Business Partner Investors Introduction

Quick Summary: Working with other companies that have unique core competencies is required for success.

Abstract:

The days of total vertical business integration and the do-it-alone concept of fulfilling customer demand have given way to forming business partner relationships that allow each participant to leverage the other’s core competencies.  Partners, by choosing to invest their resources with a company, are essentially choosing to not invest their resources in other activities. They, therefore, should expect and receive an acceptable return on their investment.

In the not too distant past, many companies developed strategies and took great pride in being almost totally vertically integrated.  For example, some companies designed and created semiconductors, circuit boards, subassemblies, hardware chassis and all other related hardware to supply an entire computer system.  Some even developed proprietary operating systems and programming languages to support their hardware designs.  Automobile manufacturers and even small appliance manufacturers followed the same model in keeping as much of the product, distribution, and support “in-house” to avoid additive markups from component suppliers.  Today, for the most part, that trend has reversed.  We are in an age in which “someone makes everything or will.”  Everything from competitive analysis, product design, manufacturing, and sales to customer service can be outsourced.  In many cases the outsourcers can be individuals or companies located halfway around the world.  Partnering has become the standard, accepted method of creating and operating a business.

For purposes of these articles, a distinction is being made between business partners and component providers.  A business partner is defined as an entity that is directly involved in providing a significant, visible part of the end-to-end solution to the customer.  It could involve hardware, software, a service, or even a sales channel to the customer. A component provider is defined as an entity that provides a commodity product or service that is integrated inside of the company’s solution and probably not obvious to the end customer.  A component could be a database, a development tool, a metal chassis, a set of tires, or even a shipping container or box.  To be fair, many component suppliers do operate quite closely with their customers to develop very specific products to meet their specific needs.  The parts industry in the automotive sector is a good example of those companies that make very specific products for individual makes and models of vehicles.

A business partner, as used in the articles in this collection, provides a discrete function that is part of the overall solution as purchased by the customer.  A distribution channel partner that resells the company’s products or services is an example of a business partner.  The distinguishing characteristic is that both the company and the business partner share in the success of fulfilling an end customer’s order.  Either the company or the business partner can take the lead in providing the product or service or in actually representing the solution to the company. Relationships can vary from a casual agreement to provide sales leads to the resale of a system or service under a private label to a customer.  The key requirement is that both partners invest in the relationship based on the assumption that it will be beneficial to both parties.

The reason that business partners are listed as second only to the employees in “Principle Three: Provide an Acceptable Return to All Investors,” is that without them, the company would be challenged in providing goods and services to their customers, the third investor category.

By making a commitment to be involved with the company, a business partner is allocating some portion of their resources to the company.  In virtually all cases, by choosing to work with the company, they are consciously deciding not to invest in other companies or in other activities.  Rightfully, they should expect to receive an acceptable return on their investment.  Both the company and the business partner must be convinced that the partnering arrangement is in both companies’ best interests and optimizes their combined use of resources.  Using a concept, long ago adopted by the military, partnering relationships provide force multiplication; the combined effect is greater than either can achieve on their own.

In virtually every case, both partners must “work” on the relationship and often will have to compromise.  Although both parties will be focusing on their joint success, each will have their individual goals that, at times, may not coincide or be compatible with the other party’s goals.  Minor differences need to be openly and quickly addressed. Just as in personal relationships, business partner “divorces” are often difficult with neither party leaving the relationship unscathed.  Great care, including upfront, detailed discussions of how operations will be managed on a day-to-day basis and how the conflict resolution process will work need to be well understood.

The question that every company needs to answer is, “Who will we partner with?” and not, “Will we partner at all?”

Article Number : 2.040402   

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