A joint venture (JV) is an agreement usually taken advantage of by larger corporations but they also work well for small businesses because they allow two or more small business owners access to each others resources and expertise. So for example a manufacturer of flooring compound and tiling adhesives might join up with manufacturers of flooring panels or Italian flooring tiles to create new product innovation or production processes.
So, what Exactly is a Joint Venture? Most joint ventures are an agreement between businesses to share resources to achieve specific goals with a formal contract which is usually for a specific time-period. It makes sense for both parties to maximise economies of scale by approaching and working closely with another business on a JV proposal. For instance, the internet has allowed small businesses to set up shop with little money but with limited resources, they frequently hit a plateau. So it’s a smart idea to join up with and share valuable resources with a like minded company who can participate in helping both businesses to advance their growth potential.
The first thing to do from the outset is to think about your overall business goals and what you want to achieve such as :
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JVs can be created any number of ways to be beneficial to all parties and there are 3 main types;
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- The most common partnership is the co-op where one business is trying to access a new market and they pay another business commission for each sale they make to access their customer base. This is known as an “Outsider” JVs allows each company to remain separate
- Another option is for businesses come together to create a completely new business entity and each runs their own business, but draws up an agreement to partner each other on an entirely new venture. This is known as an “Insider” JVs allow access to all processes for all parties
- The least common form of JV is the merger where two businesses become one and the reason behind this is that they become more powerful in their market to lower costs and drive up profits and JVs can be considered insiders or outsiders
What this means is that there are a number of ways a small business can successfully benefit from this type of JV partnership including:
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So, if you are an internet marketer with a sizeable email list of followers or perhaps you have a great product, but no one to sell to, by entering into a joint venture with another business, you can help each other to be successful and this can lead to a beneficial future partnership.
Finally, if you think a JV partnership may help your business, just take into account that many small business JVs do unfortunately fail, either because they don’t have access to capital, or time is not allocated to setting up agreements so they are not carefully planned and thought through, or proper legal advice is not sought, or contracts are not adhered to.
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