Strategic Alliances Are a Plus for Fabricators

Management theory is filled with trendy buzzwords that often come into vogue for a while and then fade away. Take the word “networking.” To me, this brings to mind an after-work wine and cheese party, where borderline unsuccessful types nervously swap business cards.

How about the word “partnering”? When a noun is unnecessarily transformed into a verb, your BS detector should be quivering. Moving up the ladder of pomposity, we reach the grand term “strategic alliance.” This sounds more like something that might fight and lose World War III than a profitable business relationship.

Do these business concepts have any significance to those of us struggling to eke an honest profit out of a dusty 10,000-sq.-ft. countertop shop?

These three management terms all describe relationships between business organizations, which, of course, are composed of people. Therefore, they are forms of human relationships that must be based on honest, open communication and reciprocity if they are to be successful in the long run.

We are in business to make money by fabricating and installing countertops. We are not in business to talk endlessly about pie in the sky. It does no good to delve into these kinds of business relationships if the goal isn’t to improve profitability by increasing sales or opening new markets or reducing costs.

Strategic Alliances

In the business environment of 30 years ago, it was obvious that a countertop fabricator ought to cultivate good working relationships with kitchen and bath dealers and remodeling contractors and cabinet shops that operated in the same community. It’s just that the word “networking” hadn’t yet been coined. Usually, these relationships were based on unstated assumptions such as, “If I give that company good products and services at a competitive price, they will continue doing business with me,” or “If I send some business their way, they will send some business my way.”

Though such business relationships are both useful and necessary, they are far too vague for the 21st century business environment. The process of developing strategic alliances allows small businesses, including countertop fabricators, to formalize and cement such existing relationships, and then to cultivate innovative new relationships that benefit all parties.

Instead of assuming that your good reputation in the local kitchen and bath industry will motivate a local appliance dealer to mention your company name whenever a customer asks about countertops, why not formalize that relationship? Perhaps you can agree to place your brochures in the appliance showroom, and they can place their brochures in your countertop showroom.

Perhaps you might jointly sponsor a promotional event for a remodeling association that would be a bit too expensive for either of you to handle alone. If such arrangements go smoothly, you can be assured that the appliance dealer won’t be mentioning your competitor’s name.

Even better, perhaps you might offer to pay a fee, perhaps 3% to 5% of the sales price, to any company that regularly refers new business to you. You can then publicize your formal business relationship with a dozen solid companies in your community, which increases your credibility. Appearing on your list increases the credibility of the other companies, as well.

You may very well find that the cost of this referral fee is lower than conventional advertising costs, and that your modest fee will help cement solid long-term relationships. You will have to track the source of your leads, but you should be doing that anyway.

In the past, many countertop fabricators developed their deepest business relationships with companies far more powerful than they were – perhaps a regional distributor or a manufacturer of a critical brand-name product or a big-box retailer dedicated to driving costs lower. The assumption that genuine, long-term loyalty would be the outcome of such an inherently dependent relationship was naive at best. The vagaries of corporate reorganizations and key staff turnover, globalization and the bean-counting mentality all too often rendered loyalty to so-called “business partners,” a passé notion.

On the other hand, a strategic alliance between companies of roughly the same size, with complementary strengths and weaknesses, can result in increased sales and/or reduced costs for both.

Local and regional businesses, for example, can forge strategic alliances with similar companies in other parts of the country that might otherwise be thought of as competitors. Internet advertising expenses, for example, could be shared by a strategic alliance of similar companies, so that they are not bidding against each other for search engine advertising. Other national advertising and marketing expenses can also be pooled. A shared Web site can automatically funnel leads to the closest qualified company based on the zip code of the potential customer, and track the leads so that expenses can be allocated to each participating company fairly.

The phrase “partner” has many levels of meaning, and the exact meaning in a given situation needs to be defined. Strictly speaking, a partnership is a legal form of business entity, intermediate between a sole proprietorship and a corporation.

Many business “partnerships” do not rise to the level of a true legal partnership. During the process of negotiation, it’s important to clarify exactly what the legal relationship really is, and to incorporate the final understanding into a written agreement.

On the other hand, “strategic alliance” is a phrase with no accepted legal meaning. Unless the final agreement between participating companies clarifies the relationship, a court might rule that the relationship is actually a legal partnership or perhaps a joint venture, even if that was not what the parties had intended.

Most management experts agree that it is mistake to start drafting legal agreements at the very beginning, though. Frank negotiations based on mutual self-interest often result in a psychological buy-in that leads to a successful deal. After the handshake, a written agreement can be drafted.

Business startup expert Guy Kawasaki says, “If you start the drafting process too early, you are asking for nit-picking delays and blowups. Incidentally, if you ask for legal advice too early, you’ll kill the process.”

One aspect of the deal that should not be ignored is the “escape clause.” Relatively speaking, it should be easy for any party to pull out of the relationship if they conclude that it is no longer profitable for them. Though it may seem counterintuitive to make the deal easy to end, it can increase motivation. The thinking that results is, “We better work hard to make this alliance work out well, because we need the other company to make this profitable, and they can walk away if they aren’t happy.”

For a strategic alliance to be successful for the long haul, each participant must be committed to the profitability of all of the participants, and not just that of their own company. Each company must bring certain defined strengths to the deal, and not hide its weaknesses. Only then will the deal be mutually beneficial.

Read past columns on Fabricating Techniques by Jim Heaphy, and send us your comments about this story and others by logging onto the Kitchen & Bath Design News’ Web site, located at www.kitchenbathdesign.com.

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