Developing a successful business relationship is no easy task, there are many ups and downs during the process and so as a small business owner it is best to understand a few of the basic business partnership pros and cons so you can evaluate if this type of business activity is right for your venture. Partnerships can allow your company to enter new markets and reach customers faster, but they will also require you to give up certain controls over the product and customer experience depending on the roles your business takes with the partnership. Make sure the two businesses are compatible on several levels and that the executive management team has open and honest communication and the chance for success will improve allowing you to increase your revenue rather than spending resources needlessly.
Pros to Business Partnerships
Access to clients
The number one reason most companies enter into a partnership with another business is the opportunity for new business. A good partner will be able to make introductions and get products / services in front of your target customers.
Access to new markets
By partnering with a company in a different region or country a small business can rapidly grow across the country and expand internationally without having to set up physical offices and teams in every place around the world where there are willing customers.
Marketing can be expensive and sharing resources for co-branded marketing campaigns can really help distribute the funds available for marketing and allow a business to be more creative with how the business and products / services are marketed.
Cons to Business Partnerships
Loss of brand
A partner will be sharing the branding and recognition a product or service receives in the market. Some larger companies will require small businesses to actually white label their products to them thus eliminating the brand altogether. Depending on the opportunity this may still be acceptable to the small business due to the exposure and amount of product that is being sold.
Unsatisfactory customer service
If a partner is handling the servicing and interactions with the customer concerning your product, any issues that they may be faced create a chance for an unsatisfactory experience which reflects poorly on your business. Adequate training and occasional check-up blind tests will help you feel at ease that the business partner is executing the customer service to your desired level.
Business partnerships are likely to have revenue share agreements or performance based compensation included in the partnership. It is very important these payment processes are clearly defined and held to. A small business can get into financial trouble when shipping large orders and not receiving payments on time.
No business partnership is ever easy to get running smoothly, however if you are looking for quick access to new markets and customers it is the best method without spending significant resources to do everything internally. Think ahead of time what you are looking for in a partner before even engaging with a company about a potential partnership, know what cons will be a deal breaker for you and stick to partners that are willing to develop mutually beneficial partnerships.
- What is a Partnership: Types of Partnerships?
- 10 Steps For Business-to-Business Partnership Deals
- When a Business Partner Dies or Leaves the Business Partnership
- Choosing the Legal Structure of Your Business
- Incorporation and Filing DBA Papers