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Forming a Joint Venture? Top 7 Things to Prioritize for Long-Term Success

Forming a joint venture is often seen as a shortcut to growth and expansion, blending the strengths of two organizations for mutual benefit. However, research and statistics narrate a different story.

Nearly 70% of partnerships end up needing major adjustments. These can involve complex and time-consuming tasks like modifying legal contracts, appointing new top-level management, and boosting financial investments.

Sometimes, making these changes can be so challenging that renegotiation becomes almost impossible.

That’s why it’s advised to set a strong foundation for your joint venture to avoid headaches down the road. Having said that, below, we’ve penned down the seven things you must prioritize (right from day one) when forming a joint venture.

Let’s begin!

Choose the Right Partner

Choosing the right partner is a bit like picking a teammate for a relay race. You want someone who not only runs at your speed but also complements your strengths and weaknesses. After all, a wrong choice can set you back, causing delays or leading to a failed venture.

To make this process easier, ask yourself the following questions:

  • Are their financial contributions and stability reliable?
  • Is there a cultural fit between our organizations?
  • Is their market goodwill suitable for your business?
  • Do we share the same vision and objectives for the joint venture?
  • How do they handle conflict and disputes?

Answering these questions will help assess whether a prospective partner aligns with your needs and expectations. Remember not to rush this process; take the time to dig deep. Only then can you set the stage for a successful joint venture.

Align on Goals and Objectives

Before jumping into any partnership, it’s crucial to make sure everyone is on the same page. You and your potential partner should sit down and talk openly about what you both want to achieve.

This could be anything from entering a new market, developing a new product, or the responsibilities of each partner. Having a clear picture of your goals helps you create a roadmap for the venture.

But don’t stop at just discussing these goals; put them down on paper.

Having a written document ensures there’s no confusion later on. You can always refer to this agreement if there are disagreements or if someone forgets what was originally planned. In short, it acts as a guide that everyone can follow.

Note: Creating a roadmap for the venture is not a “one-time” task. You and your partners must come back to this document to check if you’re on the right path and make necessary adjustments if needed. Also, always keep your eyes on the long-term vision you agreed upon initially.

Legal Structure and Contracts

What kind of legal structure will your venture have?

This is an extremely crucial question that will ensure you are protected legally. Generally, joint ventures could be a whole new business entity, a simple partnership, or a more informal agreement.

You’ll also need to put everything in writing. A well-crafted contract sets the rules of the game. It describes what each party is responsible for, what they’re entitled to, and what happens if things go south.

Having an experienced Contract lawyer could be of great help here. They can draft the agreement, leaving no room for misunderstanding. If you and your partner need a non-disclosure and confidentiality contract, they can also help with it. They can even advise you about your business to ensure it’s legally secure.

In essence, skipping or rushing through the legal part can lead to trouble down the line. So, make sure it’s as detailed and clear as possible. This step may seem like a chore now, but it can save you a lot of stress and confusion in the future.

Resource Allocation

Another thing you must pay attention to is “Who brings what to the table?” This doesn’t only mean money but things like time, skills, equipment, or even customer base. It helps see the bigger picture and sets the stage for a balanced relationship.

Additionally, resource allocation involves planning for the future. What happens if the project needs more money or other resources? Having a system for adding more to the pot can help you avoid last-minute confusion or disputes and save a lot of hassle when unexpected needs come up.

And finally, all these details shouldn’t just be discussed verbally; they should be part of the joint venture agreement your contract lawyer will draft. This legal document will act as a reference point and help resolve any disagreements that may arise down the line.

Ultimately, it will save time, prevent conflicts, and contribute to the long-term success of your venture.

Governance and Management

Many businesses enter into partnerships without clearly defining who will be in charge of what. As a result, it leads to power struggles and inefficient operations.

To avoid these pitfalls during your operations, determine the governance structure right from the beginning. Specifically, outline who will be part of the day-to-day management and who will serve in an advisory role. These defined roles will ensure that all decisions align with the joint venture’s goals and objectives.

You and your partner should also establish a process for making decisions and resolving disagreements. This can include voting mechanisms or escalation procedures to higher levels of management. It will make it easier to address any issues that arise, keeping the partnership on track for long-term success.

Communication

Apparently, when two or more businesses collaborate, misunderstandings can easily occur. It might be because of a missed single email or forgetting one update meeting, which might seem minor, but these small slips can add up. Over time, poor communication can derail the entire venture.

So, how can you ensure it doesn’t happen to your business? The answer is pretty simple: Set up a solid communication plan right from the start. Decide how often you’ll hold meetings, whether they’ll be face-to-face or virtual, and who will be responsible for sending out updates.

Likewise, choose communication tools everyone is comfortable with, whether a dedicated email thread, a shared project management software, or a regular video conference call.

This will keep everyone updated and allow for a timely review of the business’s performance. Ultimately, potential issues can be spotted and addressed quickly- keeping the venture on track.

Quick Tip: Every week, at a fixed day and time, have a brief meeting or send out a summary email to update all stakeholders on the joint venture’s progress, any challenges faced, and the next steps. This will ensure everyone is on the same page and avoid the pitfalls of poor communication.

Exit Strategy

Finally, always have a plan B or exit strategy so you are prepared if things go south. This plan should outline how to end the partnership, divide assets, or change the structure if needed. The terms of dissolution should also be clearly laid out to avoid any confusion or conflict later on.

For this purpose, you can consider scenarios like one party wanting to pull out, what happens if the venture is not profitable, or even what to do if it becomes hugely successful. Having a predetermined exit strategy would make dealing with these situations far less complicated and overwhelming.

On the other hand, neglecting this crucial element may lead to messy breakups that could harm your financial interests and your business reputation. So, before shaking hands and diving into the venture, ensure you and your partner agree on a sensible and fair exit strategy.

To Sum It All Up

Launching a joint venture is not just combining resources and expertise. It’s about setting the stage for a relationship that is both profitable and sustainable. So, prioritize the seven factors discussed in this article and help your venture succeed. It will definitely make your journey smoother and more rewarding.