Top 10 Questions for Forming Strategic Alliances

Nina L. Kaufman, Esq.

Nina L. Kaufman, Esq.

Nina L. Kaufman, Esq., owner of Ask The Business Lawyer, is an award-winning business attorney, speaker, and Entrepreneur Magazine online contributor. She saves consulting and professional services companies time, money, and aggravation by serving as their outsourced legal counsel.

Posted on April 7, 2014 in Planning & Advisors, Strategic Alliances

Strategic alliances.  They’re great when used effectively to expand the range of your product or service offerings.  They’re not so great when you collect them like Manolo Blahnik shoes, merely because, well, everyone else has them.

What Is It Anyway?

“Strategic alliance” is a chic but vague term that people use to refer to a spectrum of business relationships.  At one end, you have referral relationships – getting and giving client leads.  Toward the other end, you have joint ventures, where two companies form a separate entity for a specific purpose or discrete project. 

Somewhere in the fuzzy middle lie strategic alliances, which bring two (or more) sides closer contractually, like preferred trading partner arrangements.  In a strategic alliance, the companies remain financially and structurally independent, but commit to using the other regularly (sometimes exclusively) for particular kinds of projects or work.  Picture a marketing strategy consultant that aligns itself with a graphic design firm:  each can function happily on its own and (ideally) is not a competitor; but with the other, can provide a wider scope of services to a new or larger target market.

What Should You Be Asking?

Because strategy alliances can be all over the map (literally and figuratively!), it is vital to understand what you’re getting into, and what you have a right to expect the alliance will do for you.  These Top 10 questions will guide you (and your attorney) to what to include in your written strategic alliance agreement . . .

These Top 10 questions will guide you (and your attorney) to what to include in your written strategic alliance agreement:

1.   Why are you doing this?  What do you hope to gain?  Entry into a larger client by offering a wider range of products or services?  Access to a new market?  How do you know your alliance partner can come up with “the goods”?  Don’t rely on just his/her/its say-so:  ask for references.

2.   What are you doing?  What are the products or services you will provide?  What will your alliance partner provide?  What deadlines can you construct so that you are each accountable to the other?

3.   Are you exclusive?  If you’re the marketing firm working with the graphic design firm mentioned above, do you have the right to work with other graphic designers?  Must you send all graphic design requests to XYZ Company?  Will they do the same for you? 

4.   What are your expectations?  Above and beyond the “what,” is the spirit of how you will do it.  Do you have the same attitude toward customer service?  Are your two companies in competition at all?  If so, how will that be handled?

5.   Who talks to the client?  “Too many cooks spoil the broth” just as too many points of contact confuse a client.  Who will be the point person on the project?  Will it change depending on who initiated the business? 

6.   Who collects the money?  Because a strategic alliance can involve two (or more) independent companies, there’s often no central bank account to which all have access.  But the client has to pay someone.  Who will it be?  If not you, when will you get paid?  What costs and expenses will you share . . . or bear separately? 

7.   How will we resolve disagreements?  It’s said that “if you both agree on everything, one of you is redundant.”  Expect differences of opinion.  But how will you handle them?  Who gets the final say?  Will you both agree to back off the issue and choose a different path (this tends to come into play when you’re closer to the joint venture end of the alliance spectrum, rather than the simple referral end).

8.   What might end the alliance?  It seems counterintuitive to think about the end of the alliance when you’re just starting it . . . but do not ignore this area for discussion.  Why might you end the alliance?  Change of direction?  Not meeting expectations?  Intractable arguments?  Will the alliance exist only for a limited period of time?

9.   What happens to work in progress?  The end of an alliance triggers many other issues.  For example, how will you handle the completion of work in progress?  Or the receipt of post-breakup payments?  What should happen with intellectual property, trade secrets, client lists, or other confidential information that might have been created or exposed during the relationship?

10.  How will we duke it out?  Especially if your alliance partner isn’t local, you should choose the state (preferably, yours) and forum (court? Arbitration?) where you will resolve disputes. 

Strategic alliances may be the rage, but be sure to look before you leap.  Get the input of your accountant and attorney to make sure that the alliance won’t hobble you, like ill-fitting designer shoes.

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