Cheryl Jones, Director Corporate Alliances for Starbucks, recently addressed the Women’s Business Owner’s luncheon in Seattle, Washington. In her presentation, Cheryl stressed the growing importance of creating alliances as a primary way to increase product to market profitability and vertical marketing capacity for both large and small businesses. In support of her observation, research shows that more than 50% of corporate executives wish to enter into an alliance in the next 5 years.
But, there is a catch: Anywhere from 50% to 70% of alliances fail. Why would so many executives wish to enter into agreements that have a less than a 50% survival rating? There are a number of reasons.
Alliances are a cheaper, faster and more flexible means of achieving what mergers and acquisitions did in the 80’s and 90’s. Companies of all sizes use alliances to get products to market in less time and with less money, to establish co-marketing strategies for a truly comprehensive share of their shared market and to license intellectual property for faster innovation.
Considering that alliances offer many advantages, what can executives do to create workable agreements that last the entire life of the alliance? Executives need to establish a new model for negotiating alliances. That new model must incorporate planning, strategy and relationship building from the very beginning.
Planning
When entering into an alliance, there are many details that are considered, but planning for the negotiation sessions is rarely one of them. You and your team have had one hundred or more calls, emails and voicemail messages with the alliance prospect, so you feel that it will be a slam dunk to get what you want; that thinking takes too much for granted and will expose your company to a potential alliance failure.
When planning to negotiate the specifics of the deal consider these three questions. If you can answer them to your satisfaction, you are well on your way to getting better results from your next negotiation.
Consider this:
- What is in it for me? Define your interests for being in an alliance with them. In other words what is motivating you to do this for your company? You and your alliance partner will need to share a common vision for mutual growth, a common internal culture (or a clear understanding and acceptance of how the cultures differ) and a desire to work together to achieve some common purpose. If your motivation is only financial, the alliance will last as long as a one night stand.
- What is in it for them? Thoroughly consider your prospective alliance partner’s interests. What is motivating them to enter into an alliance with you and not your competition? What makes your company attractive to them? Again, it cannot be solely financial.
- What do we hope to accomplish? Set goals for each step of the negotiation process, from the Letter of Intent to the detailed contract. Goals are specific, objectively justifiable and directly related to your true interests. For example, a goal might look like this. At the January 10th meeting we will finalize the terms of the Letter of Intent (LOI). The LOI will establish 1) the commitment of both CEO’s to get ABC product to market faster by sharing specific marketing and manufacturing capacities (I want a bullet point outline), and 2) the date by which the final agreement will be signed.
Strategy
The objective for developing a strategy is to chart the course of the negotiation. Tactics are chosen to support the strategy. A tactic is defined as, “The art or skill of employing available means to accomplish an end.” (Webster’s New Collegiate Dictionary) “Thoughtful and well-planned strategies combine multiple moves that create incentives, apply pressure, and exert control over the process.” (Everyday Negotiation, Kolb & Williams) Therefore, when planning a negotiation strategy, you choose from several tactics to create both incentives and control. Caution: Tactics do not dictate the strategy.
Here are some concrete steps to take to develop a strategy for the negotiation sessions. First answer the questions outlined above in the planning section. Then sketch out a best case scenario for your company. Finally, make two lists. The first list contains items, terms, etc. that are essential to your profitability. Then make a list of items that are not as important. At this point, you should see a pattern emerge. That pattern should show the alignment of your interests with your list of essential terms, and should also show the alignment of non-essential terms to the interests of your prospective alliance partner. Now you are ready to create a list of trade offs and to set deadlines for reaching agreements on terms.
Strategies are dynamic. Continually re-evaluate the strategies and tactics as the negotiation progresses. After all, information changes, circumstances change, and therefore, so should your strategy.
Relationship Building
Make time for relationship building. This is the single most important thing that you and your company can do to ensure the longevity of the alliance. We all do business (whether you are a Fortune 100 company or a sole practitioner) based upon three simple values: You do business with people you like, respect and trust.
It is easier to create a relationship with one person, and hence know whether you trust, like and respect one person. From the small company’s perspective, establishing a “relationship” with a Fortune 100 company seems more daunting because many people may be a part of the alliance building process. In the end though, the alliance happens because people feel as though they like, trust and respect one another.
Relationship building is more than chatting about the weather, kids and sports. Building a relationship takes time and emotion — that Emotional Intelligence Quotient. Here are some simple questions to consider asking your prospect alliance partner. Your purpose in asking these questions is to create an atmosphere of open, two-way communication. That way, if and when rough seas encroach upon you and your alliance partner, both of you will have established a history of communication that is separate from metrics, due diligence deadlines, or royalty payments.
- What is your history or your company’s history in creating my type of an alliance? (Ask it even if you think you know the answer. My personal philosophy is: I’d rather look a little stupid asking a “stupid” question than making an assumption that was fatally wrong.)
- Tell me a little about your internal corporate culture? (For example: How flexible are you or your department about ABC? How long does it take to do XYZ?)
- What is the single biggest mistake my company could make when dealing with your company?
Finally, realize that there is a lot of personnel change at very large companies. Each personnel change will signal a need on your part to re-initiate a conversation to establish the relationship.