The power of a business partnership can be impressive. Rotadyne is a prime example of how a company can expand when it joins with another. In the early 1970s, the Cleveland-based custom plastics molding manufacturer made bed pans, bottles, tanks and a small line of plastic toys. It partnered with a design firm, Nottingham Spirk, which helped create new products and a logo for the toy line: Little Tikes. After a few years, Rotadyne would change its name, explode in size and eventually be acquired by Rubbermaid.
While this example comes from the middle market, companies can join partners of any size. DuPont, a global chemical company, licenses technology to middle market businesses such as 6062 Holdings Inc., which developed new hydroponics products through the partnership. Consortia such as the EUREKA network support research and development projects by midsized partners. An example is the E! 1692 SANIFOGGER, an ultrasonic humidifier and ozone deployment system that helps grocery stores keep produce fresh for longer periods. The product was the result of joint work by Netherlands-based Contronics Engineering B.V. and UK-based Norman Pendred & Co.
There are multiple reasons why a company might engage in a business partnership:
- To access critical intellectual property.
- To develop a new product or service type.
- To expand or improve distribution.
- To seek specific expertise.
- To add financial strength and scale.
- To improve relationships with strategic suppliers.
- To validate a brand to potential customers.
In each case, a company might partner with a business that is smaller, the same size or larger. However, not all potential partners are right for every occasion. Here are some of the advantages and disadvantages of each.
Small Businesses: Nimble But Limited
Small partners typically have the flexibility and agility to turn on a dime because here are fewer factors that constrain their activities. Successful small companies are often great sources of innovation, but of course, they have their drawbacks. They likely will be dependent on your company's financial resources and ability to execute plans. You might look to such companies for potential breakthrough products that you could bring to market. Inversely, they could introduce your products to a different market, though they won't have the scale and connections to help you rapidly expand your presence. You also have to consider whether they have the discipline and management strength to deliver on their side of the arrangement.
The Middle Market: Connecting With Your Competitors
Partnerships with companies the same size as yours means dealing with organizations that you can likely understand. They are peers and could act as brand representatives in other geographies. They also might offer equal resources in a project. However, working with midsized companies means less flexibility than you might find with startups, as they will have more developed agendas for their end of the partnership. If both companies are in the same industry, there's also a greater chance that they could be competitors.
Enterprises: Where Limitless Resources Can Be Expensive
Big companies often bring developed resources and operations to smaller partners, and such corporations may take your products to an audience you can't reach. Yet there's also the danger that your product and brand will become associated with the larger partner, which could cause problems if the partnership were to disintegrate. Additionally, licensing defunded technology from a big company might require far more work in finding commercial applications, especially if development was stopped early on. It's unlikely that the partnership will be strategically significant to the larger company because of the size difference. Even negotiating a deal could be more challenging because the larger partner's lawyers and procurement staff will have greater expertise.
Consider any potential partnership within the context of your company's strategy. Identifying clear-cut roles, goals, communications and execution is critical to success, and each will differ depending on the size of the partner. Be sure your partner is the right size for your goals.
Has your company ever partnered with a differently sized organization? Tell us about your experience by commenting below.
Erik Sherman is an NCMM contributor and author whose work has appeared in such publications as The Wall Street Journal, The New York Times Magazine, Newsweek, the Financial Times, Chief Executive, Inc. and Fortune. He also blogs for CBS MoneyWatch. Sherman has extensive experience in corporate communications consulting and is the author or co-author of 10 books. Follow him on Twitter.