Leverage Your Network
- An Irresistible Offer
- Make Your Pitch Memorable
- Step 5: Setting Up Joint Ventures for Success
- Clear Communication and Strategy
- Measure the Right Metrics
- Expect the Unexpected
- Get Your Team Ready
- Plan for the End
- Step 6: The Ground Rules of Effective Collaboration
- The Good Bloke Policy
- Remember: It’s a Marathon, Not a Sprint
- What is a Joint Venture Agreement?
- What’s the Difference Between a Joint Venture and a Merger or Acquisition?
- How to Structure a Joint Venture?
- How to Form a Joint Venture?
What Is a Joint Venture?
A joint venture is a strategic partnership between two or more businesses who will collaborate together on a specific project with the express aim of growing their respective businesses by sharing resources, expertise, and capabilities.
This arrangement allows businesses to complement each other’s strengths and weaknesses while continuing to exist as a separate entity.
Step 1: Is a Joint Venture Right for You?
The basic idea of creating a joint venture is the same behind any good partnership: Instead of going at it alone, team up someone else.
This isn’t rocket science. The idea of partnering up with someone else and pooling your resources, knowledge, and experience to reach a common goal is as old as the concept of business itself.
Whether you’re a large conglomerate or a small business, a joint venture has the potential to dramatically impact your business in a positive way.
But is it the right option for you?
Before we dive into the nitty, gritty details of how to go about setting up a successful joint venture, let’s first dive into all the advantages and disadvantages of joint ventures and the different types of joint ventures you can be a part of.
Benefits of a Joint Venture
Perhaps the number one reason why two or more companies decide to go into a joint venture together is that it’s one of the fastest ways to grow a business.
No matter how great you are, the fact of the matter is that there’s only so much a single person can do.
Instead of spending the next 10 years strengthening your assets and eliminating your weaknesses, you can partner up with another business and immediately cover your bases.
For example, let’s say you have a great product but have trouble with marketing and sales. Instead of spending money by hiring new staff or outsourcing it entirely to a marketing agency, you can instead partner up with another company who is great as marketing and can help you fill your pipeline in return for helping them out.
Joint ventures are a way for businesses to overcome their individual limitations, gain access to additional resources, and enter new markets.
According to research by McKinsey & Company, more than three-quarters of joint ventures and strategic alliances either met or exceeded the expectations of all parent companies.
What makes a joint venture so appealing is that, unlike hiring an external agency, both companies agree to share expenses, risks, and rewards together.
Everyone has skin in the game and are equally motivated to ensure the success of the project.
Plus, even if the project doesn’t work out, the overall risk is mitigated because both businesses will have to support the losses together.
Even better, by their very nature, joint ventures are temporary.
Whether you decide to collaborate for a few months or a few years, joint ventures are temporary partnerships that are designed to end at some point.
Unlike a merger or an acquisition, a joint venture allows for both companies to walk away if it isn’t working, and it can last for as long as everyone is benefiting from the alliance.
PRO TIP: Due to their temporary nature, many businesses will use joint ventures as a way to test the waters of a potential long-term partnership.
Why Joint Ventures Can Be Risky
That isn’t to say joint ventures are all sunshine and rainbows. Like anything else in business, joint ventures have their own share of risks, and it’s vital you know what they are before jumping into one.
First of all, in a study of over 2,000 joint ventures by Harvard Business Review, it found that close to half of all joint ventures (47%) were unable to achieve a significant return on investment for all partners involved.
The biggest risk for a joint venture is the potential for conflict between the two businesses.
The key thing to remember is that, at the very end of the day, a joint venture is a partnership.
Even if they share common goals, you’re asking two completely unique and independent businesses to work together, and you often have to deal with competing interests and values.
These conflicts can arise from a variety of reasons, from differences in management styles to a lack of clarity over responsibilities (who’s in charge of what).
And, just like in any other partnership, if left unresolved, these conflicts can easily destroy whatever alliance you’ve built up.
Another reason joint ventures can be risky is that the wrong partnership can severely limit your business’s potential for growth.
Typically, joint ventures will require both businesses to refrain from pursuing certain activities and opportunities.
And even if you are able to pursue those opportunities, you might not have the resources or ability to do so because they’re all tied up with the joint venture.
Combine that with the fact that it can be difficult to exit a joint venture, and you can find yourself locked into a partnership where you’re getting no benefit but unable to get out of.
Types of Joint Ventures
The type of joint venture you set up depends on what it is your business wants to achieve. Broadly speaking; however, there are five different types of joint ventures you can be a part of:
- Co-Marketing Joint Venture: The most basic of all the joint venture agreements, this is essentially when two businesses agree to help market each other to their respective audiences. This can be as simple as entering into an affiliate relationship and promoting each other in their email lists, or it can be as complex as working together to create a content marketing and social media strategy that benefits everyone.
- Expertise-Based Joint Venture: This type of partnership is based on sharing the skills and expertise of each business’s employees. For example, if Company A is having difficulty with a particular project, then Company B can help by sharing their own research and data, and even sending over staff, in return for receiving a percentage of the profits.
- Vertical Joint Venture: A vertical joint venture happens when two companies are looking to scale rapidly and can complement each other’s supply chain. For instance, one business can be looking to enter a new market, so it works together with another company to can take advantage of its distribution channels, which is already established in that market.
- Project-Based Joint Venture: This category encompasses a wide variety of joint ventures, from working together on a single project to set up an entirely new company. It’s common for these types of agreements to happen when two businesses want to expand into a completely new industry or are looking to develop an entirely new product.
- Function-Based Joint Venture: A function-based joint venture happens when two companies are able to help each other streamline their operations and processes by sharing resources and expertise. For example, one company might have several patents but be unable to manufacture those products at scale, and the other company has a strong manufacturing team. By collaborating with one another, they’re able to perform better than by working by themselves.
Step 2: Getting Ready for a Joint Venture
Here’s the thing about dating: Just because there is a lot of fish in the sea doesn’t necessarily mean you are a good catch.
The same rules apply to joint ventures and business partnerships in general.
Something that Michael stresses for any business owner looking to start a joint venture is to first understand what it is you bring to the table.
Before you go searching for potential partnerships and alliances, it’s critical that you have a clear understanding of your own business’s strengths and weaknesses.
Joint ventures only work when there is a clear benefit for both businesses, not just one.
That’s why it’s so important that you ask yourself the question, “Why would another business want to start a joint venture with me?”
Define Your Superpower
Spiderman can stick to walls, Daredevil has heightened senses, and Batman has more money than the combined GDP of several countries.
In comic books and movies, it’s easy to define what a superhero’s superpower is.
For business leaders and entrepreneurs, though, this can be a little trickier.
According to Michael, the first thing every entrepreneur needs to do is figure out what their key skills are at a micro-level.
Your superpowers are what gives you and your business a competitive edge and make you an absolute no-brainer as a joint venture partner.
Entrepreneurial superpowers can’t be something like “running a business” or “coming up with great ideas” because guess what: Everyone is good at those.
To figure out what your own superpower is, you need to dig deeper and discover that one skill you are truly amazing at and can be considered an expert in.
Michael encourages everyone to get as specific as possible when it comes to finding out what their key skills are.
For example, it could be you’re great at streamlining and optimizing business processes and procedures, or you might be fantastic at networking and have a powerful list of contacts.
Once you’ve identified what your superpowers are on a personal level, figure out what your business’s superpowers are.
This can be anything from having an extremely experienced and knowledgeable salesforce to being the go-to experts when it comes to Facebook advertising.
In Michael’s case, he’s identified that his superpowers are that he’s an incredibly data-driven marketer and that he has the expertise to help businesses bring in more leads at a lower cost.
And the superpower of Success Resources is that they have a huge platform to help promote and build awareness for their speakers.
With these two skills, Michael is able to approach any potential joint venture partner and confidently promise that he can either improve their marketing ROI or help them promote their message to hundreds of thousands of people.
Take the time, preferably with your team, to figure out what your superpowers are and what it is that makes them so valuable.
PRO TIP: Run a SWOT Analysis of your own company to help you get an objective view of what your business’s strengths and weaknesses are.
Establish Your Authority and Expertise
We all want to work with the best, and the same goes for any of your potential joint venture partners out there.
Something that Michael is very big on is establishing your sense of authority and expertise as early as possible.
He says you need to be able to start building a relationship of trust and credibility with a joint venture partner before the two of you ever officially meet.
When it comes to establishing your brand’s authority and expertise, nothing beats giving away value for free.
Something as simple as starting a podcast, posting educational videos, or regularly publishing high-quality articles on your blog can be extremely powerful in helping you establish that sense of authority around your brand.
For Michael, he credits his most recent surge in growth and success with simply being more active on LinkedIn.
He regularly posts videos of his daily life, gives away pieces of advice, and shares content he thinks his audience would enjoy.
According to Michael, the simple act of regularly posting on LinkedIn has significantly increased the amount of potential joint ventures and proposals he receives.
Nowadays, Michael takes three joint venture proposal calls a day, all of whom reached out to him through LinkedIn and resonated with his content.
Another way to quickly establish that sense of authority and expertise around your brand is to leverage social proof wherever you can.
The most obvious way to do this is through promoting any client testimonials and reviews you might have. Whether they’re text quotes or video clips, we naturally trust testimonials due to their perceived objectivity.
Kill two birds with one stone by publishing in-depth case studies of your clients and the kind of work you do. This is a great way to showcase your most successful clients and establish your authority and expertise.
Always Remember the Big Picture
Finally, ask yourself:
How is this joint venture going to help me reach my larger goals?
Before entering into any type of joint venture, consider what the long-term impact will be on your business.
Since the ultimate goal of a joint venture is to help you grow your own business too, it’s important to think about what the consequences of a joint venture will be for your business 5, or even 10, years down the line.
A common mistake many entrepreneurs make when entering a joint venture for the first time is sacrificing too much of their own vision in order to please their partners.
While this might make the joint venture itself work in the short-term, it can also negatively affect your own business in the long run.
Avoid this situation entirely by referring back to your mission statement and getting as clear as possible as to what your business goals are.
This is key to ensuring you’re getting the most out of the joint venture, as well as to helping you clarify what your limits are.
“You’d be amazed at how often people give up solid revenue and profit opportunities in their business to partner with some flashy new kid on the block — and blow their whole business apart because they can’t do it all.”
— Rebel Brown, author of Defy Gravity
Don’t get so caught up in the details and excitement of setting up a great deal that you forget what it is you wanted in the first place.
Step 3: Finding the Right Partner
Joint ventures can fall apart for any number of reasons, but the most common reason why joint ventures fail is having the wrong partner.
Joint venture deals are only successful when everyone involved is able to work together in perfect harmony.
No matter how good a joint venture deal might look on the surface, everything hinges on whether or not you’re able to continue collaborating with that business long after the honeymoon period has worn off.
According to Water Street Partners, only 26% of businesses would consider their due diligence and research practices to be “strong” when putting together a joint venture deal.
It’s not just about finding the perfect partner on paper, but one that perfectly complements you in reality.
The Three Wins
According to Michael, each joint venture deal must satisfy these three requirements:
- It’s a win for yourself.
- It’s a win for the partner.
- It’s a win for the client.
While this might seem obvious, it’s impressive the number of joint venture deals that go through in which businesses aren’t able to clearly define how the deal benefits them, their partner, or their customer.
As a PPC agency (now a SaaS tool for managing PPC campaigns), KlientBoost’s target audience was small-to-medium-sized businesses owners.
To grow their brand awareness and exposure, KlientBoost looked for non-competitive brands that had a similar audience.
After determining that call tracking providers fit those requirements, KlientBoost reached out to Invoca and offered to create a custom eBook for their audience.
Working together, KlientBoost and Invoca were able to put together a 94-page guide on how to create successful retargeting campaigns with both call tracking and paid advertising.
Both would promote the guide to their audience, and anyone who downloaded the eBook would automatically have their details shared with the other company.
It was a hugely successful partnership and brought in thousands of high-quality leads for both brands, with the two businesses continuing to work together to create even more eBooks and webinars for each other’s respective audiences.
Everybody won with this deal:
- KlientBoost won by having their brand exposed to thousands of people who perfectly fit their customer avatar.
- Invoca won by getting a free, high-quality lead magnet out of the deal and gaining access to KlientBoost’s audience.
- The customers won because their pain points were being directly addressed, and they were able to learn how to combine both call tracking and paid advertising in their marketing strategy.
PRO TIP: If you’re more visually inclined, check out the Partnership Proposition Canvas. It’s a relatively simple tool designed to help you understand and evaluate how two businesses can work together to create value for themselves and their customers.
Create a List of Potential Partners
A big reason many entrepreneurs, especially those new to the game, are hesitant to start joint ventures is that they’re not sure who they should be approaching in the first place.
Finding the right partner to work with can be difficult, especially if you’re in a niche industry because it’s unlikely your direct competitors will want to join forces with you.
The solution to this, according to Michael, is to think outside the box and start looking for a partner in industries that share the same audience as you.
An obvious partner would be to find someone that offers a similar service to you. For example, if you’re a dentist, a potential partner could be a dental floss brand: the same audience, just slightly different services.
However, to really find the best joint venture opportunities, Michael recommends you think outside the box and start looking at entirely different industries for potential partners.
Michael uses the example of a high-end salon looking for new clients.
Instead of partnering with beauty and wellness brands, the salon goes to a local luxury car dealership and offers to create a welcome pack for its customers.
Anytime someone buys a new car, they’ll also get a small welcome basket of products provided by the salon, along with a complimentary makeover.
In this example, the salon owner was able to correctly identify that their customer is someone that needs to live in the area and live a lifestyle that could afford their services.
This is when having a very strong understanding of your target customer really helps.
To identify complementary industries, get out some paper and a pen and try to answer some of these questions:
- What other pain points are your customers facing? Which brands are solving those pain points for them?
- Which businesses have a similar attitude toward their customers as yours?
- Which businesses have a similar vision and mission to yours?
- What other brands do your customers most often do business with?
- Instead of thinking which businesses can benefit you, go the other way around and consider what brands you can help right now.
PRO TIP: Survey your customers, and see if you can find any commonalities between the kind of hobbies they have, what their lifestyles are like, and what things they like and dislike.
Making a Checklist
Finally, the essential part of finding the right partner is doing your due diligence. There is just no shortcut to doing thorough research.
Countless joint venture failures could have been completely avoided if any of the people involved had taken the time to properly research and evaluate their potential partners.
Too often, entrepreneurs are so focused on pushing through a deal that they neglect to evaluate important factors like culture, leadership, and even the actual business capabilities of their potential partners.
To make sure you avoid the issue entirely, Michael recommends you create a checklist of what it is you want out of a joint venture partner.
This should be a comprehensive list of criteria of what the ideal partner looks like, covering everything from legal and accounting to vision and culture.
But — and here’s the important part — you have to be incredibly strict with your checklist. In Michael’s experience, whatever you put down on your checklist has to be non-negotiable, and if a partner deviates on even one thing, you should pass.
For example, here are just a few “golden rules” that Michael has on his own checklist when evaluating potential strategic alliances:
- The business must be sellable in the next three to five years.
- The deal will not require me to be involved with the day-to-day management and operations.
- I have the ability to introduce hyper-growth through sales and marketing.
What your own checklist will ultimately look like will depend heavily on your own business and the kind of partnerships you’re looking for.
But to help you get started, I suggest you begin with the University Partnership Canvas by the MIT Sloan School of Management.
While originally intended to help evaluate partnerships between businesses and universities, it offers a good starting point for anyone looking into starting a business partnership in general.
Bonus: Even More Tools to Evaluate Partner Fit
Of course, there’s more than one way to assess a potential business partner and whether or not they’re the right fit for your business. When doing your due diligence, it’s highly recommended you use a variety of tools to help you evaluate for best partner fit:
- Needs, Wants, and Fears: Most commonly used as a way to help companies understand their customers, the Needs, Wants, and Fears tool, however, can also be easily flipped around to help companies understand what they’re looking for in a business partner.
Business Model Canvas: Use by startups and major corporations alike, the business model canvas is a great way to help you visualize and gain an objective view of how the business works, its resources and capabilities, and its potential for growth.
SWOT Analysis – A business tool that’s been around since time immemorial, the classic SWOT analysis is a flexible tool that can help you identify the Strengths, Weaknesses, Opportunities, and Threats in any aspect of a business.
Keep in mind that these are only a small handful of tools to help you evaluate partner fit. There are dozens, if not hundreds, of other resources out there you can use when doing your due diligence.
Step 4: Pitching Potential Partners
“Alright,” I can hear you thinking. “So I know how great joint ventures can be for my business, and I know what kind of deal I’m looking for, but where do I find someone to do business with me?”
Over the past two decades, Michael has worked on deals with some of the biggest names in the industry, from the likes of Tony Robbins to Gary Vaynerchuk.
But, of course, getting in touch and developing business relationships with these kinds of people didn’t happen overnight.
The great news is that, according to Michael, you don’t necessarily need to have decades of experience or the world’s largest network in order to work with some of the biggest brands in the world. You just need to know how to reach them.
Leverage Your Network
Have you ever heard about the Six Degrees of Kevin Bacon?
The basic idea is that anyone in the world is, at most, six introductions away from meeting Kevin Bacon. Yes, that’s right: You are six introductions away from meeting with the star of films like Footloose, Flatliners, and X-Men: First Class.
However, for those of you who aren’t looking to go all Hollywood, the same basic principle still applies to you and every heavy hitter in your industry.
With the right introductions and the right connections, you’ll be able to get in touch with whomever you want.
The trick here is to learn how to navigate the gatekeepers surrounding that person.
Whilst doing your due diligence and research on potential joint venture partners, you should be able to find out who the best person is to approach about a potential partnership.
Most medium-to-large-sized businesses will have a dedicated partnerships manager or executive who’s in charge of handling and managing strategic deals.
For smaller businesses, though, your best bet is to either go straight to the CEO directly or the head of a department, depending on what you’re looking for.
Using LinkedIn, you should now be able to see who your shared connections are and who can potentially introduce you to that person.
But also make sure to simply ask around your network and see who can help. You’ll often be surprised as to who knows who and the kind of connections people have.
Although, if need be, you can always reach out to the intended contact cold and use a tool such as Hunter.io to find their contact details.
Although, I’d highly recommend you always try to get an introduction first, as personal referrals are always the best way to meet someone new.
Keep in mind, though, that you should always treat these shared connections with respect.
Remember that they are people too, and while most are happy to make an introduction for free, you’ll need to be able to provide value to them as well, in order to land that introduction.
“Treat handlers (assistant, publicist, manager, associate) with respect. Not only is this the right thing to do, but this could be the hand of the king — and they’ll later whisper into the king’s ear.”
— Marc Ecko, founder of Marc Ecko Enterprises
PRO TIP: While social media has made connecting with people much easier, don’t ignore the power behind picking up the phone and calling, or just plain old door-knocking.
An Irresistible Offer
Now that you know how to get in touch with the right person, it’s time to turn that introduction into a profitable joint venture deal.
Right off the bat, don’t expect to be able to land a joint venture deal from a single meeting.
In the same way, you wouldn’t want to marry someone after one date; you need to have at least a couple more dates before drawing up a possible deal.
More than anything, it’s much better to devote the majority of initial meetings to developing and cultivating trust between the two of you.
Take the time to find out about each other’s motivations, business needs, and capabilities.
A recent survey by McKinsey found that the majority of CEOs and executives agreed that open communication and trust is the most critical component in setting up a successful joint venture.
Keep in mind that businesses, especially larger ones, are constantly getting pitched. Michael himself has at least a couple dozen pitches, and proposals pass his desk every single day.
To have your pitch stand out in the crowd, you’re going to need to be able to make an absolutely irresistible offer.
What that offer is will depend on each business’s unique quirks and individual needs. But, ideally, by the time you offer a joint venture deal, you should know exactly what it takes to make it an absolute no-brainer.
Michael recounts examples of companies offering 75% of the profit in order to be able to work with a larger brand and deals where one business gave up 95% of their equity in return for managing the day-to-day operations.
While you might balk at the idea of taking such a low percentage, Michael argues that this can be a good thing, in the long run, saying that he’s been on the low-end of deals before. Still, most of them ended up being incredibly beneficial to him in the end, whether it was through being introduced to more potential partners or simply generating passive income.
As we said earlier in the article, a joint venture should allow you to get closer to your long-term goals.
If giving up some equity and a margin of the profits in the short-term can move you forward, then you should seriously consider it.
Make Your Pitch Memorable
While you can theoretically deliver your pitch dressed at Batman, there are more constructive ways to have your pitch stand out.
The easiest way to do this is to show that you’ve done your research on your potential partner and that you understand their market.
In a recent interview we conducted with Phin Barnes, he revealed how he and his team were able to land a nationwide deal with McDonald’s.
At the time, McDonald’s was looking to offer a fitness-based DVD as part of their Happy Meals and had reached out to several companies, including Phin’s, as a potential partner.
“We made a huge effort to understand their customer; for example, we were the only initial presentation that understood we had to offer this [DVD] in both English and Spanish based on the McDonald’s customer.
They would’ve driven anyone else they partnered with to create something that was bilingual, but the fact that we had thought of that upfront showed that we had an understanding of their customer, and it gave them a hint of the quality of the partnership we could create.” – Phin Barnes, Sneakerhead VC and Managing Partner at First Round Capital.
Another way to make your pitch stand out is to use storytelling as part of your pitch.
On a subconscious level, we all naturally respond positively to stories.
Stories are how we naturally process information, and incorporating storytelling into your pitch is an incredibly effective way to make sure your pitch stays in someone’s mind.
When looking to raise their Series B round of financing, Shane Snow and his co-founders at Contently made sure to trim the fat off their pitch and keep the attention squarely focused on the high-level vision.
“The story is the most important part [of your pitch],” says Snow.
“We laid out our deck in a way that allowed us to tell a narrative. We started with the context of the market, and what was happening and why it was big, which led to the challenge the market was seeing, then we built a little suspense, showed what others had said about how we’d solved the problem, and then dove deep into the solution and our world takeover plans.”
Step 5: Setting Up Joint Ventures for Success
Just because you’ve successfully gotten over the first hurdle doesn’t mean it’s all smooth sailing from here on out. When set up incorrectly, joint ventures can erupt into bitter disputes, huge loss of revenue and assets, and irreparable damage to each other’s reputation.
To give your own joint venture the best possible chance for success, you need to be aware of the potential pitfalls and be able to work together with your partner to create a solid foundation for success.
Clear Communication and Strategy
While it might seem obvious, business leaders should devote the majority of their time to achieving consensus about what the joint venture should look like and understanding what the key objectives are.
According to research by the Boston Consulting Group, the majority of business leaders reported that one of the biggest obstacles to a joint venture’s success is “poorly defined or aligned strategic goals,” followed closely by a “poorly defined or aligned business plan.”
When it comes to achieving joint venture success, a well-understood strategy is a lynchpin that holds everything together.
This is why it’s so important that, together with your partners, you all have a clear grasp of how you plan to work together.
This involves hammering out details such as:
- What the organizational structure of the joint venture is going to look like. Who is going to manage the day-to-day operations of this joint venture? Who will be responsible for what tasks? Is it necessary to create a dedicated team to oversee the joint venture?
- How you will communicate with each other. Who’s going to report to who, and about what? What information absolutely needs to be shared at all times? How often will partners need to meet up?
- Expectations for the joint venture. What are the overall goals for the joint venture, and how does that benefit each partner’s individual goals? What happens if these expectations are unmet? What are the potential gaps and pitfalls?
Measure the Right Metrics
The meaning of “success” will always differ from person to person. What one person might consider a success, another might claim a total failure.
Making sure to clearly define what “success” means for everyone involved will save you a lot of headaches down the road.
While the specific metrics you choose to use will differ from deal to deal, the health and performance of every business partnership should be evaluated on the four dimensions: Financial, Strategic, Operational, and Relationship fitness.
To keep track of how your joint venture is doing in each category, it’s recommended you use a system of scorecards to help evaluate the overall relationship.
Here’s an example of how these scorecards might look according to Siebel Systems’ Alliance and McKinsey:
Financial goals are often measured using metrics such as sales revenue, net income, and cash flow as a way to keep track of the financial ROI from the joint venture.
Strategic fitness tracks the overall strategic goals of the alliance and often uses metrics such as customer retention, product development, and market share as a way to measure how the alliance if performing.
Operational and relationship goals are used to assess how well partners are working together and to help spot any problems before they arise.
These two dimensions can be measured by conducting internal surveys and setting goals around product delivery, frequency of sales calls, and employee satisfaction.
Expect the Unexpected
Rarely will a joint venture follow a clearly defined linear path to success? As with most things, unexpected problems can arise and threaten the overall success of the deal.
Oftentimes, the biggest issue that arises from these problems isn’t the problems themselves, but the conflict that happens between partners when attempting to find a solution.
Going into a joint venture without first establishing a clear understanding of how to address unforeseen changes is a recipe for disaster.
Many potentially successful joint venture deals have stalled or failed outright because partners had conflicting ideas around addressing new issues and the best way to adapt to change.
This is why it’s critical that business leaders make it a priority to define what kind of relationship they want with their partners.
According to a study by Harvard Business Review, strategic alliances that spent more time during the negotiation phase formulating a plan on how to address potential risks generated “significantly more value” than those that focused exclusively on financial goals and deal terms.
For example, in a joint venture between PepsiCo and Starbucks in which they developed a new carbonated coffee drink together, their initial products received mixed results from customers.
However, because they had already come up with a plan on how to deal with
such an outcome, the two partners were able to quickly come together and create
a new product that was much better received, all the while leveraging each
other’s experience and unique insights around product development.
Get Your Team Ready
No matter what kind of joint venture deal you’re setting up, have the right people on board as early as possible.
Further research by the Boston Consulting Group discovered that the vast majority of successful joint ventures have a dedicated team in place for managing the joint venture.
But to make sure your joint venture is as successful as possible, you need to do more than just putting together a team of people and then leaving them to their own devices.
One of the most common issues for any strategic alliance is the inevitable clash of cultures between companies. Different working styles and attitudes can severely limit the potential of a joint venture.
However, when handled properly, it can introduce a healthy level of conflict and creativity that can bring out the best of everyone involved.
Part of the reason for doing due diligence is to mitigate the risk of any potential culture clashes.
That’s why it’s so important that you and your team have a deep understanding of your partner’s corporate culture, values, and decision-making process.
To get your joint venture team ready, it can be helpful to hold joint workshops for team members, where the foundation for open communication and collaboration can be built early on.
Plan for the End
Nobody likes planning for the end, but the nature of business dictates that all joint ventures will eventually end.
Some joint ventures might break up within a few years, and others can go on for decades, with the average joint venture lasting anywhere between 5-7 years.
How long your joint venture will last will depend entirely on the relationship you have with your partner, and the goals of the joint venture itself.
Ideally, a formal exit strategy should be agreed upon by all partners during the negotiation phase, as any later will open yourself up to the risk of costly legal battles and bitter breakups.
While it can be uncomfortable having a conversation about worst-case scenarios, it’s important that everyone be able to transition effectively after the alliance ends.
This involves discussing important factors such as what circumstances and reasons will be considered acceptable for an exit, how shared resources and assets will be divided, and having a process for resolving any disputes.
“The best companies fully anticipate that conditions will change. For a joint venture to survive, it must adapt to those changes—everything from shifts in market conditions to changes in management at a parent company.” – Philip Leung, Partner at Bain & Company.
Step 6: The Ground Rules of Effective Collaboration
Joint ventures succeed or die based on the strength of the partnership.
Unfortunately, no matter how positive or hopeful everyone may be at the start of the deal, issues such as miscommunication, frustration, and mistakes can severely undermine an otherwise solid partnership.
If left unattended, at best, these conflicts evolve into a culture based on compromise instead of collaboration. At worst, it leads to a bitter breakup and a massive loss for both parties.
Fortunately, as a seasoned and experienced dealmaker of hundreds of different joint ventures and strategic alliances, Michael has a few ground rules for how to ensure effective collaboration.
The Good Bloke Policy
For Michael, the most important period of time for any successful joint venture deal is the first 90 days.
The first 90 days will be the stress test; the “rubber meets the road” moment when both partners will discover the realities about working together, both good and bad.
Not only will the first 90 days test your ability to collaborate with one another, but it’ll also be critical in establishing the nature of your relationship with each other.
This is why Michael employs something he calls the “Good Bloke Policy.”
It’s a personal rule, in which he’ll make sure to personally check in with his joint venture partners to see how everything is going after the first 90 days.
This is done in order to figure out what is and isn’t working, if expectations are being met and, most importantly, if his partner is happy.
Joint venture deals can quickly fall apart when there’s an imbalance, and one side is feeling like they’re not getting enough value from the arrangement.
Understanding and addressing such an issue is vital in maintaining longevity and success for any partnership.
Michael cites an example in which, after one particular check-in, he discovered that his joint venture partner wasn’t happy.
In order to make up for it, Michael freely offered another 5% of his share to the partner in order to maintain an equal balance in the relationship.
This is why Michael makes sure to personally check in himself and to not leave it to the lawyers.
His philosophy is that partnerships should always be built around open communication and trust, and sending anyone else would imply that he doesn’t value his partner.
Joint Venture Playbook: A Guide to Building Successful Joint Ventures
Remember: It’s a Marathon, Not a Sprint
Another important element in maintaining a positive relationship with your joint venture partner is having the right mindset.
As time goes by, you’ll naturally start to focus on other projects, and your initial interest and excitement will begin to decline.
While that’s totally normal and to be expected, what can’t happen is making the mistake of forgetting to give the joint venture the attention it deserves.
This is why it’s key to remember that a joint venture partnership is a marathon and not a sprint.
Joint Venture Playbook: A Guide to Building Successful Joint Ventures
Despite all the contracts and legalese that come with them, business partnerships are inherently fragile, and maintaining a strategic relationship means making it a priority to support each at all times, not just at the start.
Something as simple as continuously delivering on your side of the bargain and living up to the expectations of your partners goes a long way to strengthening your relationship with each other.
Even if expectations aren’t being met, being open and honest about any issues can form an even deeper and more trusting partnership.
Make it clear to your team that the mission of the joint venture is that you and your joint venture partner can “win together.”
Emphasizing, and even incentivizing, this type of mindset will keep your team invested in maintaining a strong alliance with your partners.
Concluding Thoughts on Joint Ventures
In an increasingly fast-paced business world, reaching out and collaborating with other businesses aren’t just nice-to-have but an absolute necessity for any business looking to grow.
Joint ventures present the perfect opportunity for businesses and brands to reach their goals faster by working together.
But creating a successful joint venture requires more than just a handful of legal documents and a quick handshake.
The most successful joint ventures in the world always have partners that share a common vision and purpose; they invest heavily in building trust and communication, and always ensure that everyone wins together.
Thanks to Michael Lane, we now have the ultimate playbook for setting up a successful joint venture, and we hope that this guide has given you some much-needed clarity on how you too can tap into the power of joint ventures.
Joint Venture Playbook: A Guide to Building Successful Joint Ventures
What is a Joint Venture Agreement?
A joint venture (JV) agreement is a business arrangement between two or more businesses who agree to collaborate with one another in order to complete a specific task or project.
What’s the difference between a joint venture and a merger or acquisition?
The difference between mergers and acquisitions (MAs) and joint ventures (JV) is that companies involved with a joint venture can continue to exist and operate as a separate entity.
However, mergers and acquisitions involve two separate companies combining together to form a new organization, either as an equal partner or as a subsidiary.
How to structure a joint venture?
The structure of a joint venture will depend heavily upon each business’ individual resources, capabilities, and the overall goals of the partnership. Typically, a joint venture will be built in a way to emphasize each business’ strengths while mitigating each other’s weaknesses.
How to form a joint venture?
A joint venture is typically formed when one business approaches another with the express goal of establishing a strategic partnership or alliance. This process involves researching potential partners, defining each other’s capabilities and needs, and carefully working out a strategy for effective collaboration and co-operation.
This article was first published on Insane Growth.
Thank you so much for taking the time to read this joint-venture playbook. This is a concrete and clear guide on how Michael Lane has achieved almost $2 billion in the revenues through over 560+ joint ventures.
To learn more from business lessons from Michael Lane, follow him on LinkedIn.