Ever considered a joint venture agreement? There are pros and cons to entering into this type of alliance with another business owner. If you and your business have been going it alone for a while, it might be time to pair up.
But what, exactly, is a joint venture agreement? Snowe Saxman, the business owner that I recently interviewed over on my Traffic and Leads podcast, described a joint venture like this: “A joint venture is when two people or businesses come together, market together, and split the profits 50/50.”
Finding a suitable partner is a great deal of work and requires thorough study of your business and theirs. Finding the right person to team up with can be challenging, and whittling candidates down to a handful takes a lot of work.
Once you’ve approached another business owner and proposed an alliance and they accept, you may think the hardest part is over. Don’t fall prey to fall into a comfort zone filled with inaction; once the alliance starts, the real work begins.
Let’s dig into the upsides and downsides of a joint venture and what you’ll need to keep in mind during your partnership. Whether you’re simply considering the possibility of a joint venture or are just entering into one, these pros and cons should be referenced regularly.
To learn more about joint ventures, tune into the Traffic and Leads podcast episode with Snowe Saxman, a business-owner who has all the info about her recent joint venture agreement.
Pros of a Joint Venture Agreement: Everyone Has Access to More Resources
If you pick the right sort of joint venture partner, you’re going to have a lot to offer each other: shared or reduced costs, financing projects, a shared pool of clients, and more. Additionally, resources, expertise, and unique skills vary from person to person, and you’ll benefit from those that your partner possesses.
Exchange of these resources, whether tangible or intangible, builds a great deal of trust. If partners can support each other solidly throughout the venture, it will lead to a positive experience.
While a joint venture agreement is usually temporary or based off of the timetable of a certain project, many partners remain close allies even after its conclusion. Whether you decide to conclude at a certain time or keep going indefinitely, make sure that you’re getting as well as giving something to the alliance.
Cons of a Joint Venture Agreement: Communication is Paramount
You need to keep your partner abreast of every single development. All the small decisions you might not even think about making, you need to make sure your partner knows about them.
Consider the task-oriented nature of many joint venture agreements: most agreements are created to achieve a certain goal or hit a specific milestone. If the two businesses involved in the agreement aren’t clear on what the goals are, they might start heading off in two totally opposite directions. That sort of issue can dissolve a partnership pretty quickly, and leave the partners with bad blood.
Not only do you need to keep them up on all the news, but you have to make sure your communication is clearly understood. When possible, get communication briefings to your partner in writing. Verbal communication is all well and good, but you never know when something you said may have been misunderstood or completely missed.
A joint venture agreement relies on the two parties involved sticking close together, and sticking close requires keeping each other in the loop. Plan ahead and develop good strategies you can use to keep each other informed.
Pros of a Joint Venture Agreement: Opportunities to Appeal to a New Audience
A joint venture agreement puts you in the perfect position to access a whole new customer base. You can tap a pre-prepared group of fans of your partner business or company with ease in a joint venture. As long as you’re prepped to make use of the new megaphone you’ve been handed, this can be an incredible break for your business. No matter the size of your business, everyone can benefit from having a new bunch of eyes on their products.
If you have the right kind of partner, you likely have a similar audience. For the best outcome, you’re looking for a partner whose customers may be unaware of your business but would be highly interested in you.
A joint venture agreement might benefit from a difference in audience geography. If you’re a local brick-and-mortar-based business, reaching outside of your locale is a big benefit of a partnership. Keep in mind that, if you team up with someone outside of your country, the laws and regulations will differ vastly. Your partner can help you reach their market by helping you navigate the foreign rules they’re already familiar with.
Cons of a Joint Venture Agreement: Smoothing Over Differences
This con is a bit tricky, and it can blindside a lot of people that are getting into a joint venture agreement. There will be differences between you and your partner, and you’ll need to find ways to smooth these over quickly and peacefully.
Differences can range from inconsequential to alienating. This can be especially true if you partner up with someone outside of your culture. Cultural differences can make for some unexpected bumps in the joint venture agreement road.
Take this example: in some countries, like China and Japan, gift-giving is standard practice when doing business dealings. These gifts need to be incredibly specific and well thought out, and giving the wrong gift can be a personal offense. Showing up without a gift can be incredibly offensive.
Even when dealing with a partner that lives in your country, the culture may still vary widely. Someone living in NYC will have a huge amount of cultural differences from someone living in rural Arkansas. Finding out those differences and proceeding gently through them is tough, but part of the joint venture experience. Take it slow, and apologize when necessary.
Pros of a Joint Venture Agreement: Sharing Risks as Well as Rewards
If you’re a business owner, you know what it’s like out there. Hint: it’s rough. There are a ton of rewards to uncover, but the risks are pretty daunting. If you’re working on branching out or hoping to start up a new project, this can be particularly nerve-wracking if you have no one to back you up. In today’s world, it’s entirely possible for a small business to be brought down by one wrong move.
Going it alone can be difficult, but partnering up means that you aren’t on your own when trouble comes calling. A joint venture agreement can help put some solid backing to any plan you’ve made and make sure that if you fall it’s with a safety net beneath you.
One of the best parts of a joint venture agreement is this risk-sharing. Not all joint ventures need include this kind of clause, but many do. Keep in mind, of course, that this is a reciprocal agreement. If your partner needs to try out something new and they need your support, you’ll need to step up for them.
If the idea of sharing risks is a bit too hot for your blood, you can always make sure that the agreement does not include this sort of stipulation. Sharing risks comes with its own individual pros and cons that you’ll need to weigh against the strength of your business.
Cons of a Joint Venture Agreement: The Paperwork
The paperwork side of a joint venture agreement can be admittedly complex. You’ll need to perfectly outline any goals that you and your partner want to accomplish, anything that should be disallowed, or anything expectations for the venture. The devil is in the details here, and you can’t afford to forget anything.
How regularly will you keep up with communication? What procedures will be taken if certain events occur? How will you equally balance out the decision-making process? These topics and more should be covered. This may end up being the most laborious part of the process.
This is the part of the agreement where you’ll want to get the help of an attorney. Your attorney can help ensure the agreement is drawn up in a clear and legal fashion. Nothing is worse than stumbling into a legal gaff while trying to focus on building trust between you and your partner. You’re there to get things done, not get tripped up on legalese.
There is a silver lining to this particular con, though: a joint venture agreement is one of the most flexible agreements you can make. You can end it whenever you need to. As long as the agreement is helping increase revenue for both parties, you can feel free to keep things going.
While we’ve discussed a small chunk of joint venture agreement knowledge, there’s still a ton to learn. Check out the podcast episode with business-owner Snowe Saxman to learn more about this kind of mutually beneficial arrangement.