Partnerships with big brothers can be way to kickstart growth

But smaller firms looking for alliances with bigger firms must carefully assess risks of that strategy

Scores of new alliances are born every day. One of the fastest, least capital-intensive ways for small to midsize companies to grow is to connect with a larger, more powerful partner or brand. But there is risk. Experts estimate a failure rate as high as 60 percent among new alliances. An Executive Action report from The Conference Board looks at how mid-market companies can go about finding a “big brother” they can trust.

For all the risks, an alliance with a larger company is one of the only ways that some smaller and midsize companies have to accelerate growth without huge capital outlays. Normally, growth takes patience and a very long time. Brands are not created overnight. But with help from a powerful partner, a smaller company can raise its visibility, develop a new technology or product, gain access to broader marketing channels, tap into sources of new customers, or ride the coattails of a strong brand.

Making an alliance work takes tremendous effort and commitment. And the risks are not to be underestimated. What if the larger company is not so well-intentioned and walks away with the smaller company’s secrets? Sometimes the larger company develops other priorities and allows the partnership to fall apart.

The Conference Board examined small and midsize companies that appear to have overcome the hurdles to see how they benefit from alliances and collaborate with their partners.

“Since the sharp falloff in alliance creation after the dot-com bust in 2001, companies have learned much about how to design and manage these partnerships more effectively,” said Howard Muson, author of the report. “Alliances are making a strong comeback, and companies have more realistic expectations about what they can achieve.”

Firms appear to have learned from the past. “The deals being done now tend to be better thought out — with the caveat that there are still tremendous challenges around governance,” added David Ernst, leader of global alliances for McKinsey & Co. in Washington, D.C.

Topics Mergers & Acquisitions