Forging a perfect partnership: from joint ventures to strategic alliances, small businesses find that there is strength in numbers - includes related article on forming a partnership

Black Enterprise, Sept, 1993 by Kevin D. Thompson

From joint ventures to strategic alliances, small business find that there is strength in numbers.

AS AN ENTREPRENEUR, YOU'RE IN BUSINESS because you want to make money and be the boss. But sometimes, when the stakes are high, you have to forego total control for a bigger slice of the pie. Forming partnerships is one way for African-American business owners to become key industry players.

Albert E. White, vice president for corporate marketing for Network Solutions Inc., a Herndon, Va. system intergration company, has seen both the drawbacks and the advantages of partnering. White's BE 100s company posted $35 million in revenue last year--after forming four strategic alliances since 1989 with such partners as IBM and AT&T. As a subcontractor on AT&T's 10-year, $25-billion contract to install and maintain voice data and video systems for the federal government, Network Solution's cut is $20 million. In return, his company provides support for AT&T in 2,500 federal offices nationwide.

"Alliances allow us to broaden our market penetration into new areas, incorporate new technology into our services and enhance our technical capabilities," White says. "As a small company, we often need to have a partner that is substantially larger than we are in order to participate in these markets."

Many black entrepreneurs have landed lucrative contracts, gained access to insider information and penetrated new markets after forming alliances with minority- and mijority-owned companies of various sizes. The advantages are plentiful, but so are the pitfalls. Finding a trustworthy and compatible business partner is often as difficult as finding Mr. or Ms. Right (see sidebar, "How To Form A Partnership").

Only one out of three alliances--called the mergers and acquisitions of the '90s--truly work. What sours them? Poor communication, unrealistic expectations, perceived wrongdoing, creative differences and shoddy planning are the main culprits. The successful ones played the following three-part harmony. Each partner did his or her homework (on the industry and each other), then signed a contract detailing clear-cut job descriptions and money disbursement, and achieved a high level of trust there after.

We examine the pros and cons of three types of business alliances--joint ventures, strategic alliances and mentor/protege:

* JOINT VENTURE: Two or more people combine efforts toward a single transaction or a limited activity, sharing the profits and losses jointly or in proportion to their contributions.

* STRATEGIC ALLIANCE: Any type of cooperative activity between two independent organizations. Unlike a joint venture, which in most cases involves a single contract, a strategic alliance usually is a long-term commitment.

* MENTOR/PROTEGE: A member (a large corporation) takes a smaller company under its wing and provides management and technical assistance.

JOINT VENTURES

Joint ventures allow African-American-owned firms to vie for multimillion dollar contracts they would be unable to bid for on their own. For such a level of commitment, trust is critical.

Before Louise E. Waller Sr., president of Louis E. Waller Company Inc., a Washington, Pa., building contractor and construction firm, entered into a $12-million joint venture with Snavely Building Co. in Cleveland, he took pains to build a level of trust with his potential partner.

"I drove two-and-a-half hours to tour their offices," recalls Waller, whose company is working with Snavely on a 202-unit housing development project in downtown Pittsburgh. "I met with the president, vice president and project manager. I even asked the people in accounting and bookkeeping how they figured costs, how their computers worked. I wanted to know everything."

Joint ventures also allow you to find matches that complement your company's strengths and weaknesses. Says Barbara A. Carlin, assistand professor of management at the University of Georgia Terry College in Athens, "You should create alliances with companies that can shore up your weaknesses. If you're an excellent manufacturer, but a lousy capital manager, find a partner who can manage money."

R. Lee Totty, vice president of majority-owned Yarborough Development Inc., a $10-million McKeesport, Penn., commercial contractor, sought Waller for a joint venture because "I had already done what I was trying to accomplish." They joined forces last year for a $7-million joint venture project renovate two former hospitals and convert them to housing for the elderly in Pittsburgh.

On theh downside, a joint venture can threaten your competitive advantage. You may be sharing core information with a future competitor. In the early 1970s, RCA shared its color television technology with Japanese manufacturers. Bad move. A few years later, the Japanese began exporting color televisions to the U.S.--competing with RCA in its own market. Also, a joint venture might limit your dealings. Your partner's rivals may not want to do business with you because of your close relationship to their competitor.