Joint Venturing

A good business partner can boost both your productivity and wealth creation, even if that partner isn’t a part of your company proper. Joint venturing with another entrepreneur, for example, is an excellent way to leverage someone else’s experience, knowledge, and resources. Now, I’m not suggesting you try be a parasite; a joint venture is a kind of symbiosis, a strategic alliance in which two or more business entities come together to form a synergetic relationship that makes them more money together than they can make apart. In other words, your joint venture (JV) partners will leverage your experience, knowledge, and resources, too.

Reasons for undertaking JVs are as variable as a company’s needs, but among the most common are a desire to share expertise, customers, and the costs of research, development, and testing new products. This is especially advantageous when you can’t hire the expertise that your partner has in hand. Now, some people will tell you that you should only partner with someone when you can’t hire that same expertise. And yes, it’s true that it’s a good idea to hire that expertise in an employee or a contractor if you can. But don’t shy from JVs, even if you’re fearful about opening up your company to someone else, be they stranger or friend. That’s the number one reason most people don’t joint venture: fear. And yes, some people might take advantage of you; but this is a possibility you can minimize if you’re careful (as you should be). A good JV can be wonderfully profitable, and the more you learn about them, the less you’re likely to care about opening up to "the competition".

Other things that stop JVs are simply that many people are blind to their existing assets and just can’t see how joint venturing could possibly be profitable for them, and the fact that it costs money to put together these deals. But what you should be asking is not, "How much does it cost?" but, "How much money will it make?" The key psychology in doing JV deals is to create an additional income. While JVs can turn sour, in the majority of cases they’re not going to steal money from your bottom line. A good JV will not take away from what you’re doing; no, you have to view them as supplementary income added into the marketing cycle, a new profit center that you can built upon.

The best part of a JV is the uninhibited collaboration between people, and the way it can convert competitors into allies—at least temporarily. So I encourage you to take advantage of this exciting way of building your business. As with any business strategy, you have to make your plans and then be flexible with them in the face of reality. But it all starts with having reverence for what you bring to the deal. You have to believe that you’re worthy, that you’ve got something special to offer, and that you’re going to get what you want.

The first thing you should do is compile a list of people you respect and would like to work with and learn from. Some of my colleagues call this a "JV hit list." If you know someone on the list personally, contact them directly and make your pitch; it’s usually easiest to build a relationship with an acquaintance or friend in the business, because they already know you and have some idea what to expect from you. Otherwise, mail the people on your list regularly with a JV pitch; every other month is good, but you should do it at least a couple of times a year. Send them something to benefit their business, like a special report they can use, free of charge, as an incentive in one of their offers. Ask them what you can do to help them in their marketing efforts. When pitching, talk about your credibility, talk about back end potential, and offer proof for what you’re saying. If you can make it seem like you’re going to provide them free money with no work, and offer the right evidence and numbers to prove it, then they might just bite.

If this process sounds a tad familiar, it should; it’s not much different from the way you land a customer. However, the potential JV partner is going to be quite aware of what you’re doing when you offer them the bait, and they know there’s a hook in there somewhere. Not that this is a bad thing: you’re proving to them that you know what you’re doing, and just as with a prospective customer, you’re making it worthwhile for them to bite the hook and be reeled in.

Of course, before you make your cast in their direction (to continue the fishing analogy), you need to be sure that your potential JV partner is worth the effort in the first place. One of your most difficult tasks in the JV world is always going to be finding decent partners. To get good at it, you need to look for alignment to your needs, ambitions, and directions; complimentary abilities and processes (i.e., try to find someone who has what you lack, and vice versa); and the potential for synergy. And always make sure your JV partners can fulfill for your customers as you would for theirs; in looking for JV partners, listen for how—and how much—someone talks about delivering on their product or service. No matter what you have, no matter what they have, you can’t do a good deal with a bad partner. Your best bet is to angle for the stars—the top performers who can best advance your cause.

Now, you can’t expect to be a perfect joint venture master right from the beginning. That’s unrealistic; you’re going to make a few stumbles when you get started. You can minimize the problem by going for the highest-probability deals when you’re starting out, sprinkled in with the occasional deal that offers a big payoff if you can work it. Avoid large, public companies; instead, start with small businesses and privately owned corporations, particularly those run by people like you. It’s faster and easier to get started this way. One way to ease into a JV is to find people who generate lots of leads yet don’t work them systematically, or a product developer or author with a great product who doesn’t know how to market. Oftentimes, such a person will believe that they’re in the strongest position and will be eager to JV, when the fact is that they’re really in the weakest position, because they don’t know how to market.

Know your potential JV partner’s expectations from the beginning, and find out how you can contribute to their needs. Look for someone with underutilized assets that you can access, and let them look at yours. Such assets may not be obvious on either side of the equation, but remember, most businesses have some stored, hidden value that you can make use of. A canny marketer is always aware of the value of accessing an asset without owning it; it’s often cheaper, more convenient, and faster. So laser-focus on undervalued opportunities and assets that just aren’t being used to their full potential. For example, there are some assets that are utterly worthless when they’re not being used: airline seats, hotel rooms, and radio advertising spots are good examples. Even the ones that are profitable may still be underutilized: idle vehicles, office space that’s not used at night, warehouses that aren’t at full capacity, telemarketers who are under contract but are twiddling their thumbs with nothing to do. If you can leverage these things, you’ll make money for both you and your JV partner, so they’re not likely to complain too much. It’s a great way of controlling the asset and let someone else do the work.

When you do graduate to the big time with joint ventures, go straight to the top. You’re looking for the proverbial PWM—Person With Money. This may not be as straightforward as forging a deal with a smaller competitor or colleague, of course; you may have to work harder, and be more aggressive, to form and maintain the relationship. Try calling your potential JV partner on the phone and blowing right past their gatekeepers as if they’re not even there—and I assure you, the big guys will always have a dragon at the gates to protect them from being interrupted. To get by them, you have to take charge. When the gatekeeper answers, sound so important that they feel like they might get fired if they deny you access. When they ask, "What’s this in reference to?" you say, "Who is this?" Never, never pitch to the gatekeeper, unless all else fails, because gatekeepers water down everything you say in their summary to the boss. So be perfunctory, if necessary, though not rude. Let’s say I wanted to talk to Steve Jobs. I’d tell the gatekeeper, "This is Kent Sayre. I’m looking for Steve Jobs. Let me have Steve, please." Of course, even if you get the gatekeeper to forward your call, there’s no guarantee that the boss will agree to talk to you. But you still may succeed if you send the gatekeeper back to the boss enough times, so that they finally get fed up and take the call.

When you do speak with the guy (or gal) in charge, ask if you can talk to them for a set number of minutes—say 10 minutes, or 22—and stick to that time limit unless they ask to hear more. Be very straightforward and clear with your pitch. Begin the conversation in the middle, as if you’re old friends, and take an assumptive attitude. If you’re feeling especially bold (and hey, boldness is a defining characteristic of the entrepreneur, right?), mention that you’re going to their competitors afterwards but you thought of them first. If they sound uncertain or try to reject you, put the feel, felt, found (FFF) strategy into play. Basically, you want to empathize with them; make it clear that you understand how they feel and why they feel that way, and that you once felt that way too, so you can relate. Then tell them what you found out to change your mind. The FFF strategy doesn’t work in every situation, but it can help you form and solidify a relationship with your potential JV partner. And hey, it works with customers, too!

Whoever you end up joint venturing with, you should always propose and maintain a deal that’s more than fair to both parties. Position yourself so that all sides are going to benefit from the association; your partner is going to learn things that they can apply elsewhere, and so are you. Approach the deal from their perspective; customize the sales copy for them, bolster the guarantee, and add killer bonuses. Arrange it so that they get a new product to sell, while you get to leverage their relationships with their customers. Also, in any JV, the partner who spends the most or takes the most risk should get the most profit. For example, if you’re doing all the mailing and providing the product or service, while your JV partner is providing the mailing list and their credibility, then take the documented advertising cost off the top and then evenly split the gross revenue (that is, the total amount of money collected). Alternately, the marketer taking all the monetary risk can get 70% of the gross.

Incidentally, when you start out with JVs, the marketer taking all the risk is most likely going to be you, at least until you prove your mettle and rack up some experience. It’s kind of a rite of passage. But don’t assume that someone is taking advantage of you just because they’re the inactive partner in this relationship: they’re staking their reputation with a customer base that they’ve spend years building on your integrity and ability to deliver a good product. That said, it’s always better if you can be the one who collects the money for the JV. Nobody pays on time in JVs, although they should.

Before you dive right into a joint venture, you have to treat it like any other business partnership: do your homework, and protect yourself. If you don’t know your prospective partner well, investigate them, their products, and their reputation—especially if they approached you first. If you’re planning to sell their product, service, or opportunity to your list, test it yourself and make sure that it works as advertized; after all, your relationship to your customers is at stake, and you’ll have to scurry to fix it if a JV partner screws you over. One way to test the worthiness of someone who’s approached you is to get them to provide at least three references from people who they’ve done deals with in the past who would do a deal with them again—and then to be diligent in checking them out. You may need to modify this approach, of course, if they’re also new to the JV world.

For your own protection, you should always put everything about your JV deal into writing, if only because of the concept of opportunity cost: once you commit yourself to something, you lose out on other opportunities. That can destroy your business if you end up enmeshed in a bad deal. So draft a firm agreement, specifying and defining everything explicitly; and it goes without saying that you should never sign a document that you don’t understand. Get an attorney involved if you must, but I’d recommend that you avoid that if you can; attorneys can be deal-killers.

One thing you should never do is enter a JV partnership without an exit strategy. Being able to get out of a deal can be the most important part of any JV agreement. At the very least, you should have a minimum performance clause that allows you to terminate the contract if they don’t measure up. The more exclusive the deal, the more you have to include minimum performance. Think about it—how would you like to have a deal to distribute your product completely locked up by a partner who then either has difficulties and can’t distribute the product, or just decides not to? If that happens, you’re up that creek again, and you’re not making a cent. It’s best to simply avoid exclusives. Arrange things so that you can offer the same deals to other prospective partners, if you like, and they can do the same. If you do work out an exclusive deal, make sure that you get a nice, big check up-front.

Your ultimate goal is to create profitable long-term JV relationships, not one-hit wonders. It may take you a while to click with the right partners and make things work the way you want them to, entrepreneurs being the way we are; sometimes, two or more strong personalities just find it difficult to deal with each other over the long haul. As one of my colleagues puts it, in joint ventures, people always get worse. If something starts out bad, it’ll get worse; if something starts out great, it’ll become good. That’s a sobering thought, and while it doesn’t apply to every JV relationship, it’s something to keep in mind before you get too far into a deal.