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Forging a perfect partnership: from joint ventures to strategic alliances, small businesses find that there is strength in numbers.

From joint ventures to strategic alliances, small business find that there is strength in numbers.

AS AN ENTREPRENEUR, YOU'RE IN BUSINESS because you want to make money and be the boss. But sometimes, when the stakes are high, you have to forego total control for a bigger slice of the pie. Forming partnerships is one way for African-American business owners to become key industry players.

Albert E. White, vice president for corporate marketing for Network Solutions Inc., a Herndon, Va. system intergration company, has seen both the drawbacks and the advantages of partnering. White's BE 100s company posted $35 million in revenue last year--after forming four strategic alliances since 1989 with such partners as IBM and AT&T. As a subcontractor on AT&T's 10-year, $25-billion contract to install and maintain voice data and video systems for the federal government, Network Solution's cut is $20 million. In return, his company provides support for AT&T in 2,500 federal offices nationwide.

"Alliances allow us to broaden our market penetration into new areas, incorporate new technology into our services and enhance our technical capabilities," White says. "As a small company, we often need to have a partner that is substantially larger than we are in order to participate in these markets."

Many black entrepreneurs have landed lucrative contracts, gained access to insider information and penetrated new markets after forming alliances with minority- and mijority-owned companies of various sizes. The advantages are plentiful, but so are the pitfalls. Finding a trustworthy and compatible business partner is often as difficult as finding Mr. or Ms. Right (see sidebar, "How To Form A Partnership").

Only one out of three alliances--called the mergers and acquisitions of the '90s--truly work. What sours them? Poor communication, unrealistic expectations, perceived wrongdoing, creative differences and shoddy planning are the main culprits. The successful ones played the following three-part harmony. Each partner did his or her homework (on the industry and each other), then signed a contract detailing clear-cut job descriptions and money disbursement, and achieved a high level of trust there after.

We examine the pros and cons of three types of business alliances--joint ventures, strategic alliances and mentor/protege:

* JOINT VENTURE: Two or more people combine efforts toward a single transaction or a limited activity, sharing the profits and losses jointly or in proportion to their contributions.

* STRATEGIC ALLIANCE: Any type of cooperative activity between two independent organizations. Unlike a joint venture, which in most cases involves a single contract, a strategic alliance usually is a long-term commitment.

* MENTOR/PROTEGE: A member (a large corporation) takes a smaller company under its wing and provides management and technical assistance.

JOINT VENTURES

Joint ventures allow African-American-owned firms to vie for multimillion dollar contracts they would be unable to bid for on their own. For such a level of commitment, trust is critical.

Before Louise E. Waller Sr., president of Louis E. Waller Company Inc., a Washington, Pa., building contractor and construction firm, entered into a $12-million joint venture with Snavely Building Co. in Cleveland, he took pains to build a level of trust with his potential partner.

"I drove two-and-a-half hours to tour their offices," recalls Waller, whose company is working with Snavely on a 202-unit housing development project in downtown Pittsburgh. "I met with the president, vice president and project manager. I even asked the people in accounting and bookkeeping how they figured costs, how their computers worked. I wanted to know everything."

Joint ventures also allow you to find matches that complement your company's strengths and weaknesses. Says Barbara A. Carlin, assistand professor of management at the University of Georgia Terry College in Athens, "You should create alliances with companies that can shore up your weaknesses. If you're an excellent manufacturer, but a lousy capital manager, find a partner who can manage money."

R. Lee Totty, vice president of majority-owned Yarborough Development Inc., a $10-million McKeesport, Penn., commercial contractor, sought Waller for a joint venture because "I had already done what I was trying to accomplish." They joined forces last year for a $7-million joint venture project renovate two former hospitals and convert them to housing for the elderly in Pittsburgh.

On theh downside, a joint venture can threaten your competitive advantage. You may be sharing core information with a future competitor. In the early 1970s, RCA shared its color television technology with Japanese manufacturers. Bad move. A few years later, the Japanese began exporting color televisions to the U.S.--competing with RCA in its own market. Also, a joint venture might limit your dealings. Your partner's rivals may not want to do business with you because of your close relationship to their competitor.

STRATEGIC ALLIANCES

The age-old adage "there's strength in numbers" has never been more true than it is in the dog-eat-dog business arena. A strategic alliance can increase a company's client base, provide access to technical resources and boost its credibility. It allows smal firms to compete in a rapidly changing business environment.

On the downside, strategic alliances often involve a long-term commitment, and whatever goes wrong in a lengthy relationship can sour all that came before. White remembers when Network Solutions was considering a partnership with an 8(a) firm that had some proprietary technology. "They developed an integrated systems digital network, used to transmit video and imaging over copper wires," he says. "We were interested in the technology and they wanted somebody to market it."

Sounded like the perfect fit. It wasn't. "We found out later that they needed about $1 million for research and development. The brought it up at the last moment, after we talked to them for six months," says White. "If we'd known they needed money early on, we would've made adjustments. Finding out so late made us question whether they could live up to their part of the agreement." Turned off by the prospect, Network Solutions killed the deal.

"Whenever you join forces with another firm, spell out everything from A to Z," says John Bolling III, president of A.L.L. International Clothing Inc., a Dallas-based maker of African cloghing and accessories. Bolling's 3-year-old firm formed a strategic alliance with Critics' Choice Graphics Ltd., a majority-owned company with makes T-shirts, jackets, caps and athletic clothing. They signed a five-year deal in March with Critics' Choice Graphics to produce and sell A.L.L.'s new product line, "Brikama Apparel." The line includes African shirts, pajamas, bathrobes, beachwear, jackets, kuffis and baseball caps, sold in 650 stores nationwide, including J.C. Penney, Pier One Imports, Marshall Fields and Dayton Hudson. Bolling's role is to oversee the manufacturing and sales of the line and sefve as chief spokesperson.

Says Bolling, whose firm grossed $600,000 in sales last year: "We signed a contract--with an escape clause--that spelled out the responsibilities of each party and how the monies will be disbursed." (According to Bolling, everything is split 50-50). Kevin Johnston, one of three Critics' Choice Graphics' partners, believes the detailed 15-page document is key to spelling out the terms of the alliances. "Without a written document, it's very easy for partners to forget who does what," he says.

MENTOR/PROTEGE

A mentor/protege relationship, the most paternalistic of the three, is coveted by many black business owners. The reason is simple. A mentor is that corporate "insider" offering black entrepreneurs valuable information.

Albert White says Network Solutions has gained a tremendous amount of industry knowledge from its mentor of five months, NCR Corp., a Dayton, Ohio maker of automated teller machines, bank automation products and networking software. (NCR is a participant in the Department of Defense's [DoD] Mentor-Protege program, launched a year ago to provide incentives for major DoD prime contractors to work with small and disadvantaged companies.)

"They will train us on 'Star Sentry,' their network management software," explains White, adding that the system helps companies manage large computer networks. "We're getting access to markets we could never get access to because of our size." (To inquire about the DoD's program, call the Office of Small & Disadvantaged Business Utilization; 703-697-1481.)

Basil Bernard, president of Miami-based Apricot Office Supplies and Stationery Inc., says serving as a protege in the University of Miami's "Adopt-A-Vendor" program has put his company on the South Florida map: "It's given my business a sense of legitimacy," In the "Adopt-A-Vendor" program, the university's purchasing department shows a small business the purchasing ropes, and allows it to bid on contracts with various campus departments.

James H. Balter, director of university purchasing and the program's founder, notes that Bernard's firm, which grossed $3 million in sales last year and now does $500,000 a year in business with the university, has benefited tremendously from the program. "Basil needed more exposure," says Balter. "He was running after accounts, not opening new business. We helped him get involved in the local chambers of commerce and the Florida Regional Minority Purchasing Council.

But what if your mentor is not into showcasing his protege? One drawback of a mentor/protege relationship is that your share of the credit may be overshadowed by your partner's work. You have to be certain industry leaders, clients and competitors alike know exactly what your contributions were on a particular project.

Another pitfall to skirt is too much dependency on your mentor. Never rely exclusively on one company or individual. Make sure the contracts awarded you as a protege are not your sole source of income. You'll be out of business if that relationship goes bad. That's why it's important to continue to forge relationships with other firms, and document your contributions to the project.

THE KEY IS COMPROMISE

For all their advantages, alliances are infamous for being time-consuming and costly. Every firm has its own corporate culture and way of doing things, which can get in the way of forging a successful marriage of ideas.

Creative differences can upset any harmonious relationship. Although Bolling and Johnson have yet to experience any deal-threatening blowups, they admit to major differences of opinion. The most recent was over whether they should continue to manufacture the "Brikama" line in Senegal and the Ivory Coast or move it to the U.S. "Kevin felt we would have more control and lower costs (8% to 10%) if we made the line here," says Bolling. "I didn't want to do that because I market my line as authentically made in Africa." They compromised, agreeing to do half in Africa and the other here.

Learning when and how to compromise is part of any type of alliance--and possibly the best advantage of all. In the final analysis, glimpsing the world through another's eyes is what a partnership is all about.
COPYRIGHT 1993 Earl G. Graves Publishing Co., Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1993, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Title Annotation:includes related article on forming a partnership
Author:Thompson, Kevin D.
Publication:Black Enterprise
Date:Sep 1, 1993
Words:1777
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