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Structuring a win-win joint venture.

As associations seek nondues revenue sources, breakthrough opportunities seek associations.

It's budget time and I'm doing the easy stuff first. Here's a newsletter we started a few years ago: a separate subscription and not part of the membership package; quality editorial but not a stellar performer on the revenue side.

The best numbers show us spending $60,000 to make $61,000--and this is supposed to be one of our nondues income sources. Even at today's interest rates, I could do better with a passbook savings account.

Maybe this isn't the easy stuff after all.

I remember my most recent meeting with a newsletter publisher from New York City. We had been talking about ways we could work together on publishing joint ventures. The last time we talked he mentioned he had just acquired a new newsletter on the West Coast. It's a long shot, but . . .

I pick up the phone.

"You know that little newsletter we do?" I ask. "You want to buy it?"

Thus begins a month or so of negotiations. We agree on the following deal:

* The Society for Human Resource Management (SHRM), Alexandria, Virginia, will merge its newsletter into one of the other publisher's with similar editorial and a similar audience. Their biweekly publication has more pages than our monthly, a better deal for our subscribers all around.

* SHRM will receive no up-front payment for the publishing merger, but we will receive a portion of the renewal price if our subscribers decide to renew to the other publication.

* Since our newsletter subscription includes free access to the SHRM Information Center hotline, we will maintain that for our subscribers for the duration of their terms.

* And--here's the important part--our new partner will buy access to the information center for all the other subscribers of the other newsletter. That opened a new and previously untapped stream of revenue for SHRM.

The turnaround for us: a favorable swing of $15,000-$20,000. Those are not huge numbers, but they are much better than the $1,000 net we were looking at in the budget.

That's what I call a breakthrough opportunity.

Pressure is increasing for associations to raise more nondues revenue. If you're running your programs well, you should see some increases as you go along:

* Advertising pages may go up.

* You may attract more attendees and exhibitors to your conferences.

* There may be a little more coming in from emblem and affinity programs.

* Maybe you can boost attendance at the seminars and workshops you sponsor throughout the year.

Maybe. But even if you do, all this is incremental. Many associations are looking for that breakthrough revenue source that will generate as much nondues money as ad sales from a new publication or exhibits from a new conference and won't require adding another department and a half dozen new staff members.

If you're looking for this kind of revenue stream, chances are it's looking for you, too.

Consider joint ventures. Joint ventures or project-based partnerships are enterprises in which your association and another organization share in the risks and profits of developing and marketing a new product or service.

Joint ventures can include mergers of newsletters with for-profit publications, copublication of books, or partnerships with other organizations to sponsor seminars. In other words, they can be any arrangement in which the association works with another organization to provide a product or service to its members at a lower cost and lower risk than it could have done by itself. These arrangements usually blend the production expertise and resources of the outside partner and the professional and market expertise of the association.

Many for-profit businesses are looking at associations as potential partners. Some associations are even looking at other associations for partnerships. The result: Opportunity is knocking, and all that many associations have to do is open the door.

But open it carefully. The opportunity is real--but so are the potential pitfalls. A deal that looks good may not be.

Partnerships and beyond

The main kinds of joint ventures are traditional partnerships, joint-development agreements, joint-marketing agreements, licensing arrangements, and sponsorships. Each type has its own structure, risks, and rewards.

From the association's viewpoint, each joint venture should have the same four ingredients:

1. The product or service should be appropriate for the association's mission. Don't offer something just because it's a good deal. It needs to be a good fit, too.

2. The partner should have a solid reputation, and don't take his or her word for it. Check out potential partners with the Better Business Bureau and with references. Do a credit check, too.

3. Any deal should include a special member price that is below retail. Otherwise, why bother?

4. There should be revenue--usually commissions or royalties--for the association. This way all members benefit from the deal, not only the ones who purchase at a discount.

Each partnership will have strength and synergy from a combination of forces, talents, and expertise between two or more organizations.

Traditional partnerships. These ventures are what the name implies: Each party has a similar risk and the chance of a more-or-less equal payoff.

For example, SHRM had been operating a famously unprofitable advertising postcard deck. The deck, issued three times a year, was designed for "house cards" to promote SHRM products to members. Across the years, paid cards from outside advertisers overtook the house cards in number--but there were never enough to make the deck even pay for itself, let alone make money. Even though a typical deck had only one house card, we had been willing to absorb a net loss of around $13,000 per deck for the privilege.

An outside publisher's representative handled the sales at standard commission rates. And along with the printer and the post office, everyone except SHRM was getting paid.

We began discussing a new deal. Our first offer to the outside firm was to encase the whole concept in concrete and toss it into the nearest river. We ended up with a partnership. Here's how it works. The representative firm and SHRM share the profits equally. This arrangement means no automatic sales commissions. That is an enormous risk for the representative to take up front on a card deck that had never--never--made a profit. The representative firm could spend lots of time selling cards for the deck and not make a dime if the deck even broke even--and breaking even would be a big improvement.

That provision gives the representative firm an incentive to sell a lot of cards. And the deal also gives the rep firm the authority to deal with cost-containment issues, such as negotiating printing contracts and agency commissions. Both have gone down since the agreement started.

SHRM's risk lies in paying for printing and mailing the deck. After all costs are accounted for (we factor out house cards), we determine how much money is left over and split it equally.

So far, every card deck produced under this arrangement--two years worth--has made a profit.

Benefit: You have the opportunity to reduce your risk significantly in a true partnership agreement.

But be careful: Make sure that each partner is assuming proportionate risks, which does not necessarily mean equal exposure. You may have more or fewer resources than your partner, and to be fair, you should share the risk in proportion. In addition, greater risk up front can translate to greater back-end profits if you're willing to gamble. If the odds are in your favor, don't go halves on something you can keep for yourself.

Joint-development agreements. Sometimes an association has expertise to develop a product but lacks resources. Another organization has the resources but lacks the expertise.

That's what happened when SHRM teamed up with an educational development company to bring a comprehensive set of audio, video, and computer-based instructional materials to market.

Launched several years ago, this series of products is based on SHRM's expertise in the practice of human resource management. The partner developed and updates the materials based on SHRM's standards and an ever-changing body of knowledge. The partner shares in the marketing and the proceeds, while SHRM owns the rights and the name.

Another joint-development agreement is in the works with a major publisher. Currently under discussion are plans under which SHRM would recommend authors or book topics to the publisher, who would make his own deal with the authors and publish the books at his expense with SHRM receiving credit as copublisher. SHRM would have responsibilities for marketing the books along with the publisher and would receive royalties on each sale.

Benefits: Associations can tap outside resources, reducing the need for staff time and production expenses, to bring new products to the members and to the market at large.

But be careful: Make sure the contract specifies who owns the product that you jointly develop. Make sure you include provisions for revisions if the material will become dated. Spell everything out in advance to avoid surprises later.

Joint-marketing agreements. Sometimes a vendor has a product that is squarely placed in an association's market. In exchange for access to the association's members, the producer offers special members-only discounts and rebates a portion of the sales price to the association. SHRM participates with a variety of products, with SHRM contributing free advertising for the publisher. This kind of deal works best with newsletter subscriptions, books, and videotapes.

Benefits: Associations can get a deal for their members, enhancing the value of membership and increasing nondues revenues.

But be careful: Competitors with the association's partner may cry, "Foul." In many cases, these deals won't be worth the trouble of appeasing, or the cost of losing, angry advertisers or exhibitors, so don't be hasty.

Licensing arrangements. Many associations have one or more member services that are uniquely theirs, something their members can't get anywhere else. At SHRM, one of these services is access to the SHRM Information Center. Members may call a toll-free number to obtain technical information on virtually any human resource management topic. (Last year the center received more than 23,000 calls.)

A few years ago, we launched a newsletter aimed at nonmembers and offered information center access as part of the subscription. Then came budget time and the story I told at the beginning of this article. By the way, as I write this article, we just received our first check on the licensing deal. It was for more than we were budgeted to make on the newsletter for the whole year.

Benefit: You may be sitting on a potential nondues revenue gold mine and not even know it. There could be big bucks in licensing out some of your exclusive member services.

But be careful: If you start selling member benefits a la carte, you may dilute the value of belonging to the organization. Also, if your organization doesn't have a culture in which departments cooperate closely on projects, you may have trouble internally. Negotiations with department heads inside your organization can be as challenging as those with your prospective business partner.

Sponsorships. These types of deals are more like selling ads or exhibit space, but usually they are for other kinds of exposure. At conferences, associations often can find sponsors to pay for receptions, door prizes, or even snacks in the registration area.

We've expanded the concept into publications: A major advertiser underwrote a leader directory we published two years ago. This year a publisher that normally doesn't advertise in our market agreed to underwrite a major portion of the annual member directory.

Benefit: You can bring in extra revenue to offset expenses.

But be careful: Some vendors have limited promotion and advertising budgets. Getting a sponsorship may reduce advertising or exhibition revenue from the same vendor. What you're looking for is a way to increase the total net to the association, not only a way to move money from one pocket to another.

Where to find a partner

Chances are you won't have to look too hard for a joint-venture partner. If your association is in a clearly defined market and has a solid membership base, joint ventures will find you.

And since people join associations for information, the first folks to knock on your door most likely will be publishers or companies that provide educational programming or consultants to your field.

One of the first kinds of joint ventures SHRM ever entered into involved surveys. We have provided access to our members by a major outside consulting company to conduct an annual salary survey. The consultant handles the tabulation, analysis, and production of the results. We market the product together and share in the proceeds.

As you evaluate potential partners, remember:

* Your partner's integrity and reputation will rub off on you. If the outside organization isn't reputable or professional, your reputation is at stake. Address problems or concerns immediately, and if you can't resolve them quickly, get out.

* For anything other than sponsorships, your worst partners may be your biggest advertisers or conference exhibitors. Most associations avoid endorsing products or services in their markets. If you're dependent on advertising or exhibit revenue, you want all of your vendors to know they have a fair chance to compete.

* Conversely, your best partners may be organizations that are solidly in your market but don't advertise or don't advertise much. In our market, many publishers and consulting companies fit this description. If you're looking for partners, one way to find them is to ask your members which products and services they buy and which companies they buy them from. You might discover a hidden product category that you can pursue for profitable business relationships.

What to negotiate

Once you and a potential partner have found each other, you'll need to come to an agreement on who does what and how the profits are divided. Here are some guidelines based on how we do it at SHRM.

Don't look for one-night stands. When we enter into a partnership, we're building a relationship that we expect to last indefinitely and to lead to other mutually profitable ventures. In other words, we aren't out to make a quick buck--and if we think that's all our partner wants, we back off.

Understand your strengths. If a major outside organization approaches us for a joint venture, we don't take it as flattery. Analyze what you have that your potential partner needs, and capitalize on those needs in your negotiations.

Don't forget who your customers are. Make sure that when you have a deal, you'll be able to look any member in the eye and tell him or her why you did it and why it's in everyone's best interest.

Avoid exclusive deals. We keep our options open as much as possible. Wherever you stand on this subject, make sure you address it during negotiations.

Get approval rights. If your name is on a product, especially in a joint-publishing deal, make sure you have the right to approve the manuscript or other material.

Get a contract. And be specific. Make sure everyone understands his or her role in the agreement: what has to be done and when it has to be done. Spell out cost sharing--who pays for what, who provides what. And spell out revenue sharing. Include payment dates for royalties or commissions. Make sure everyone knows up front who will own the rights to the product or service. If it's copyrighted, who has the copyright? If it's trademarked, who owns the mark? Nothing is too trivial to be included in a contract.

Think outside the box

The main rule: Be creative. Color outside the lines. Don't let old or once-forbidden ideas about doing business dictate how you will do business in the future.

The $50,000 sponsorship we secured for this year's member directory started with a joke. In a meeting with a representative of a publishing company, I tossed our directory on the table and asked, "You want to buy this?"

The representative's first impulse was to ask for the price and reach for her check book.

"No, not this copy," I said. "The concept. The whole thing. Interested?"

She didn't laugh. Instead we talked. Over a period of several weeks we negotiated the sponsorship, leveraging in other SHRM products, such as mailing list rentals and newspaper advertising.

Our bottom line: We nearly doubled the revenues from the directory and opened up other avenues of discussion with a valuable new partner.

The sponsor's bottom line: New access to a market in which it has a broad line of products.

The winners: Everyone. The association. The sponsor. And most of all, our members.

John T. Adams III, a member of ASAE's Communication Section, is vice president of publications for the Society for Human Resource Management, Alexandria, Virginia.
COPYRIGHT 1993 American Society of Association Executives
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.

Article Details
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Author:Adams, John T., III
Publication:Association Management
Date:Jul 1, 1993
Previous Article:Teaming up for success.
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