Do you have a great idea but don’t have all the expertise to bring it to fruition? Or maybe you have an innovative product that needs a marketing guru to take it to the masses? Have you considered a joint venture?
A “joint venture” is a strategic alliance between two or more individuals or entities to engage in a specific project or undertaking. It is different to a partnership because a partnership generally entails a continuing, long-term business relationship.
There are lots of reasons why you should consider a JV. You can use it to:
- Reach a greater or new customer base;
- Access knowledge, staff, technology and/or expertise that you don’t have yourself;
- Reduce the risk and the labour load;
- Gain a foothold or introduction into a new market;
- Speed up the time it takes to get an idea on the market.
Any type of business entity can enter into a JV whether you are set up as a sole trader, company, partnership, etc.
The joint venture itself is not a legal entity and is not permanent. All the revenue, expenses and asset ownership usually flow through the joint venture to the participants; and when the JV goals are complete, the JV ceases to exist.
There is no set process to setting up a JV, although there are FOUR steps that you can take to minimise the risks.
1. Due Diligence
Research your potential partner. If they‘re someone you don’t have a long standing relationship with then ask around and seek some background on their history.
2. Implement a confidentiality or non-disclosure agreement.
As you sit down to discuss the intricacies of your new venture, you will be disclosing confidential information about your business and the great idea. An NDA agreement will offer some protection and show that you value your IP and other expertise.
3. Have Robust Discussions
You are your potential JV partner should have discussions, lots of discussions. They should cover the whole gamut of how the JV will work. Issues like:
- The objectives;
- Financial and or other contributions;
- Intellectual property;
- Day to day management of finances;
- Responsibilities of the partners;
- Processes to be followed;
- How disagreements between the parties will be resolved;
- Termination of the JV.
It may seem awkward talking about things like dispute resolution or termination clauses but your future self will thank you for making these types of events much easier to handle, if they do occur.
4. Put your discussions and agreement in writing.
Relying on memory is hazardous and science is confirming our memories are flexible rather than hard wired. You might think that your brain files away everything that happens in neat folders with 100% accuracy but this simply isn’t true. It’s been proven that we recall things differently and often change the memory in its re-collection.
This is why is makes sense to write your arrangement down into a Joint Venture Agreement so that there can be no doubt in the future what you agreed upon at the beginning.
By taking these four steps you will be much more familiar with your potential JV partner(s) and be able to uncover the hidden minefields that can blow up future success. It might be a little more work to begin with, but it will increase your chances of joint venture prosperity.