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joint ventures pros and cons

Joint Ventures – The Bad Signs, The Pros & Cons & The Checklist

joint ventures pros and cons

Forming a joint venture (JV) can be a quick and very effective mechanism for strategic growth. Such unions can enable fast access to new skills, technologies, markets and a plethora of other benefits.  I am probably the first one in the room to say joining forces by forming a joint venture partnership brings many opportunities. However, joint ventures can also result in loss of productivity and traction without clarity, compromise and congruency.

[Tweet theme=”tweet-box-normal-blue”]Productivity is never an accident. It’s the result of a commitment to focused effort – Paul J. Meyer[/Tweet]

So here goes…

The 8 signs a joint venture partnership is going wrong

1. The customer experience has reduced in quality

Sky and Openreach is a recent example from my own personal experiences. One of the service level agreements between Sky and BT Openreach is that they respond to messages within 4 hours. Now when it comes to installation problems this can become problematic especially if the customer is unable to speak to them directly. When an installation is originally supposed to take a couple of hours and takes 5 weeks and counting you have to wonder whether their processes actually work (true story bro).  Plus from a financial point of view the profit per customer activation is also affected causing further financial implications for both parties, not to mention relationship management.

2. One partner holds all the power as they control the finances

Meaning one partner may not get paid on time for the value that they bring. At times, they are left wondering whether to go and work for a fast food joint because you would get paid more for it and get paid on time.

3. Your opinion is being ignored by your joint venture partner

So you have a meeting, agree on some outcomes and then the next day they do what they want anyway.

4. Your boundaries are being challenged

When you have expressed your communication preference very clearly and stated clear boundaries but they are being ignored there is a blatant lack of disrespect going on. You have set your moat and fence but every other minute it is being overtaken, how long will this go on?

[Tweet theme=”basic-full”]He who undervalues himself is justly undervalued by others. William Hazlitt via @tryxavietime[/Tweet]

5.You are more tired than when you was working alone

You know when a joint venture isn’t working when…the work in unevenly yoked aka one partner is doing more while the other is, doing very little.

6.You start to ignore your JV calls?

When you ignore their calls, hoping they go away because frankly my dear you just don’t give a damn, this is an example of unhappy partner, unhappy life syndrome.

7. Your joint venture is not goal aligned and you do not have the same drivers/motivators

You see your partner telling more than a few porkies when it comes to business meetings

8. Your joint venture partner isn’t reliable

Previously Boohoo’s delivery partner Hermes would not deliver on time.  So Boohoo create processes to counteract any negative reactions to this unreliability ie. they use Twitter to handle enquiries

boohoo joint venture

Pros and Cons of a Joint Venture

Pros- Reasons for Entering Into a Joint Venture

  • Access to knowledge and resources such as capital, staff and technology
  • Access to new opportunities such as new markets or greater distribution reach
  • Shared exposure to risks, financial responsibility and workload
  • Strengths and weaknesses of each partner complements the other partner
  • Entering related businesses that previously presented high barriers to entry

CON - Reasons against Joint Ventures

  • Unequal contribution of the partners in knowledge, resources or investments
  • Unclear communication of objectives of the joint venture strategy
  • Lack of communication of the accountabilities of each partner resulting in an unsuccessful execution of the joint venture agreement
  • Difficulty in integrating operations of the two companies due to differences in work culture and management styles
  • Lack of leadership from the partners at the outset of the joint venture may lead to less productivity with no one taking the reigns or responsibility

 

Joint Venture Checklist

Questions you need to make sure you can answer before you sign on that dotted line!

    1. Have you set out the objectives of the joint venture?

      [Tweet theme=”basic-full”]Setting goals is the first step in turning the invisible into the visible – Tony Robbins [/Tweet]

    2. . Have you clarified your hedgehog concept?

hedgehog concept jim collins

3. Are you on the same page, so you know what you deliver e.g Have you crafted your what do you do spiel?

Book yourself solid approach:

joint venture clarity

Unlock The 13 Other joint Venture Checklist Items!

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4. Have you agreed on your you hedgehog concept?

5. How much cash is each party investing into this venture?

6. Are any existing contracts of either to be taken over by the joint venture?

7. Who/what does each partner actually delivers / will deliver?

8. Are there any assets that will be bought into this joint venture (JV)? List them

9. Will any external funding be needed? And who will it be raised from, who will borrow it, who will guarantee it

10. Who gets what out? e.g. sharing of revenue profits or losses, sharing of capital gains or losses

11. Is there any payment to be made to either other than as share of profits, eg for ongoing services, will the participants be operating a ‘salary/dividend split’ – ie taking their month by month requirements by way of low salary, balance as dividends?  What, otherwise, will be the policy in relation to dividends – to what extent is it intended to distribute / retain surplus profits?

12.  Who takes responsibilities for day to day running, in all relevant areas of activity?

  • Who is responsible for tactical decision making (day to day)?

  • Who is responsible for strategic decision making (longer term policies)?

  • What things can only happen if both parties agree?

  • What will happen if you can’t reach agreement on some major issue – ie deadlock?

  • 13. Is there yet any written:

    • business plan?
    • marketing plan?
    • cashflow projection?

14. Is there an ‘exit strategy’? If so, what is it – which of the following most closely hits the mark?

lifestyle business – ie simply intended to be run by and to provide an ongoing source of work and income for the proprietors, no clear vision for the long-term future?

A core object of the venture is to create an asset with a view to sale or flotation in 5 years?

  • Which aspects of the above do you feel most important at present? Which aspects concern you most?  (NB each of you may have a different view here, the question is asked to help you both understand where each of other is coming from)

Read the Joint Venture Success guide

 

So what do you do when a joint venture goes wrong?

 

1. Joint ventures are going to have some conflict…

You are probably approaching the same problem through different angles. Understand that the argument isn’t important as much as the outcome you want to achieve in order progress both of you forward.

2.Remember the reason why you initially entered into a joint venture

The reason you are on a joint venture in the first place is to lighten your burden and share the risk of a mutually beneficial deal. Make sure that you have a list of things to do upfront and split it between you and your partner as equally as possible.

You don't have to win every argument. Agree to disagree Click to Tweet

3. Set yourself realistic goals

Then set a time frame on things so the JV achieves key milestones.  State clear tangible outcomes with a specific timeframe by creating a joint venture agreement form.

In conclusion remember that building a SUCCESSFUL joint venture strategy can be challenging, can take time, commitment and effort from BOTH parties involved.