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What is a joint venture?

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A joint venture is created when two parties combine resources with a complimentary, non-competitive business to achieve a particular goal. For example, a hairstylist might form a strategic partnership with a nail salon with the long-term goal of attracting new business and increasing profits.

Joint ventures benefit all parties involved. This alliance allows both companies to maintain their separate business structure and legal status while building a jointly-owned entity.

Allan Dib smiles with joint venture partner David Jenyns of Systemology
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    What is a joint venture?

    We often think of our customers in isolation. In reality, we’re one of many transactions they do each day.

    For example, if you’re selling some sort of technology—perhaps a CRM— chances are your ideal customer won’t only be buying from you. If they’ve built a remote business, they probably need video communication software, a CMS, a project management tool, an online payment solution—you get the idea.

    What I’m trying to say is someone has your customer before you do.

    A different business entity has spent its marketing dollars to acquire your ideal customer. So forming strategic partnerships with complementary but non-competitive businesses in your market can be a powerful revenue-building strategy. In a nutshell, this is the concept of a joint venture.

    What's the difference between a joint venture and a partnership?

    Most people use these two terms interchangeably, but they’re not the same. Four key factors differentiate a partnership from a joint venture. They are:

    • Purpose: This is probably the most obvious difference between the two structures. A partnership isn’t limited to achieving one project or goal. It aims to run the business for the long haul and earn more profit. Meanwhile, a joint venture’s purpose doesn’t revolve around earning a higher profit. This gives you more flexibility on which goal you’re planning to achieve.

    • Formation: A partnership is legally bound. This requires an agreement that explains the terms and conditions of the partnership. On the other hand, having an agreement on paper is not a requirement for a joint venture.

    • Members: A partnership can be made of two or more individuals who form a recognized association in operating a commercial space. A joint venture can be made by individuals and business entities as corporations and even governments.

    • Duration: A partnership can last long until a business is operating. On the other hand, a joint venture typically has a shorter duration since it only aims at a particular goal.

    What are examples of joint ventures?

    amazon associates offers an affiliate joint venture
    • Affiliate deals: You can promote products of a certain business with an affiliate program and earn a commission for every product bought from you.
    Referral deals are excellent joint venture ideas
    • Referral deals: The concept is simple. You can join a referral program and share the best deals from your customers. You earn a commission for every purchase you get. You can also build your own referral program, then invite and reward customers for spreading the word about your brand.
    Starbucks uses gift cards to refer new clients
    • Gift cards or vouchers for your products and services: These are handed out to your joint venture partner so they can give them to their customers. It’s a way to entice customers who tend to buy when there’s a reward or a gift.
    • Buy or sell leads: I personally don’t recommend this. In some markets, this is looked down upon and some industries consider it illegal.
    • Exchange leads: This is quite different from buying or selling. If you have leads that are not ideal for your business, pass them on to another complimentary but non-competitive business and expect to get leads in return, too.

    What are the benefits of joint ventures?

    8 ways a joint venture can benefit your small business

    1. New source of investment

    Is your business looking for new opportunities to invest in a project or campaign?

    A joint venture can help you test the waters and minimize the risk of seeking opportunities for new investments. Your joint venture partner is expected to contribute a certain amount of funds, assets, and other resources to the project or campaign, depending on the terms of the arrangement.

    2. Save on more costs

    Launching a marketing campaign on your own can cost you more. For most small businesses, it’s like a gamble that never guarantees any worthy returns.

    In a joint venture, you’ll share expenses with your partner on a project or campaign, putting less of a financial burden on you.

    3. Gain knowledge

    Like I said earlier, your target market has other wants and needs. If you want to learn about a different niche or industry, a joint venture is the ticket.

    4. Enter a new market

    Although you’ll be closely working with a complimentary, non-competitive business, a joint venture will give you a chance to enter new markets quickly.

    Some businesses explore more about a certain niche and realize that they can market to them. Don’t waste that potential opportunity.

    5. Possibility for business growth and expansion

    Startups and small businesses typically have limited resources and access to capital for scaling projects. So if you’re going to join forces with a larger company or a popular brand, there’s a possibility for business growth and expansion through a joint venture strategy.

    6. Acquire intellectual property

    IP is an important business asset. And if you think you have limited access to it, perhaps you consider hiring more people to your in-house team.

    This is not the only way to acquire intellectual property. Your small business can enter into a joint venture with a different business and gain access to that asset. So, for example, you can work with your JV partner’s Facebook ads manager if you’re struggling with your campaigns. Start learning the ins and outs until you (or someone from your team) can finally master a certain skill.

    7. Boost credibility

    One of the biggest dilemmas of a small business is when they’re faceless to the public. It can take months or even years to gain traction from a customer base.

    Now, a joint venture can speed this up for your business. Forming a joint venture with a well-known brand will help you gain exposure and boost your credibility faster. Take note, many small businesses are doing the same thing, so it can take time for you to find the right joint venture partner that can boost your appeal to your target audience.

    8. Avoid competition

    One of the main reasons why joint ventures work is that many businesses would like to stray away from competition temporarily. By collaborating with non-competitive businesses, they can achieve their goal (whether to expand on a new market or gain more attention) without putting too much pressure and stress on themselves.

    You can choose to team up with a joint venture partner and make marketing fun and valuable for yourself.

    Are there risks to consider?

    Risk 1: Lack of communication

    You might initially gain a great first impression with your joint venture partner, but things won’t work without consistent communication. For example, your JV partner makes a decision that doesn’t follow the joint venture agreement. And they weren’t transparent about it.

    This scenario tells you that both parties had a miscommunication, and if it continues further, it will be best to part ways.

    RISK 2: Incompatibility

    If you and your joint venture partner have different objectives, pursue separate goals, or manage the business in opposing ways, it means you’re not a great fit for each other.

    Typically, businesses only realize this after working with their joint ventures for a while. They might think that everything will go well according to plan. If the joint venture agreement doesn’t clearly define terms and conditions, and both parties realize that incompatibility is the issue, it’s best to dissolve the joint venture.

    RISK 3: Imbalance

    Different levels of investment, expertise, and assets among joint venture partners might not be an issue at first. No two companies are the same.

    But instead of embracing differences, you should consider that there’s a risk with imbalance. For example, the other business or party can begin to feel that their contribution makes up most of the project, and they’re not getting enough from the other party. If this happens to you, it’s best to talk about it. Consistent and clear communication can help businesses meet halfway and work out the issue.

    Reach Your Goals through Joint Ventures

    Joint ventures are growing rapidly and have gained importance in the market. Even if most businesses instantly use this strategy to make their way to success, it’s important that you understand how it works and why you should be in a joint venture relationship.

    Weigh the pros and cons before joining forces with a different business. Are your business’s core values aligned with your potential JV partner? Or do you only want to join forces because they’re a well-known brand and they can help your business boost visibility within the customer base?

    Be careful with this. Just like in any other relationship, compatibility is a huge factor. The business relationship has to be built on trust and transparency. You’ve both taken risks. Make sure you’re transparent with all of your goals, motives, and decisions.

    Now that you know the benefits of a joint venture, do you have any companies in mind that you could approach to form an arrangement?

    • What are your objectives?
    • How are all the companies involved benefitting?
    • How can you ensure success?

    Don’t miss the opportunity to gain more access to new resources and work with another business that can help you grow. Check out how to set up a successful JV partnership here.

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