the alliance value propositionIn the previous episodes of The Collaborative Business Podcast I have been in conversation with many guests. Most often these conversations were about their experiences in strategic alliances and the lessons they have learned along the way. In Today’s episode we will go back to the beginning and have a look at one of the basic elements that needs to be in place when creating alliances: The Value Proposition!

It has been said before: collaboration with outside parties is now more important than ever before. More and more people are starting to understand this and more often alliances are created to grow businesses.

However, there is still a high failure rate connected to alliances. Many companies understand that they need to collaborate, but they fail to make their partnerships successful. The reasons for this are most of the time preventable reasons and often they point back to the lack of proper understanding of alliances. The companies that do understand how to partner successfully will be the ones that thrive in their business.

Many companies, small and large, still dive into partnerships for the wrong reasons. The question “is partnering the right solution for your growth” should be answered early on in the process. The decision to grow organically, acquire the technology or to partner with another company should be fed by your company’s strategy and your department’s strategy should be in line with that.

In these early stages you should already determine what tool the answer is for the goal you have in mind. Each of the choices (to build, to buy or to partner) will have their own advantages and disadvantages in growing your organization. This equally applies to large(r) companies as well as to solo entrepreneurs. As a solo entrepreneur you may not call it a strategy; perhaps you call it your mission or your purpose in business. Whatever you call it, the growth steps you make should be in line with your reason for being in the business!

In the book “Start with Why”, Simon Sinek describes how companies and people who know their “why” are in general more successful than those who don’t. Sinek describes what he calls the “golden circle”: in the middle it has the “why”, in the circle around it the “how” and followed in the third circle by the “what”. Every organization should know the reason for being; they should know and be driven by their “why”. Unfortunately many companies are working from the outside in: they know what they do and how they do it, but only a few know why they do it. Highly successful companies with a great following and loyal customers work from the inside out. They know, according to Sinek, why they do what they do, and this drives their how and leads into the what.

A similar thinking applies to creating partnerships and strategic alliances on multiple levels. If your company knows why you are doing what you are doing, you know the how and the what. Initially creating partnerships and alliances will be part of the “how”, but also within the how you will need to know the why of choosing a partnership over another way of growing the company. Do know exactly why you are in an alliance before establishing one!

Unfortunately, many companies just jump in a partnership due to an opportunistic approach or simply because they (or their management) like each other and feel they need to do something together. This is actually the worst reason for starting a partnership. Another reason companies jump too fast into alliances is because they are approached by another organization with a proposal to partner. The proposal might look very attractive and this results in a partnership created too quickly. In both situations it is essential to go back to the first stage and question your strategic rationale. Be very clear on your reason for partnering!

One of the first things we need to do before starting an alliance is to determine the value proposition. This will define what we want to do, after which we can move into the how we want to do it. In the words of Simon Sinek we are already exploring the ‘how’ and the ‘what’ in our company’s strategy.

Wikipedia describes a value proposition as: “a promise of value to be delivered and a belief from the customer that value will be experienced.” A specific definition of an alliance value proposition is: “The promise of measurable benefit resulting from an alliance. Alliance value propositions are generally defined as 3-way wins: for you, your partner, and your joint customer.”

Value Proposition This definition also clearly shows that a value proposition needs to deliver to three parties: the two partners and the customer. It is important to be clear about that value proposition from all three angles. The value triangle needs to be in balance for good alliance success. I compare it often to a tripod used for photography. If one of the legs of the tripod is unstable, the photo is destined to fail.

Defining the value proposition is an exercise with multiple phases to it. First, during your initial phase, you will determine the value proposition in the way that you would like to see it. Without an idea of the value proposition, it will be impossible to find a partner. Secondly, during your conversation with the partner and designing the alliance, you will need to refine the value proposition.

Also when the alliance is launched and in progress, it is important to review the value proposition every now and then. Situations may change, markets may change and perhaps insights change now you know your partner better. It is good practice to review the value proposition during the existence of the alliance and with that often new opportunities are being discovered.

Defining the value proposition may seem a trivial exercise, but it is part of the cornerstones of your alliance. When overlooked, you may find yourself in a later stage with an alliance that will not work as expected.

More about the Alliance Value Proposition:

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Previously on The Collaborative Business Podcast:

Click here for a full list of previous episodes.