Choosing a big brother

Experts interviewed by The Conference Board suggest some criteria when selecting a potential partner:

• Before bringing in lawyers to draw up contracts, get the partnering teams together in a room to talk about philosophy and goals. Said Robert Spekman, professor at the University of Virginia’s Darden School, and author of Alliance Competence: “I don’t care how good the deal is. If your partner doesn’t share the same vision, the same set of morals and ethical standards, walk away.”

• Look for clues that the larger partner takes you seriously and truly wants to help foster your growth as well as its own. You need assurances that your company will be listened to and have a voice in major decisions.

• Do your due diligence about the potential partner’s behavior in past alliances, whether it has kept its promises and maintained the trust of its partners.

Although many innovative smaller companies fear that a bigger company may steal its proprietary technology or processes, a bigger risk is that they will take too long to do the deal or won’t achieve the objectives because the more process-heavy partner can’t move fast enough, said McKinsey’s Ernst.

He suggested a few ways to reduce the risk when small companies partner with big companies:

• Talk to at least three companies and create an “auction” for the product or technology that you want assistance in commercializing. Without a firm auction date, big companies may take their time coming to the table.

• Ask for estimates on how long it takes the company, on average, to make key decisions, such as hiring a new plant manager or launching a new product.

• Find out what marketing and R&D resources the company plans to assign to the alliance. Ask, for example, “who are you going to assign to work on this project?” and write their names into the contract.

The smaller company should estimate how much of the CEO’s time will be consumed by the alliance. Because the smaller company may be staking its future on it, the CEO often takes charge of the alliance. Lost time for small to midsize companies means fewer sales. Will the returns justify this diversion of the leader’s attention? If so, the CEO should have a backup team in place to run the company while he or she is keeping the alliance on track.

Source: Brotherly Alliances, Engines of Growth, Executive Action No. 237, The Conference Board. Visit www.conference-board.org.