Is a Strategic Alliance Right for You?

By Nina Kaufman, Esq.

Don’t partner up with anyone until you ask yourself these 10 questions.

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.

“Strategic alliance” is a chic but vague term 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.

And then, in the fuzzy middle, lie strategic alliances that bring two or more parties together contractually, like in preferred trading partner arrangements. In this type of 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. A marketing strategy  consultancy might align itself with a graphic design firm. Each can function happily on its own and isn’t a competitor; but in partnership with the other, each can provide a wider scope of services to a new or larger target market.

Because strategic alliances can be all over the map, literally and figuratively, it’s vital to understand what you’re getting into and what you can expect the alliance to do for you. These 10 questions will help you and your attorney determine which items you want to include in your written strategic alliance agreement:

  1. 1. Why are you doing this? What do you hope to gain? Access to a larger client by offering a wider range of products or services? Entry to a new market? How do you know your alliance partner can come up with “the goods”? Ask for references.
  2. 2. What are you doing? What products or services will you provide? What will your alliance partner provide? What deadlines can you construct so you’re each accountable?
  3. 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? Do you have to send all graphic design requests to the firm? Will they do the same for you?
  4. 4. What are your expectations? How will you achieve them? Do you have the same attitude toward customer service? Are your companies in competition at all? If so, how will that be handled?
  5. 5. Who talks to the client? Too many points of contact can confuse a client. Who’ll be the point person on the project? Will it change depending on who initiated the business?
  6. 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. 7. How will we resolve disagreements? Expect differences of opinion. But how will you handle them? Who gets the final say? Will you both agree to back off an issue and choose a different path?
  8. 8. What might end the alliance? It seems counterintuitive to think about the end of the alliance when you’re just starting it, but don’t ignore this topic of 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. 9. What happens to work in progress? The end of an alliance triggers many issues. For instance, 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. 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 or arbitration) where you’ll formally 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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