What makes a successful joint venture?
Making joint venture partnerships work
We’re software developers working in the CRM arena. Our turnover is around £3m and we’re looking to joint venture with another firm which will increase our capabilities. The company is of a similar size and will complement us in terms of the markets it operates in, but I’m keen to ensure the relationship works. What else do I need to consider?
David Clayton-Smith answers:
Joint ventures (JV) are a great opportunity for businesses to accelerate growth, to gain skill, capabilities, market access etc. On the face of it they provide a perfect matching of needs but their history of success is patchy. I have sat on two JV Boards and have seen first-hand the constant attention that is needed to keep the relationship focussed and productive.
You mention that your businesses are similar sizes in turnover and the JV increases your capabilities – I wonder if will increase the capabilities of your partner? The key to successful JVs is having a shared picture of what the combined business can achieve. This can and should be greater than the sum of what the partners can achieve alone.
It seems obvious but often both partners can see how forming a JV can help them achieve their individual goal – they can see the logic and the value. The difficulty arises when the separate understanding confronts the operations and priorities of the JV. The benefits must be ‘joint’.
If the relationship in true JV is going to work, both partners have to discuss, shape and agree what the ‘new’ company will do and achieve. This will mean some changes to strategy and priorities to produce a better, stronger business. An honest view on what the JV enables both parties to achieve ‘better together’ is essential in providing the JV with a shared and desired vision.
Once this is agreed it’s vital that the teams who work with you share the vision as a new team. Where people have been dedicated to supporting a growing a business it can be difficult to ‘start doing things a different way’. It’s important that teams from both partners begin to feel like one team and know how they can contribute to the new venture.
Another area which will be essential is agreeing the decision-making process. Clearly this starts with the new board. These decisions need to be shared and be positive in helping the JV achieve its new goal. It’s not a negotiation where each partner managed to get support for their pet and maybe existing project and claim on investment.
JVs can be perfect route to success, but they are like marriages and need constant work to make then successful. JVs work well when:
1. The vision for the new business is agreed by both partners 2. Both management teams recognise that the JV is about the team creating a better, faster way of achieving growth 3. Partners must be prepared to change what they ‘normally’ do in order to make the JV work. 4. Leadership is about achieving the output of the JV not the ‘negotiated contribution’ of the partners. 5. It’s recognised that behaviours, more than the business logic, cause JV’s to fail.
David Clayton-Smith is a partner in Andrum Consulting www.andrum.co.uk and is a strategy, change, branding and M&A specialist. With over 25 years’ business experience, working at board-level for blue-chip organisations including Courage, Do It All, Boots the Chemist and Halfords, David is an invaluable mentor for senior teams; also a powerful non exec director in businesses large and small.