Buddy System


Buddy System

How To Build Strategic Alliances To Boost Your Business

By Mollie Neal

Micro-business owners can see big benefits from teaming up with other business owners who offer complementary products or services or who target similar customers.

“Forming a strategic alliance or joint venture allows small-business owners to leverage limited resources,” says Ann Ranson, a Dallas, Texas-based sales and marketing consultant who helps micro-businesses develop marketing strategies. “A business owner may not have the expertise or funds to do everything they want themselves. By forming alliances you can really get ahead of the game.”

Strategic alliances are arrangements between two businesses that combine resources to achieve a specific goal, such as attracting new customers or becoming more efficient. Unlike formal partnerships that require legal wrangling and a long-term commitment, strategic alliances can be more casual and temporary.

If you look around you’ll probably see numerous examples in your own community. Ranson points to some practices that are prevalent, such as a restaurant coupon on the back of a movie ticket or a bridal showcase co-hosted by photographers, musicians, florists and formalwear shops.

All of these businesses have joined forces with others. With a little creativity and planning, you, too, can reap the rewards of strategic alliances.

Collaboration Is Key

Collaboration has been a cornerstone of their business strategy since Heather Paine and Casey Webster opened Candles & Creations in South Burlington, Vt., in 2007. In addition to selling Paine’s palm wax candles and Webster’s handmade inspirational jewelry at the retail store, they expanded their product offering by selling complementary products on consignment. The products include pottery, paintings and glassware that are crafted by 90 Vermont artisans. Paine and Webster also sectioned off unused space in the store and began renting it on an hourly basis to individuals who were starting their own massage, hypnotherapy and other wellness practices.

Paine and Webster include information about the entire range of products and services in all of the Candles & Creations advertising and on their website. Likewise, artisans and wellness practitioners often include the store logo and address in their marketing materials.

This collaboration of shared space and joint marketing has been a win-win for everyone, says Paine.

“It has helped our business grow because we have people coming in to the store who may have never known we were here . . . and they typically turn into retail customers.”

Sales at Candles & Creations increased 30 percent annually for the first two years and are expected to be up an impressive 50 to 60 percent in 2010. Because business is so good, Paine and Webster are moving to a larger retail space to accommodate increased inventory, more healing rooms and a new organic juice and smoothie bar.

Artisans, whose sales are typically generated solely at craft fairs, enjoy having their products on the Candles & Creations’ shelves throughout the year. Wellness practitioners benefit from having a professional environment where they can treat their customers. They also have the luxury of building their businesses without incurring the large expenses that startups typically incur.

“It’s amazing to be part of this collaboration and watch Candles & Creations grow,” says Paine. “It’s also very fulfilling giving others the opportunity to build their businesses.”

Two Heads Are Better Than One

Some business owners form alliances because they get tired of working alone.

They want the synergy, camaraderie and creativity that results from two minds coming together, says Ranson. Others turn to individuals who have resources or strengths they may be lacking while they bring their own value to the table. Some are lucky enough to join forces and reap all of these benefits.

That was the case for Susan McCarty, owner of Franklin Printing in Franklin, Ind., and Erin Smith, founder of The Stitch Smith, a custom embroidery and screen-print apparel company in nearby Greenwood, Ind.

Smith had witnessed a large drop in sales and had grown weary of generating most of her revenue in the fourth quarter when individuals buy gifts and companies use up annual budgets. Meanwhile, sales at McCarty’s print shop had reached a plateau and remained stagnant for a few years.

“I knew I needed additional sales help,” McCarty says.

Smith took McCarty to lunch one day, discussed business and the women developed a plan to join forces to grow their respective operations.

“We were drawn to each other because we have similar belief systems and work ethics,” Smith says.

Having complementary products and a similar target market made the idea “a natural fit,” says McCarty.

Smith began focusing on sales calls promoting the entire line of Stitch Smith and Franklin Printing products and services. McCarthy took care of the follow-up and monitored operations. The joint venture quickly paid off.

Sales increased 35 percent for each company, making 2009 the best year on record for Smith and McCarty. Smith was also able to break into sports-related apparel sales and generate a more steady flow of income.

“We saw the uptick in income, which is what we were after,” says McCarthy. “Having each other as a resource is valuable, too. We have someone to bounce ideas off of.”

Trust, collaboration and understanding each other’s strengths are important for such a relationship to succeed, says McCarty.

The partnership has been so lucrative that the duo is now formally merging their businesses under the umbrella name Spotlight Strategies. This will enable the women to increase productivity by combining their staffs. They’ll also be able to consolidate manufacturing under one roof and cut costs by eliminating redundant expenses. They predict future sales increases, too.

“We have just started to scratch the surface cross-promoting to each other’s customer base, and
the opportunities are astronomical,” McCarty says.

Neighborhood Alliances Work

Angie Hofelich, owner of Vanitylab hair salon and spa in Westlake, Ohio, turned to other local business owners for the sole purpose of developing cross-promotions to boost sales.

She collects coupons, product samples, gift cards and other promotional items from business owners in the vicinity, then places them in goody bags along with her own discount coupons. She gives those goody bags to her customers.

Her customers are pleasantly surprised and enjoy leaving with something of value, she says. It’s a
low-cost way for all of the participants to promote their businesses. In addition, it gives her customers a compelling reason to return and use their coupons, she says.

Hofelich also frequently places raffle bowls at local businesses. Each selected winner receives a free makeover and often spreads the word about her salon and spa services. All other entrants are called second place winners and receive a $30 gift card that can be used at the salon.

“It’s a great way to attract new clients,” she says.

While most alliances are marketing oriented, it can be beneficial to consider other strategies. Hofelich frequently swaps gift cards with local restaurants, gyms and other businesses and gives them to her employees as rewards.

How To Form An Alliance

Start with a clear understanding of your needs, such as a greater sales effort or distribution capabilities, says Jeffrey Carr, the executive director of the Berkley Center for Entrepreneurship and Innovation at the NYU Stern School of Business. This will help you define your objectives, which is critical for success.

“Otherwise, you are a lost ball in the grass,” Carr says.

Find a partner. Network at professional functions and look in your own backyard for other micro-business owners who are in a similar or complementary business, or are working to drum up sales from the same target market, says Carr.

Check references. Speak with some of the business owner’s customers and ask questions about her professionalism, ethics and how she treats customers before you move ahead, advises Carr.

Brainstorm. Look at what each person has to offer, says Ranson. If you both target the same local market, consider shared advertising or other co-promotions that benefit all involved. There are no rules. You’re limited only by your creativity.

Define your roles.
Everyone needs to bring something of value to the relationship so there’s a sense of equality, says Carr.

“It is important to define responsibilities, decide how decisions will be made and how disputes—which are inevitable—will be resolved.” Ranson adds. “If one person is process oriented and the other is more of a fly-by-the-seat-of-your-pants type, it may be a real warning sign that this isn’t a match made in heaven.”

Determine how success will be measured. Having a specific goal from the beginning will help determine measures for success, says Carr. Otherwise, you won’t know if the alliance is worth your time and effort.

Prepare an agreement. For simple alliances like a joint coupon, parties often seal the deal with a handshake or a simple written letter of agreement, says Carr. If you start sharing things of value like customer databases, or there are substantial expenses involved, then he suggests owners have a legal contract prepared to protect themselves and their businesses.

Mollie Neal, a Long Island-based freelance writer, admires the small-business owners she spoke with who are forming successful alliances.

Courtesy of NASE.org