Financing A Business: Joint Venture Partners

A joint venture partner, or strategic partner

, is sometimes overlooked as money for starting a business. What is a strategic or joint venture partnership? It's when two companies combine efforts to obtain a goal that would be difficult for either one of them to achieve individually. If you're financing a business consider joint venture partners.

For example: You may have the product and the other company the distribution system in place to reach potential customers. If you jointly market the product, both of you win. You don't have to fund the costs of reaching the potential customers; the other company can broaden its product offering, and therefore value, to its customers by offering your product. That company doesn't have to fund the research and development costs of a new product.

Another example: You have a product that requires injection molded plastic components that are produced by expensive specialized custom equipment. Normally a company that provides the injection molded plastic components would charge a hefty fee to build the custom equipment, and also charge you for every part produced. A strategic partnership might mean that in exchange for not paying for the custom equipment up front, you will pay the plastics company a small fee, similar to a royalty on your sales for a limited time period. You win, because you don't have to invest cash in equipment and the plastics company wins by having a revenue stream greater than the custom equipment would generate.

One more example: Your product has customers in several different markets and can be used for several different purposes. Let's say it's a new kind of applicator for creams, lotions, soap, and medications. Another company has a lotion for the treatment of skin irritations available by prescription only. You sell the exclusive rights to use your product to apply prescription lotions to that company. Since you have several other major markets for your product, giving up one, the application of prescription lotions, won't have a material effect on your future, and you get much needed cash now. The other company now has a product that helps in its brand identification and sales.

One last example: You have a customer database that has been successful in selling your products. You offer a company that has similar, but not competitive, products the usage of your database in exchange for a percentage of the sales generated.

To find a potential joint venture partner look in your industry trade journals for announcements. Search business newspapers like the Business Journal bizjournals. Look for companies that provide complementary products or services to your own company, or those in a market that would be appropriate for your products. Attend trade shows. And of course search the web.

If you're financing a business consider a joint venture partner.

by: Dee Power

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