Joint Venturing

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Information about Joint Venturing

Published on October 10, 2009

Author: RBCG1

Source: slideshare.net

Joint Venturing: A Business Tool For W/MBE’s? by Geraldine Reed Brown A Yoruba proverb observes: “When the door closes, you must learn to slide across the crack of the sill.” The comedienne Jackie ‘Moms” Mabley observed: “If you always do what you always did, you will always get what you always got.” Demosthenes once observed that “small opportunities are often the beginning of great enterprises.” Think about these three observations. Each one contains some wisdom that applies to life and business, and particularly to how we can approach change, challenge, and opportunity. Though the observations were not referring to W/MBE joint ventures, the quoted words are applicable to them today. Why should an W/MBE consider entering into a joint venture? What are the possible problems, pitfalls, as well as opportunities and profit potentials? Is this business tool for you? On balance, when properly structured, and in the right situations, a joint venture can be a very useful business tool that works well, and launches the beginning of a great enterprise. . Consider an example. AY Enterprises ("AYE"), a W/MBE entrepreneurial firm consisting of four Principal members, received a copy of an RFP from NJ TRANSIT. Each Principal thought the firm should respond to the RFP but each also had reservations. One Principal thought AYE had some of the skills required to meet the deliverable required by the RFP but she was concerned that the firm did not have all of the skills covered in the RFP. Another Principal felt that the contract might be beyond the firm’s financial capability. The third Principal was concerned that though the firm had been in business for several years and was growing, it lacked the track record he assumed NJ TRANSIT would require in order for the firm to win the business. The fourth Principal thought where there is a will, there is a way. The challenge was to find that way. The entrepreneurs in AYE had a choice: pass up the RFP or figure out a way to pursue it. Page 1

What did AYE do? AYE went after the RFP and won it, reflecting an understanding of the Yoruba proverb, the insight from “Moms” Mabley, and Demosthenes words. How did AYE do it? Through a strategic alliance joint venture arrangement, AYE’s entrepreneurs went outside to get the skill sets it lacked but needed in order to get the project. AYE partnered with another firm in order to capture the business opportunity presented in the RFP. Though several forms of alliance were available for AYE to consider, after careful review AYE selected a Collaboration Agreement for its alliance. In selecting a Collaboration Agreement, AYE was very concerned that the project that was the subject of the RFP be successfully completed. AYE was not looking to be merged into or acquired by its collaborative partner, simply to work out a relationship by which both parties could benefit from working together on one project. For illustrative purposes, the checklist that AYE utilized in shaping its Collaboration Agreement is presented at the end of this brochure. The checklist is offered to assist business entrepreneurs to identify and clarify some of their own business preferences and priorities as part of the process of considering if a strategic alliance joint venture might fit those preferences and priorities. The Challenge of Change for W/MBEs AYE, like any entrepreneur in this situation, had to deal with the potential double paralysis of a negative attitude and the inability to take positive action. AYE's entrepreneurs, like many others, had never done a joint venture arrangement before. It was a new way of doing business on a project. In order to move ahead, AYE had to confront the challenge of change. As Peter Drucker has observed "systematic innovation requires a willingness to look on change as an opportunity.” Changing the way you have done business -- perhaps from acting alone and in isolation to acting together with someone else in collaboration --- is a challenge. Not everyone is up to it. Are you? Asking that question of yourself and answering it honestly is tough. The words "To thine own self be true...." may find no higher testing than when required for an W/MBE entrepreneur thinking about a joint venture. Overcoming Fear of Success or Failure AYE's W/MBE entrepreneurs could also have passed on the RFP because they feared success ---winning the RFP meant growing, perhaps challenging the capacity of the W/MBE’s human, Page 2

financial, and other resources--- or they feared failure. But Thea Alexander put fear into a perspective which we think can usefully be applied by an entrepreneur: "Fear only sticks around if you hang on to it.... I realized that two things can't occupy the same space at the same time, and if I take the space that fear previously occupied and fill it with positive intention and specific goal-oriented action, the fear can no longer occupy that space. I realized that there are two paths you can take in life. One is seeing life as a series of problems, fears, and failures. The other is seeing life as experiences, opportunities, and adventures. It is exactly the same life. It's just that the perspective is different. You can either walk path A or path B. The choice is always yours." A strategic alliance joint venture can be a vehicle for maximizing success and minimizing failure. In that sense, a strategic alliance joint venture is a simply a business tool for MBEs. Increasing your understanding of how and when the use of a joint venture as a tool can assist you in progressing on your path to business success. In this example, AY Enterprises had the two components necessary to go after the project: a necessary attitude (open to the idea of collaboration to achieve a goal that could not be achieved by itself) and activity (focused attention to identifying, and involving joint venture participants with the appropriate skill set to go after a contract). AYE's combining attitude and action reflected a basic realization: a percentage of something is better than a monopoly of nothing. In deciding to pursue an opportunity through a joint venture rather than miss that opportunity because of false perceptions of limitation, AYE was putting into practice an observation embraced by the late Duke Ellington: “Life has two rules. 1. Never quit!. 2. Always, remember rule #1.” When is it Right? For a joint venture to "fit", it must be right for you. Though that may seem circular, it isn't. For the first place to determine if it is right, is with your attitude. You must be open to the idea of collaboration and it can not be in conflict with your personality, your perception of yourself as an entrepreneur, and in practice, a joint venture must fit in with the way you operate and run your business. How Do You Make a Joint Venture "Fit" In creating a stratetic alliance joint venture, there are a number of practical steps that have to be considered. It is important to create a framework in which to operate. You need to determine what you want to do ( purpose of the venture) and how long you want to do it together (the duration). Page 3

The thoughts that the joint venture partners have about their venture should also be expressed in writing and address traditional business points ( finance; management, etc.). Money Strategic alliance joint venturers should determine basic money issues early on, such as how joint venturers will be compensated. If a joint venture arrangement requires some financing, how that financing will be provided and its terms, how funds earned from the activities of the joint venture will be handled, including expenses as well as terms of compensation to the joint venturers should be addressed. One joint venturer might be looking at cash while another joint venturer might be looking at cash flow. These are not the same, and the difference can be a source of substantial friction when it comes to determining what is available to be paid out to the joint venturer. Management In order for the joint venture to be successful and to fulfill its stated purpose, it must be well managed. Determining who will lead the joint venture, who will manage the day to day operations of the joint venture will be critical. We all know that if everybody is responsible for all aspects of a project then nobody is responsible. In setting up a joint venture, the venturers will have to determine what roles each will play to produce the result or purpose that has been agreed upon. Some parties may have to play a subordinate role in the venture. Apart from ego, the parties should determine who is best suited to manage. Increasing Opportunities Through Strategic Alliances W/MBEs should consider strategic joint venture arrangements when it is in their economic self interest to do so. In coming together in strategic joint ventures, whether in and through virtual offices, or in and through older commercial settings, entrepreneurs need to insure they know the rules of the game. In the strategic joint venture context, the joint venturers through an agreement write their own rules, set their own game plan and then can go out into any field of business opportunity--hopefully, to perform better Page 4

and profit greater than those who do not know how to use the joint venture business tool. A strategic alliance joint venture may be a means to an end: fulfilling part of the entrepreneurial vision for your business. The ABC’s Success: Conceive, Believe, and Achieve If we conceive, then believe we can achieve and accomplish more together than any of us can accomplish separately. Someone once observed :“Belief is the knowledge that we can do something. It’s the inner feeling that what we undertake, we can accomplish. For the most part, all of us have the ability to look at something and to know whether or not we can do it. So in belief, there is power: our eyes are opened; our opportunities become plain; our visions become realities.”. Strategic alliance joint ventures can help W/MBEs to do so. MBEs should consider joint venture arrangements when it is in their economic self interest to do so. In coming together in joint ventures, whether in and through virtual offices, or in and through older commercial settings, entrepreneurs need to insure they know the rules of the game. In the joint venture context, the joint venturers through an agreement write their own rules, set their own game plan and then can go out into any field of business opportunity--hopefully, to perform better and profit greater than those who do not know how to use the joint venture business tool. A joint venture may be a means to an end: fulfilling part of the entrepreneurial vision for your business. Geraldine Reed Brown is President of The Reed-Brown Consulting Group, a management consulting firm, and an Attorney. She obtained her MBA from Harvard Business School and her Juris Doctor from Harvard Law School. RBCG can be reached by e-mail at RBCG1@aol.com. Page 5

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