Collaboration requires an open mind as, at times, it means engaging with your competitors. PHOTO | SHUTTERSTOCK
Covid-19 has negatively impacted many businesses. Many have had to downsize to remain afloat. As of June, it was reported that there were about one million job losses due to Covid-19. Some steps some businesses are taking to downsize include layoffs, salary cuts, sale of equipment, debt and many other difficult measures.
All these is done with the hope that the business would survive the turbulent season and rebound once the crisis is over. Most of these survival strategies are cost-cutting measures.
A shift of strategy is necessary to ensure that your business not only survives but also positions itself in the market. It may be time to consider collaborations and partnerships with the aim of not only surviving the turbulence but also achieving growth during this season. Collaboration requires an open mind as, at times, it means engaging with your competitors.
Collaborations could be in the form of simple partnerships or more complex, such as in the case of mergers. An example of a simple collaboration is when two businesses join efforts and share premises.
They both give up their old premises and agree to move in together to an often smaller space. This type of collaboration ensures that both businesses do not struggle to pay rent while at the same, time allowing, both businesses to operate from a physical address. Both businesses cut costs that would have been spent on rent, therefore surviving and growing at the same time.
Collaborations happen when you form an alliance with other businesses for a common objective.
One can form a collaboration with competitors or non-competitors as the case may be. An example of a collaboration between competitors is when you partner with other businesses in your industry. An example of non-competitors collaboration is when you partner with businesses outside your industry. There are many benefits of collaboration.
One is the attractive benefit of cost-sharing and cost-cutting. A simple collaboration could result in a significant cut in expenses. This increases the profitability of both businesses. Other than a shared working space, businesses could share staff, infrastructure and equipment, among others.
Collaboration helps the business attain a higher market share, especially if it leads to the formation of a new entity. An example happens when competitors put in a joint bid for tenders.
Collaborations help businesses attain economies of scale and survive hard times.
However, it must be approached cautiously.
The first thing to do is the due diligence of your potential partner. You need to conduct a thorough background search on the ownership, tax status, debts, litigation and other items. Once the partner is clear, then you need to enter into negotiations on how to collaborate.
These negotiations are set down in a memorandum of understanding to guide the general terms of the partnership. Collaboration agreements follow once parties are clear on their arrangement.
The pact — often called a joint venture agreement — includes items such as rights and obligations of each party, cost and revenue sharing, how long the arrangement will last, how it is to be dissolved and dispute resolution.
The legal structure is more detailed in more complex collaborations.
During this season of Covid-19, if your business is struggling to access markets or meet costs, I recommend you to consider a collaboration strategy as a solution.
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