MaryEllen Tribby: The Right Way to Joint Venture

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Many small-business owners don’t like joint ventures. They don’t like the idea of splitting revenues. They like selling their own products because they get to keep 100 percent of the revenues.

This sort of thinking simply misses the mark. When a joint venture is executed properly, it doesn’t subtract from a business, it adds to it.

Had Agora, the largest privately held information publishing company in the world taken a “no-joint-ventures” attitude, it would have taken decades to create the quality product line that it was able to develop in only a few years.

There are many ways to do joint ventures. But for a growing small business, the most lucrative type of joint venture usually involves at least two of three key elements: a product, a promotion, and a market.

Joint ventures take advantage of two of the fundamental principles of wealth that Adam Smith talked about in Wealth of Nations: division of labor and unrestricted trade.

The principle of division of labor is that wealth is produced more efficiently and in greater abundance when working people divvy up the workload according to what sort of work each worker can do best. The theory behind unrestricted trade is that wealth is not limited. Unlike a pie—which must be sliced up and shared—it is an organic thing that will grow naturally if allowed to do so freely.

These principles give rise to the following characteristics of successful joint ventures:

• Good joint ventures are those that pair up businesses with asymmetrical resources and skills.
• The stronger the resources and skills brought to the table, the stronger the potential of the joint venture.
• All other things being equal, joint-venture deals grow more quickly and strongly when there are few restrictions impeding their growth.
• Trust and respect are essential ingredients in good joint-venture relationships.

Joint-venture marketing relationships can be extremely valuable. Every ambitious entrepreneur and marketing director should be open to them. Making them work, however, does take time and consume resources. And because you don’t have unlimited time and resources, it makes sense to be strategic in selecting your joint-venture partners.

• Look for strong partners—businesses that have significant skills and/or resources that you lack.
• Make sure that your contribution to the deal is equal to your partner’s. An unbalanced partnership is not good for either party.
• Avoid partners whom you don’t trust. If possible, limit the scope of the venture in the beginning and extend it as trust increases.
• Make agreements simple, but put them in writing.
• To avoid costly misunderstandings after the venture has begun, identify the value of each partner’s contributions at the outset. These should include skills, intellectual resources, marketing resources, capital, and so on.
• In determining the value of those contributions, remember that fairness is not an exact number, but a range. Try to be flexible and favor partners who demonstrate the same flexibility.
• Establish clear protocols at the beginning for amending or unwinding the relationship if it fails to meet expectations.
• Goodwill is essential for success. Goodwill means that you want your partner to benefit from the relationship as much as you do.

The idea is to develop joint-venture relationships that are easy to maintain, financially profitable, intellectually rewarding, and long- lasting. After a necessary period of negotiation and implementation, you want the relationship to grow well and quickly and painlessly.

If you pick a weak or untrustworthy partner, the joint venture will eventually fail. If your partner sees you as weak or untrustworthy, the venture will also fail.

If, on the other hand, you develop a reputation for being a good, trustworthy partner, good people will come to you and be happy with the terms that you suggest.