Strategic partnerships are like marriage

Strategic partnerships can take many forms in business, and it’s akin to marriage once you think about it (as my wife pointed out.) Jerry Seinfeld said, “Marriage is like a game of chess, except the board is flowing water, the pieces are made of smoke and no move you make will have any effect on the outcome.” Realistic, no?

A marriage (or partnership) is defined when two parties from separate backgrounds come together and blend over common views and objectives. It can be successful or fail historically. It can be good or bad, and also difficult or easy at times. But in reality, both parties want the marriage to succeed for both ‘the whole’ and as individuals. Just like forming strategic partnerships, it’s usually done when both sides can’t achieve their intent alone.

A strategic partnership is defined as an agreement between two or more parties agreeing to strategically relevant terms. Examples of strategic partnerships in asset management could be viewed as a distribution of an asset manager’s model portfolios on a company’s model marketplace: think in terms of Morningstar and Blackrock. Another is K2 skis partnering with Vail Resorts to promote their skis and snowboards through the 2020 winter season. Both organizations benefit from each other. In marriage, you would likely want your partner to have skills and abilities that you lack or find complimentary.

You may want to form strategic partnerships for many reasons. A new product offering could be your impetus. An example is HP and Disney’s (decade-plus) ‘space attraction’ at Epcot. One company offers the destination, customer base, and name brand, while the other offers technical prowess. Both companies have a new type of product with positive marketing wrapped around, and both knew how the other could help execute. That’s why it’s important to make sure you know your target company’s strengths and weaknesses, and if possible (though difficult) what they are looking to accomplish in the future. Specifically, you (both) may want to mitigate risks; lower costs; gain greater distribution; avoid an internal build; gain greater economies of scale; enter new markets; or offer your customer base new functionalities and tools. Similar to a marriage, you’re likely to court the other individual for awhile, understand what makes them tick, what they want to become, what they are capable of and understand their strengths and weaknesses.

But before you put pen to paper, it’s important to understand your LRC (legal, risk, and compliance) items. I review why it will work, why it may or may not work, and why it won’t work. This is in conjunction with your legal group, risk group and usually a mix of the two for compliance. Potential partners may misrepresent their ability to execute; attempt to rescind after the agreed-upon contract; fail to commit resources off the start; or decide that they will put less effort into the success given a change in strategy on their end. All of the aforementioned may be detrimental to your planned operations. As with a marriage, you may want to make sure your future partner doesn’t have an ex who is a ‘stage 5 clinger’, hasn’t amassed an unmanageable amount of debt or has some secrets in their closet that will detrimentally affect them or you in the future.

Simple and often unexpected challenges will also arise when attempting to form strategic partnerships. It can take the form of implementation challenges; your firm dealing with a loss of autonomy; conflicts of interests arising on either company’s end (deciding something else is best); to optics being less than positive. It could be a less than successful venture and it’s now needing to be maintained for sake of contract agreements. For example, Uber and Spotify partnered to create ‘Soundtrack for your ride’ which ended up sounding great theoretically, but in reality, fizzled out pretty quickly post-deployment. As with marriages, challenges arise quite frequently that can span from your partner wanting to move for career progression to being asked to live with your in-law’s given cultural norms on their ends.

Lastly, strategic partnerships are usually the second to lowest on the totem pole for engaging with external companies. I think in terms of these five options when engaging: vendor (lowest), strategic partner, equity investment, joint venture, and acquisition. With these deal options, it’s important to understand one important rule about deal-making: there are no rules. When investing in a startup’s Series A round, you can get creative. When acquiring a company, you can get creative. When forming a strategic partnership, you can get creative. Although when getting married, it’s pretty binary.

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