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Partnerships encourage creative innovations for improved product design and quality.When two separate groups merge, they bring with them different perspectives on how to accomplish something. Successful partnerships work with this diversity to produce a hybrid that is, in essence, the best of both. The key to reaping these benefits is creating an environment that stimulates creativity and risk taking— one in which people feel safe trying out new concepts without fear of reprimand or punishment. The outcome is an innovation that neither group could have produced separately. It is a product of the vitality, creativity, diversity, and synergy that partnerships are capable of generating.

One partnership that used synergy to beat the competition in the marketplace was a wireless telephone company that partnered with a Baby Bell that provided landline service. The partners decided to combine the best of both services and offer customers features that no one else provided. How did they do this? The landline company knew its customers wanted only one telephone number to keep track of. The wireless company knew its customers wanted to take the phone with them wherever they went. So the companies offered the “wireless extension”—an innovation that acted like a home or office phone and that customers could answer in either location. In addition, their telephone handset mimicked a standard telephone that provided an immediate dial tone when activated. This partnership is wiping out the competition in the markets it serves.

In many cases, we can’t justify the cost of acquiring, developing, and maintaining the resources required to do it all. Businesses are reaching out to find partners with the expertise they need to provide the products and services their customers want. Consumer research shows that customers will switch to products or services that meet their personal needs, even if they have to pay more. As these needs become more sophisticated, businesses need the flexibility to customize their products and services. They need to be responsive to the customer, to be market driven, to retain their present customers and attract new ones. Many businesses turn to partnering as an essential strategy to help them accomplish their goals. Creating a successful partnership can be hard work, but the payoff can be huge, and returns can come in unexpected ways.We form partnerships to access information or technology possessed by others. Partnerships can reenergize a business by bringing in new ideas and new methods for achieving results. Improved product quality, more efficient production, new avenues for marketing and sales—all may result from strategic partnerships.

A company that specializes in mass mailings may be able to complete a semiannual direct-mail marketing project for a small business more cheaply than the small business can accomplish the task itself. Does it make sense for the small company to hire mail room personnel, purchase and maintain database information systems, and add the expensive infrastructure needed for such a task if it sends out only two mailings a year?

Improved communication technologies have created a proliferation of call centers that span the globe. Callers in North America or Europe can easily be speaking with representatives in India, Africa, or the Caribbean when making reservations or receiving technical support. A software programming problem can be identified on Monday morning by a business in North America, the problem can be sent to India that evening, and a solution can be ready an d waiting in North America on Tuesday morning. As the world grows smaller, the need for partners is more critical than ever before.

Businesses are looking for the kinds of partnerships that generate new energy—powered by a confluence of new ideas, knowledge, and intelligences.We see examples of this dynamic every day. Our world is in constant flux, combining and recombining forces. New technologies evolve. When the nineteenth-century invention of the automobile merged with twentieth-century computer technology, the result was better running, more efficient, cleaner, cheaper automobiles.

Successful businesses create new products, services, strategies, and processes that satisfy or create new market needs. Innovative companies are constantly updating, expanding, and researching ways to perform in order to stay ahead of their competition and keep their customers satisfied. This process is becoming more and more challenging to handle alone. Advanced communication and computing technologies have afforded us unprecedented access to information. In fact, we receive so much information that we have to rely on other people to help us keep up with it.

Because information is available in virtually every corner of the globe today through computer and telecommunication technologies, the world is now our marketplace, our research and development resource, our labor pool, and our source for capital. Companies everywhere are teaming up and multiplying their capacity to do business.

Without partnerships, how can we possibly compete tomorrow?

To establish whether your business is suitable for franchising you need to ascertain whether the business has a system that can be taught or transferred to third parties who would be prepared to pay for the rights to use it. This means that the system itself would either have to be new, or packaged in a new way; or that the products or services would have to be new, or presented in a new way. Obviously, your business will have to be working well and trading profitably.

The next question to consider is whether you, as the potential franchisor, have the ability to provide back-up services to franchisees, and are also a suitable person to deal with and motivate franchisees on a day-to-day basis. And, of course, suitable potential franchisees must be available in the geographic areas in which you wish to open the franchise businesses.

If all these appear positive, you could ask a franchising expert to provide you with a report on your business’s overall suitability for franchising. If this is also positive, franchising could be added to your shortlist for further consideration.
If you feel franchising is not right for your business, you should now move on to the next option, which is a trade sale. (Note: The choice of an exit option is both a personal one and a business one, and depends on your particular circumstances. You might prefer, for example, to go down the route of a trade sale as your first choice even if a flotation or an MBO are realistic options for your business. Similarly, even if you do have suitable heirs, the value or financial structure of your business may make the family succession option impossible to achieve.

Although we suggest here that a public listing is considered after the family succession and MBO options, if your business is suitable for a flotation this would, probably, be your first option. A public listing can represent a bonanza to the private business owner, not least because it provides flexibility in disposal, being the first stage in potentially a multistage exit plan.

There are two major hurdles in considering your business suitability for listing, namely:

1 Compliance with the relevant Stock Exchange Listing Rules (which usually involve turnover and net asset value tests); and

2 Garnering investment support.

A sponsoring broker would give you preliminary advice on the second issue. If this advice is positive, you should then consider this option very seriously and commission a formal report on the suitability of your business for a public listing. The report would look at such things as the business’s financial history and profit forecasts that, if acceptable, would lead to your seeking an underwriter. A positive response from an underwriter would indicate that this exit option is a possibility for your business and should be included on your shortlist.

If a public listing option is not possible for your business, there are still three positive exit options to consider, namely franchising, a trade sale and a merger. (The least positive option of ceasing to trade and an orderly disposal of assets would be your last choice.)

Should there be no suitable leader in the business, the next step is to see whether a suitable CEO can be brought in or, alternatively, whether an outside person is interested in undertaking a management buy-out, probably with VC support. Similarly, should you have a suitable internal CEO, but no suitable internal management, you need to consider whether suitable outside management can be brought in to support the CEO. This process is known as a management buy-in (MBI). If you decide that a suitable leader and/or management from outside are available you would then proceed to examine the business’s suitability and the likelihood of venture capital investment support, as you would for an MBO. You do this by moving along the arrow to the left, starting from ‘cash flow suitable?’ Should neither an MBO nor an MBI be practical for you, you would now move on to consider the next option, which is Public Listing, or flotation.

The first question here is whether a suitable leader exists in the business (who is interested in acquiring the business) around whom an MBO team can be built (if not, move right to the MBI option). If the answer is ‘YES’, you need to consider whether you have a suitable team of middle or senior management, which will support the CEO-designate (and put up some of their money). If the answer is ‘YES’, you need then to address the suitability of the business itself for an MBO. The major areas to consider are whether the business cash flow can service the debt involved in financing the buy-out (which is usually based on borrowed money). Next, you need to establish whether a suitable investor, or lender can be found to finance the buy-out. Should all these answers be ‘YES’, you can add an MBO to your shortlist of possible exit options.

If you have heir/s you should explore this option first. The crucial first question is how suitable one or more of them is for the task of owning and running the business. If the answer to either of these questions is negative you cannot proceed with this option and you will need to consider your next option, namely an MBO.

Should you believe that there is an heir available who is suitable, you can then proceed to the next stage of elimination: that is, does the heir agree with your plan? We suggest you then put the plan to other family members to see whether they agree. You continue with the elimination process until you come up with a ‘NO’ answer, which forces you to move right to the next option.

Should all answers be ‘YES’, this option is now a theoretical possibility and should be added to your short list of possible exit options.

Where an owner has children, or other family members who could take over the business, it is usual for him or her to wish to pass on the business to a family member. Where this is not possible, or where the owner has no immediate heirs, some owners would prefer to sell the business to coowners, or to their management and employees.

There are, of course other exit options to consider and in Figure 7.1 below, we look at the advantages and disadvantages of each exit option in general terms.

This figure considers the options in terms of:

Value: whether the option chosen is likely to achieve the maximum value to the owner.

Risk: the degree of risk involved in bringing the disposal transaction to fruition.

Control: the amount of control the owner is likely to have over the running and the management of the business after the sale.

Personal financial planning: does the transaction assist in the personal financial planning of the owner, or can it be structured to assist this planning?

Payment risk: the likelihood of the seller being paid the total purchase price.

Deal flexibility: the amount of flexibility that the transaction provides to the owner, including payment terms and working in the business in some capacity after sale.

Personal satisfaction: how much satisfaction (other than financial) is the owner likely to derive from the transaction?

For example, a family succession provides the owner with a great deal of flexibility on how the deal is structured and his ability to work in and exercise influence in the business after sale. It also provides a large amount of personal satisfaction but, probably, at the expense of receiving the maximum sale price.

Conversely, a trade sale could achieve the maximum sale price, but provide no way of continuing in the business after sale (say, as a consultant) and may even be to a hated competitor, which will probably give the owner no personal satisfaction at all!