My CEO wants a Joint Venture” is one of many quotes (or similar) that I often hear when  in conversations with potential clients. The desire for this form of partnership is mostly driven by the desire to maintain control in a collaboration. In a joint venture, the CEO wants the majority stake and thus tries to minimise risk by keeping control over the partnership. 

Unfortunately, this puts the cart before the horse. Form follows function. It starts with strategy: we have a vision of what we want to accomplish. To achieve that vision we need to make the basic decision if we want to partner at all, or if we want to do it on our own or acquire another company. When the CEO really wants to stay in control, the company might better decide to pursue one of the other options over a partnership. 

In our Alliance Masterclasses, Anoop Nathwani and I always highlight the importance of trust as one of the foundational elements in creating alliances and partnerships. Trust building starts the moment we first contact a potential partner and continues all the way through the negotiation and design phases and into the alliance management phase. 

Relying on trust over control does not mean that we don’t need a contract for our alliance. We do need a contract to capture our agreements, like we need a solid governance structure to manage the alliance. Within the boundaries of contract and governance  alliances & partnerships are created between companies and driven to success by people and their personal relationships. Trust is a cornerstone for personal relationships.  

The question of the form of the partnership comes only later on, in the design and negotiation phases. Whether it should be a joint venture or a contractual alliance depends on many aspects and should be a joint decision. Almost everything you can accomplish in a partnership can be organised through a contractual alliance. There is simply no need for the additional elements and costs of creating a joint venture using a separate legal entity. 

There are some reasons when creating a joint venture can be useful and they often have to do with investments, divestments, intellectual property or entering into uncertain markets.  

In your line of business, would you prefer a strategic alliance or a joint venture (and why)?

PS: Did you know you can measure trust? The Trust equation is the way in which to do so. Join our Alliance Masterclass and in lesson 2 we’ll tell you all about it.