Many joint ventures do not work out. The most common reason for this is that the objectives for creating the joint venture today are usually much clearer than the venture’s endpoint in a mature market or market niche still some years in the future. Here’s how to maximize your happiness and that of your partner.
ONE: Get it in writing. You are looking to your partner for a particular skill set, capital investment or other contribution. Just because skill set x is the prime reason for your partner’s existence, do not assume your partner is going to use that skill set, or any other resource, for the benefit of the joint venture. A good example is marketing. If you are seeking marketing support from your partner, put targets in writing and insist on liquidated damages in the form of a cash payout commensurate to the marketing funds not spent as agreed, direct to you as parent in the event your partner fails to keep its word. Do not rely only on your counterparty’s powerpoint presentations and goodwill, no matter how large, experienced or personally known they may be to you.
Sound obvious? You would be surprised at what smart people will agree to after only one cup of tea. (I’ll tell a few stories in future posts.)
TWO: Engage in the conversation. Once the JV agreement ink is dry, the work begins. Few joint ventures succeed through the wits and skill of the dealmakers alone. Partnerships in which the dealmakers are also responsible for the success of the venture do far better than those in which the project is handed off to an operating team that was not party to the deal. The conversation referred to here is really two conversations. There is the internal conversation within your organization — this is ongoing and has to be successful for the venture to succeed. Then there is the conversation with your partner. This is also an ongoing, everyday affair. Even monthly top-level meetings can be too few to insure the success of a venture if there are underlying issues that are not getting addressed.
“Engage in the conversation” means to pick up the phone or get on the plane whenever the health of the business requires it. If you are the party in your organization responsible for the venture, I can guarantee you that you know when it is going well, and when it is not. One indicator, at least one that works for me, is whether “the conversation” is one you want to have. If you’d prefer to call, rather than visit or if you would rather address an issue via an e-mail rather than a call or a visit, “the conversation” is overdue.
THREE: Have an exit. Negotiate, in advance, a mutually agreeable valuation method and liquidation process for each partner’s stake in the venture. If this is done at the beginning of the venture, it smooths the way for both parties to see that the venture does not drag on beyond its “sell-by” date, just because one or both partners can’t figure out how to execute “the conversation.” Frequently, by the time “the conversation” needs to happen, relations between both partners are already strained — take this pressure off at formation.
Vodafone owns 45% of Verizon Wireless in the US. A minority stake can be a tricky thing, but Vodafone’s position, while the topic of perennial conversation among shareholders, analysts and management, is relatively easy to hold as it was originally negotiated with a fairly valued “put” option that allows Vodafone gracefully exit at a time of its choosing. Don’t lose sleep over this stuff — handle it in advance.