Many small businesses take advantage of the opportunity to expand their operations and influence, as well as boost their market presence and bottom line, through the use of joint ventures with other firms. These joint ventures are essentially strategic partnerships structured around very specific goals desired by the respective parties of the joint venture. Ideally, a joint venture results in the growth and further development of each participating business, regardless of the companys size. There are a variety of ways you can use a joint venture to expand, build up and benefit your small business.
Understanding Joint Ventures
A joint venture is simply a partnership arrangement between two or more businesses, where each party is invested in the venture through time devoted to the project, capital contributions, and effort exhibited to accomplish tasks defined in the joint venture agreement. In general, outcomes produced by any joint venture affect member businesses; this is often the goal. Typically, a joint venture, especially if the joint venture is a newly formed business, operates as its own individual business entity. Each participant in the venture is responsible for costs, profits, and losses, but the venture remains entirely apart from the other business interests of each of the participants. Businesses often use a joint venture to add diversity to their own offerings, with one party or the other eventually moving to absorb the financial outcome and intellectual property, among other aspects, of the venture into their own business holdings.
Bundled Product and Services Joint Ventures
One way to utilize a joint venture to benefit your small business is to consider bundling your companys products and services with that of your joint venture partner(s) to create a single offering with complementary components that ultimately comprise a package deal that better meets the needs of end-user customers. This cuts down on costs for your small business while allowing you to reap financial benefits and potentially develop a better served, and thus more devoted, customer base.
Partner Endorsement Joint Ventures
While this may seem counterintuitive, one way to use a joint venture is through endorsing the products or services of a business partner. Keep in mind the best joint ventures are formed between companies that offer products and services within the same general marketplace, or that can be used by customers to accomplish complementary tasks or goals. A classic example of this is a dishwasher manufacturer reducing advertising costs by agreeing to feature another company’s dishwashing detergent in its ads.
Recommending a partners goods can be viewed as a way to better meet the needs of your customers by letting them know they will be best served by using your products or services in conjunction with those of your partners. Typically, this type of agreement is based on receiving a percentage of sales from the purchase of endorsed products. This also opens the door to a new distribution chain for your business if, in return, your partner endorses your goods and services.
Developing a New Product or Service
Partners in a joint venture often carry different levels of experience and expertise. Combining these different resources can lead to the development of an entirely new, or improved, good or service that brings in more revenues than your small business could create on its own. For example, an independent attorney and accountant might work together to create a tax guide that each party sells online. Products created through such ventures can usually be marketed and sold by both business partners and/or their affiliates. They can potentially broaden your customer base and result in a substantial uptick in profits.
Shared Marketing or Advertising Campaigns
Shared marketing campaigns are similar to mutual endorsement joint ventures. As a small business owner, your ability to mount a substantial marketing campaign, large enough to be effective, may be limited. Through a joint venture, you can utilize the resources of your venture partner by developing advertisements that promote complementary products sold by your respective businesses. Such joint ventures offer a good way to maximize visibility for all parties involved while cutting down on the costs each partner incurs launching individual campaigns. If your small business happens to partner with companies that are slightly larger or more financially sound, the benefits of this tactic may mean the difference between hand-drawn signs and a television, newspaper, and/or radio advertisement.
Co-Sponsoring an Event
Businesses of any size benefit in the court of public opinion and generally draw in more customers when they sponsor a community event. Your small business can reap this benefit at a reduced cost by co-sponsoring such an event with a joint venture partner. Also, a larger, more recognizable partner may lend increased credibility to your small business brand. Again, such ventures tend to be most successful when the partners market related products or services.