A joint venture (often abbreviated JV) by definition is an entity formed between two or more parties to undertake economic activity together. Generally a new entity is created by all parties contributing equity and then sharing in the revenues (or losses), expenses, as well as the control of that entity. A joint venture may be a corporation, LLC, partnership or any other legal structure depending on liability or tax considerations. Joint Ventures are created for numerous reasons such as improving access to financial resources, economies of scale and advantage of size, access to new customer base, technology, knowledge, innovation, etc., speed to market, or creating stronger competitive units. In general, forming JV's can be a great way to grow your business, maximize your marketing and advertising dollars, gain exposure to new resources, become more competitive and share in other's strengths and competitive advantages.
Just to be clear, the traditional understanding of a joint venture is different from a strategic alliance in that there is actual pooling of equity vs. partnering up to achieve a common goal but remaining independent organizations or enterprises. However, today the term JV is often used more liberally when in fact what is meant is a strategic alliance. The points below apply for both, joint ventures and strategic alliances. So when I say joint venture I include strategic alliances as well.
There are many different kinds of joint ventures, but most of them work in one of two basic ways: 1. You let another company market to your customer base and then take a percentage of each sale. 2. You market to the customers of another company and pay them a portion of reach sale. The reason why this works is that a business spends a lot of time on building a relationship with its customer base and nurturing that.
Over time the customers trust this business and what it offers. So if that business recommends the services of another business, its customers will trust the recommendation much more than if the new service business would market to the same customers independently. Your job is to find other businesses that have a customer base that would potentially be interested in what you sell. Ask yourself these questions: A. What companies complement your product or service but are not direct competitors? B. What other products or services do your current customers use in connection with your business? C.
What other products or services do your customers buy or need to buy that you don't currently sell/offer? So how do you structure a successful joint venture? Here are three options to approach a JV: 1. Consignments: this simply means that you sell your products to the customer base of another business. You supply the inventory but don't charge them until the product is sold.
This approach is often used in retail but could be used for services as well. 2. Gifts: you give a gift (usually a sample of your product or service) to another company's customer base as a way to introduce yourself. You may get potential clients from this, you can use the credibility and clout of the other company to gain trust with their customer base and the other company can use your free gift as a selling point for their own product or service.
3. Endorsements: this means that Company A proactively recommends Company B's products or services to its customer base. Basically a customer is steered towards a specific company for their product or service needs. The key word here is proactively. This is not a referral or testimonial but Company A actively promotes and recommends Company B to its customers.
For example, this can be done in the form of a well-written personalized letter of recommendation (perhaps from the president of Company A) detailing why Company A is recommending Company B, its benefits, examples, etc. - any information that could be valuable to a customer. There are certainly many other ways to successfully and creatively structure joint ventures or strategic alliances. Be smart in who you plan to partner up with - both parties must benefit from this in an obvious way.
When each party needs the other, the relationship will be the most stable and fruitful.
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