5 tips to Avoid Strategic Partnership Mishaps

iStock_000009912341Small_LRThe make / buy /partner decision is one of the key decisions in growing your business.  Forming effective strategic partnerships or alliances can be the quickest way to grow your business and reduce risk. Unfortunately “not all that glitters is gold”

By their very nature strategic deals typically have significant upside if executed well and like wise catastrophic side effects if they fail. Some examples of strategic partnerships may be: outsourcing manufacturing, trading equity or market territory in lieu of cash payment or selling compatible products into the same end market.

Strategic Partner Success = Shared Vision + Shared Risk + Optimised Resource Deployment + Shared Rewards + Clear Agreements

5 mistakes to avoid:

  1. They should be a supplier/distributor not a strategic partner In the rush to grow the business you sign up a supplier or distributor as a strategic partner and in doing so agree terms that hinder your business in the long term.  Make sure you pick both the type of partner and actual partner with some fore thought keeping in mind the bigger picture, including your eventual acquirer. Make sure they are bringing competencies and assets to the table that are complementary and not core to your business. The business model canvas can help here.
  2. No written agreement / agreement with no teeth Take the time to document your relationship and commercial terms from the beginning, don’t assume anything. The mandatory first step is a simple Heads Of Agreement (HOA) – you can do this yourself. As the relationship progresses or the magnitude or risk increases, shift to a formal legal agreement.  Make sure you cover: what each partner wants from the relationship, intellectual property, who owns customers, what happens if the partnership is dissolved and of course commercial terms.  Make sure the signatory is the guy who writes the cheques, i.e has the authority to pay the bills.
  3. Missing shared vision – brand / values misaligned Fundamental to a synergistic relationship is that your visions and philosophies are aligned and compatible. Document key drivers for the partnership in the HOA.  Acknowledge power/risk differences as it’s rare it will be a 50/50 relationship.
  4. Partnership management – over dependence on single point of contact
    When dealing with large companies or non owner manager companies make sure you have at least 3 points of contact into their business and vice versa. People move on, personalities get in the way and it is great to ensure your relationship will out live a staff change or spat. Put in place a mechanism to escalate and deal with issues and regularly review the partnership agreement.
  5. No clear KPI’s or Exit path Document how success and failure is measured. Success maybe, profitability, market share, avoiding distraction of non value add services.
    The prenuptial part of your agreement is the most important part, including how you will terminate the agreement, the right to work with / appoint competing parties etc. Do not forget to include in your thinking what happens when you get acquired.

Risk Management  Successful partnerships are all about managing risk. Make sure you spend time to do a risk assessment before jumping in.  My no.1 piece of advise is consult a 3rd party to challenge your business logic before forming or signing anything.

Risk = (Likelihood of an event) x (Impact)

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If you would like a hand to review your strategic relationship plans give Growth Management Consulting (GMC) a call.

GMC also facilitate business planning/strategy sessions, prepare companies for investment and develop/coach business pitches

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Finding New Strategic Opportunities

 Take yourself out of your business and explore the industry view

 We all suffer tunnel vision when it comes to running our businesses. Even worse, when it comes to finding time to do some true “blue oceans” strategic thinking.

Too often our thinking is constrained by looking at our world from our own perspective rather than that of the customers and the industry eco-system we exist in.

We all got a great reminder of this when Kodak got into major financial trouble in Jan 2012. How could such a giant with 1000+ patents in digital photography screw it up so bad.  My take, they failed to adapt the culture (attitude) of the business to the new value chain and eco-system that emerged into the new digital age.

Real Strategy

Strategy is most probably the most miss used word in business. Strategy is about understanding the lie of the land, understanding the geography you are about to do battle in, assessing the enemies strengths and weaknesses looking for gaps and opportunities to capture a market.  Its not about what to do every day operating your business – alah business planning and execution.

Mine your external value chain for opportunities

If you are looking for investment, market or channel partners the best place to start is looking at your customers and end users. Then map all of their suppliers, customers and their influencers out on a huge mind mapped value chain. Documenting suppliers, to suppliers, to customers and so on. By reviewing all the players on this map e.g. who holds the power of influence, who owns critical scarce resources and who is making the profit etc you will uncover a raft of possibilities.

Include in your thinking competitors as well, most NZ business shy away from conversations with their competitors let alone doing deals with them to collaborate in the global marketplace.

Look for market trends that will uncover future change in your industry

Take the time to look for current trends across your complete value chain so you can spot hot spots or market opportunities to take advantage of.

 Business Dominoes – Strategic Development Programme

If you are after some fresh thinking around how to handle some major strategic decisions for your business and avoid being blind-sided by some giant guerrillas in the market I would suggest attending the Business Dominoes Programme. It’s a 4 day intensive boot camp, where you will be armed with and use a variety of tools to aid you strategic thought processes, make decisions and chart a lower risk path to success.

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Free Entry to MyBizExpo:

The My Biz Expo is running from 14-16 October, ASB show grounds, Auckland.  Business Dominoes will be on stand 2023Register online now at www.mybizexpo.co.nz and save yourself the $20 entry fee.

 Free 1 hr Seminar at Biz Expo – Tuesday 16th  Oct – 1pm
Funding Business Growth  – Tools and strategies to build a scalable business
Presenter Business Dominoes – Mark Robotham

Better ways to finance your business than investment

So you are short of working capital (cash) for you business:
Is getting an Angel Investor the best option? Most probably not.
Should you get investment ready – definitely!

In most cases, the act of preparing for investment will eliminate the need to raise money.  Companies that get investment typically will receive the capital to accelerate growth, not initiate it. 

Apart from having a realistic valuation expectation, being “investment ready” is simple, get clarity and focus around:

  • Product or service value proposition
  • Business model, strategy, and plans
  • Having something unique and defendable in your product offering
  • Building and maximising the productivity of your team, including governance
  • Have customers that buy stuff

There is no rocket science around all this, but I consistently see companies going to the market to talk to investors that do not have their act sorted. Equally so, they are attempting to do too many things with mediocre results.

Now for the reality – raising capital is slow and arduous process.  Typically it will take you six to 24 months before the money appears in the bank account and will consume at least 200 hours of your time.

Many businesses seeking capital will go bust before they get there and the more fragile their current position, the more likely it is they will not attract the capital.

Without a clear strategy and go-to market model, you are unlikely to find an investor.

So if Angel Investment is not the magic answer what is?

One of the issues of technicians starting businesses, apart from those raised in my e-myth blog post, is their lack of experience in structuring deals of any type, too often playing with price as the only negotiating tool.

Other options for funding growth include:

  • Selling more
  • Charging more for your product – what effect would there be by increasing your sales price by 30, 50 or 100%? In many cases increasing sales price will increase sales.
  • Establishing better sales channel partners – preferably ones that already have your target market as customers
  • Using customers as promoters of your product
  • Sharing promotion costs with distributors
  • Licensing deals
  • Structuring payment options eg. 50% deposit with order
  • Debt finance
  • Invoice factoring
  • Government grants – yes there are still some available

For those who are looking to get smarter around strategy and structuring their business for growth, Debbie Humphrey and I run a four day workshop called Business Dominoes to tackle this very issue.

Foolproof: De-Risking New Ventures

Whether it’s a start-up or a product line extension, next to having the right team on board, validating your market prior to developing your product is the best way to increase the probability of your success.

Often I hear the cry “oh, this doesn’t apply to us”…. “We do disruptive technology like Steve Jobs… “our customers don’t know what they need till we show them”.

Truly successful disruptive technologists use research to back up and tune their visionary thoughts. They study their target audience’s behaviour to the point where they can create powerful product insights based on a combination of research and creativity to de-risk their investments. Without this behavioural research you are simply guessing.

It’s no wonder we have such a high failure rate with companies in this country when you hear facts like – “only 20% of companies approaching MOVAC for investment have completed market validation, which is a perquisite for us to invest” – Dion Mortensen

85% of those completing market validation will fundamentally change the functionality of their product, ultimately creating a product that will be more profitable and actually sell!

Jenny Douché has just released her latest book Fool Proof – How to find and test great business opportunities”.

“This easy to read book is full of great tips and guides, it should be compulsory reading for all new ventures and product managers”.

Jenny has included some insights from New Zealand entrepreneurs (Rode Drury’s Xero, Campbell Gower, Phil & Teds buggies, etc) and a few local investors who have experienced the fruitful outcome of performing market validation.

Foolproof is an easy light read, designed for entrepreneurs – 2 aeroplane trips should have it read with no bullshit or big theories. It will be one of those books that you will refer back to.

Unlike other books on this topic, Jenny actually gives you plenty of actionable content, rather than just theory, including lists of questions for all participants of market validation including: target end users, distributors, market influences and enablers. She covers both desk research and engaging with stakeholder groups, including how to talk when interviewing and surveying.

Too many entrepreneurs  fail to look at the wider macroeconomic factors that will influence their business both now and in the future. It’s amazing what insights you can gain from mapping and studying your market place’s value and supply chains along with current trends. (Note: value chain mapping is one of the key activities we do in Business Dominoes – strategy programme). By performing this type of research, you can save yourself the embarrassment of being blind sided down the track, or worst still investing in the world’s best mouse trap that no one will ever buy.

Just because what we have created is faster or better than the existing market alternative, it is not a right of passage to easy sales. As creators of new products, we easily forget the life of a consumer; where we are faced with better and newer products and services, yet we choose to ignore them and use what we consider easy, safe and predictable.

Clearly getting there is a balance between “no market validation” and “doing so much research you never do anything”. Either extreme is going to be a recipe for failure.

Some takeaways on Market Validation:

  1. Market validation before undertaking any major investment is an essential risk mitigation tactic
  2. If you are seeking investment, doing market research will put you ahead of the pack
  3. Do both desk and personal research – yes, talk to potential customers
  4. Map out your market place (value chain and trends), make sure you are not missing any opportunity or trend merging – a lot of this can be done by desk research and validated by contacting key industry commentators
  5. Engaging key stakeholders in the industry in market validation often builds loyal evangelists for you and your new business
  6. A quick prototype or sketch can help discussions
  7. Market validation is not a one-off exercise, it is a crucial part of improving your business and product over its life
  8. If you are developing disruptive technology then you need to be doubly sure of your target audience’s “pain” and more importantly motivation to change behaviour to adopt your new product. Do some behavioural research.
  9. Be warned if you have been in the industry or are a target user – you do not know enough.
  10. Doing market validation will often open your eyes to a better product than the one you have conceived by yourself.
  11. Buy Jenny’s book

I have already purchased 10 copies of the book and are handing them out to clients as compulsory reading.

Milestone Map-Plan

Need to communicate your business plan to attention deficit stakeholders? … or perhaps just get smart feedback on your plan.

Creating a one-page milestone map-plan on a chart is a great way to keep you, your team and advisors focused. With a small list of tactics and key measures you have a far greater chance of achieving your desired end result.

Many business growth strategies fall apart at the transition point between creating key strategic themes and establishing a set of measurable tactical tasks and goals.  Too many businesses end up with huge lists of tactics, most of which will only get token attention, with the end result being  the plan never being executed.

This technique will force you up front, to prioritise and rationalise your tactical list of things to do. The milestone map-plan is a great way to succinctly communicate your business plan both past, present and future to all stakeholders of your business. Particularly when you are seeking intelligent feedback and buy-in from potential investors and staff whose attention spans are limited.

A fictitious example of a web company is shown below to illustrate the technique. (click the chart image for larger view)

Tips on using the milestone map-plan:

  • Limit yourself to max of 10 milestones per year – prioritise the top 10 that will influence or measure success
  • Split your milestones across different functional areas.  Add rows to suit your business but make sure you include at least finance, market, process and people.
  • List the last 1-2 years to help provide flow
  • Include additional boxes on key risks and your competitor’s response, both historic and forecast.
  • Do not fill the chart with activities that will naturally happen unless they help with the understanding of the plan
  • This is not a product roadmap –list only major product releases/events
  • Put it up on the wall by your desk for daily review

The milestone map-plan is great for helping all staff members focus on tasks that will help you achieve your goals, as well as showing the dependencies of tasks.

If you find yourself or your staff overtime not executing tasks on the plan then its time to challenge the map-plan and test out whether “the plan is still relevant”. If not change the map-plan otherwise re prioritise your work.

Put your plan up for continual challenge with advisors and staff. Do not be afraid to throw it out when the environment changes. Do not fall into the trap of “the law of committees”

If a committee is allowed to discuss something long enough, it will inevitably vote to implement their idea, simply because so much work has already been done on it.”

If the plan is no good say so and do something about it.

Succinct visual tools like this and the business model canvas, create powerful discussions very quickly and maximise interaction time.
More importantly they increase the probability of success.

10 tips for creating interest in technology companies

Most deals are completed by not who we talk to, but who our audiences talk to… “Its not what you say, it’s what they pass on that counts”

The acid test of your pitch is did it get passed on and ultimately did it go viral.

Talking  in the language of our target audience not ours takes practice. If you are a scientist and/or technologist seeking endorsement and funding from investors, start talking their language.

Here are 10 tips to creating effective pitches:

  1. Get attention be different – Opening WOW.
    Stand out from the crowd, wake people up.   Just because you have their physical presence you do not have their mind.
    Don’t be boring.
  2. Be succinct  – Talk in simple 10-30 sec sound bites, create a 3 min version first.
    Long messages are hard to process and seldom get passed on. The power of your message is inversely proportional to the number of words used.
  3. Build simple context for relevance
    The more complex the technology, the greater the need to add a 10-30 sec statement that simply explains why we should care about this topic and why is it relevant to other people.
  4. Customer Stories engage audiences
    The most powerful way to explain a technology is to give us an example client, their problem and what difference your solution makes for them.  Customer cases are proven to be 80% efficient in closing sales. Ignore the temptation to explain how your technology works – its secondary, almost irrelevant, wait to be asked.
  5. Contrast & quantify outcomes not technology– (with & without)
    Build on your customer story by quantifying the difference your product made comparing life before and after your product. Audiences like black and white, not complicated shades of grey.
  6. Explain your business model – including how you make money and go to market.
    Use the business model canvas or a variant of it to illustrate your business model in a page.
  7. How you say it is more relevant than what you say
    Research showed that message impact is determined 7% by content, the rest is by body language and voice (vocal variety). Don’t make your pitch boring by the way you deliver it.
  8. Investors invest in people first – technology second
    Tell us something about your team and why with them on board this project/venture will succeed.
  9. Be clear about both where you are today and what your BHAG is
    inspire use with your vision, but show us how you will get from where you are to the end goal
  10. Be true yourself and your brand
    Authenticity and personality counts- have a character and a way and be proud of it

And do not forget to listen … pitching is all about baiting an audience to begin an intelligent  two way conversation…

more on this topic including an elevator pitch template >

No Need for Stealth Mode for New Ventures

Pitch your product without giving away the “secret sauce”

Recently I came across a great blog post – Start-ups in stealth mode need one piece of advice – Just Stop .  Having spent the last 3 years in the early stage investment markets I can confirm this sound advice. I have never yet meet a business that wants a NDA (Non Disclosure Agreement) signed before they speak to you,  having any chance of success.

Not enough business people bait their audiences using a quantified value proposition. Instead they revert to the easier and more natural option of telling their potential customers about what great technology they have and how it works. These same people complain that their competition are stealing their ideas.

It’s about time the people giving advice in intellectual property educate their clients on how to talk about their business and their solution
without having to disclose details that would break any potential future patent rights.  Rather than simply advising them to say nothing, which usually gets translated by young entrepreneurs, into avoiding all contact with potential clients and investors – hence stealth mode.

So my advice is simple:

  1. Practice pitching your business in terms of value proposition rather than technology
  2. If your business can be destroyed by telling some one about it, stop now.

For the lazy ones who haven’t clicked the link above to  read Jason Freedman’s  full post  yet, you should have, here are the highlights:

Reasons you do not need to be in stealth mode:

  1. Execution is more important than the idea
  2. Someone else already has the idea
  3. Totally unique ideas generally don’t make it
  4. Failure is more likely through your incompetence than competition
  5. You desperately need feedback
  6. First mover advantage is silliness

If you would like a hand learning how to pitch without giving away the secret sauce – then attend the “Power Pitching Master Class” or give me a call.