Partnerships 101

While working on a business, an entrepreneur may have to create partnerships with other people or companies for different purposes. Our resident contributor, Der Shing, one of our resident contributors and a local entrepreneur, presents a basic guide to provide some advice on how to pick, manage and leverage partnerships.

Contributed by Lim Der Shing

Another topic that is much on my mind is the competitive nature of partnerships. In business, you will always have a chance to go into partnerships with other businesses. These businesses may be providing complementary services or may even be competitors. Many partnerships work spectacularly well and others are ho-hum while others are downright destructive and wreak havoc on a firm. So how does an entrepreneur choose partners and what should we look out for? I am basing the article on my personal experience and on what I observe from the market.

1) Choose partners who are much larger than you and who are in a clear complementary area with small likelihood of moving into your area.

Take for example a recent startup specializing in loyalty cards. Partnering with a big credit card owner would make sense. The danger of partnering equal size or smaller firms it that they will be as cost conscious as you are and not as generous when need be. See point 3 on give and take.

As for competitive firms, you will always be wary of them and of sharing. A surefire way to disaster.

2) Spell out as much detail in the partnerships as possible.

It will be painful but spell out scope of work for each partner. Spell out pricing, roles and responsibilities, termination clauses, compensation clauses, cost of partnered services, clauses for amendments etc etc. This will prevent pain later down the road when expectations of partners do not meet.

3) Give and Take

Partnerships are inherently competitive even for complementary companies. It is tempting to always just think for your side’s benefit, but if you want it to last and be mutually beneficial, you will need to give sometimes.

4) Partnerships are not meant to last forever

After some time, even in the best partnerships, there will be frays and problems. Maybe your company’s visions have gone separate ways, maybe personalities do not match. Whatever the reason, you must know when to end partnerships. It is best to end them when you are strongest as you can then find ways to replace that partnership. For example, if you have been relying on a third party for marketing, build alternate marketing channels so that the loss of the partnership is not a big deal.

Never let a partnership outlive its usefulness. You may find yourself stuck with a useless binding agreement that will only hold you back.

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