Co-Branding and Strategic Alliances

Part C: Prepare the Business to Launch

Something not many people know: fierce competitors in shipping sometimes pay each other to carry freight on routes one of them does not cover. Why would they? Because there are not enough packages going to places like Iceland, Greenland, Hawaii or New Zealand to justify every carrier flying its own jet there. Imagine the cost of a full jet from the United States to Australia. Now imagine sharing that cost instead of carrying it alone.

The more you learn about why large companies became large and stay large, the more of these quiet alliances you find. And the concept is available to a two-person electrical contractor just as much as to a global carrier.

Co-branding: selling under a name you do not own

Co-branding is an option for people who do not want to go through the long process of establishing their own brand. If you invented a new board game, would it be easier to work with an established toy company that already has the channels, the recognition and the marketing money, or to build all of that yourself? It seems tempting and ideal. Hold your horses, because it is not as simple as walking in with the idea.

Co-branding takes several forms. You can lease a well-known name to put on your product, which is how one famous name ends up on buildings, golf courses, cologne and clothing the owner never manufactures. You can manufacture for a store’s own brand, the way an appliance maker can produce essentially the same appliance for several store brands with different doors and panels. Or you can supply a department store that, once it knows what sells, starts making that item itself more cheaply. That last one has put more than one small supplier out of business.

The benefits are real: faster name recognition and existing sales channels. The downsides need equal weight. You are tied to the other brand. You are not building your own. Creating the opportunity is hard. If you manufacture for them, they can switch manufacturers and shut you out. And once you depend on it, you lose the power to negotiate. Whichever way you go, consult a lawyer with experience in this specific area, and for a deal of this kind lean toward a larger firm with more resources than your local attorney has.

Strategic alliances: joining efforts toward a common goal

The basic definition of a strategic alliance is two or more parties joining efforts to reach a common goal. That definition opens a lot of doors, and chances are you have already thought of a business or two you could work with. Dunkin’ and Baskin-Robbins under one roof is the visible version: two brands sharing a building, distribution and marketing.

Here is the small business version. An electrician wants to offer carpentry when walls need to come down. The obvious move is to subcontract a carpenter. The smarter move might be an alliance. The carpenter and the electrician have the same target customer and the same kind of distribution. They probably use the same media to advertise, work in the same area and may share suppliers. So they could share projects, share advertising costs, share clients and even negotiate with vendors as a larger buyer. There are so many levels on which those two could work together that it still puzzles me why more do not.

We do this ourselves. We regularly arrange campaigns where several small businesses advertise together, which cuts the cost of a direct mail campaign for each of them. We work in alliance with printers, designers and promotional suppliers so that our clients get the buying power of a group they could never assemble alone. For many industries the question is not whether you can form alliances, only who with and how many. There are also paid alliances, common in transportation: one company delivers one route, another delivers a different one, and they pay each other for the loads. Both benefit.

Before you shake hands

Evaluate these before setting anything up. What are the key elements of your business that naturally work with other businesses? What can you offer, and what do you need from an alliance? What benefits and reasons does the other company have for doing this? Are you comfortable having your name associated with theirs, because you will be? How will it be set up, who pays what and how are costs calculated? And on how many levels can this work, because the best alliances work on several?

Make the call

Write down five businesses that sell to the same customer you do without competing with you. For each, note one thing you could share: a mailing, a referral arrangement, a supplier, a job site. Call the one where the fit is most obvious and ask if they would meet for coffee to talk about sending each other work. That conversation is the whole first step.

The cost of an alliance

Mapping potential partners takes three to five hours and is free. A handshake referral arrangement costs nothing. A shared advertising campaign splits a cost you would otherwise carry alone. Anything involving a shared name or joint accounts should be reviewed by an attorney, which is a real but one-time cost that protects the relationship.