We are all familiar with Individual transactions where you want to obtain the greatest value or lowest price with little or no expectation of repeating the transaction (e.g. buying a car, acquiring a key piece of machinery or equipment for your business). In these cases, it is simply a function of which party can demand and get the best outcome from their own perspective. Since it is a one-time transaction, there is typically less opportunity for building upon it for longer-term mutual benefit.
Establishing or modifying a business relationship or partnership generally will be a different situation. In these cases, both parties are seeking value and return from the partnership that often is expected or desired over a long period of time and therefore is based on mutual trust. While it is a trite and perhaps overused phrase, both parties likely expect the relationship to be a long-term “win-win” situation.
Guidelines for a Strong Business Relationship or Partnership
I have negotiated numerous business relationships of various sizes, some of which were successful and some were not. Combining these experiences has led me to apply these guidelines that help lead to strong partnerships.
Guideline No. 1: Pick your partners carefully. Character and trust are the most important assets in a business partnership. Seek out organizations and people you are excited to do business with. The key to any good business relationship is to think strategically about the relationship and understand individual and shared goals. Before lawyers get involved, make sure you talk openly about business goals for both parties. Getting the business goals in writing can help make sure you enter the legal phase of creating a contract with a solid, mutually understood business case.
Here are four tips to keep in mind when it comes to picking partners.
• Picking Partners Tip No. 1: Ask lots of questions to get a deep understanding of the other side’s strategies, needs, operations, etc. Ask questions even if you think that you know the answers. Listen carefully to the answers, what they say, the way they say it and their body language. Identify what brings their emotions up and down. You can present your stand according to your findings and be sensitive to their needs and requests.
• Picking Partners Tip No. 2: Be authentic and as open and transparent as possible or is practical with your own strategies, needs, operations, etc. Some people might approach a negotiation looking to gain an advantage by concealing information. While you may achieve a desired result in the short term, you run the risk of tarnishing your reputation, as well as increasing the odds that the deal can go bad. Share your reasoning and intentions in the discussions to help make it clear that you are a straight shooter who deals in good faith. You are more likely to disarm the other side’s defenses and improve the odds of a productive, long-term business partnership.
• Picking Partners Tip No. 3: Learn as much as possible about the role and benefit of the business relationship for the person or people you are dealing with. As the relationship progresses to initiation and especially through the course of the arrangement, find ways to expand your reach into the other organization by meeting and talking with people at various levels to better understand how all parties benefit. A phrase to frame this way of thinking is to seek to be “high, wide and deep” in your relationships with business partners, especially if it is a large organization. This reduces the chances that changes in management or company strategy will significantly detour the relationship.
• Picking Partners Tip No. 4: Take an appropriate amount of time to build the trust in a potential long-term relationship. If you are feeling uncomfortably heavy pressure to give an answer early in the process of developing or negotiating the relationship, I have found it is best to just say “No.” Perhaps you can come back to the table at some point in the future, but the timing has to be and feel right for both parties.
Guideline No. 2: Play for the long term by ensuring balance in the overall outcome (better known as “win/win”). The goal should be to forge a plan that creates solid benefits for all parties, not just big benefits for one side. Gaining the knowledge noted above will improve your ability to seek the positive outcomes for the other party and find the balance desired. This also leads to a stronger foundation to motivate a positive working relationship once the deal is done. At the same time, it is important to be ready to decide if and when there is not enough balance for either party. An imbalance of outcomes will likely lead to a short-term relationship and starting over with a new partner is more costly than continuing a fruitful and productive relationship.
Guideline No. 3: Get on the “same side of the table.” Be very clear about the work that is expected upon delivery and each company’s role in getting it there. Define roles precisely so they have no messy gray area. Make sure the exact product, service or process is explained and the infrastructure to support and update that product is part of this definition.
Guideline No. 4: Create a deal for the other side that you would like to have for yourself. As you enter the contractual aspect of the relationship, it is easy to think about all the positive things that can happen in the relationship. It can be equally important to think through when, where and how things can go awry and end in a bad outcome. Look for ways to incorporate provisions in the contract that consider these potential outcomes and include ways to address or handle them should they arise. One way to think about this phase of the process is to “write the divorce settlement before the marriage.”
Guideline No. 5: Create a plan for evaluation. As part of your negotiation, you should make an effort to agree upon how to evaluate the performance of both parties after the deal is done. Agreeing to measure the success of the relationship is a way to improve the likelihood that performance standards, payment terms, and other rules and expectations are met. This sort of rigorous follow-through ensures that everyone’s expectations are aligned and makes conversations about the relationship following the deal’s closure more objective and generally easier.
A business relationship or partnership can yield great potential if approached and developed effectively. Hopefully these thoughts serve as a guide in your business pursuits, large or small.
Bob Nicolay retired following a 25-year career at Progressive Insurance having had success in senior-level general management roles. During his career, he also held similar roles with small-l to mid-sized privately-held companies. He currently maintains a consulting practice advising and guiding senior leaders with financial services clients in developing and executing product, distribution/sales, marketing and operational strategies resulting in revenue and profit growth. He can be reached at Rnicolayconsulting@gmail.com or 440-213-3381.