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Joint Venturing 101

What is a joint venture and how do they work?

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The following article is an exclusive excerpt from Happy About Joint Venturing by Valerie Orsoni-Vauthey.

If you can't beat 'em, join 'em. Two heads are better than one. United we stand.

If you are a business owner who wants to significantly increase market reach, break down barriers to entry in your market, or simply generate skyrocketing revenues in a shorter amount of time, these old adages are becoming more and more relevant.

According to the Commonwealth Alliance Program (CAP), businesses anticipate strategic alliances accounted for 25% of all revenues in 2005, a total of 40 trillion dollars. This figure has been steadily growing over the past few years as more solopreneurs and Work At Home Parents (WAHPs) decide to unite to augment their odds of survival in a highly competitive global environment.

You are about to learn one of the most powerful tools I know of for being successful in today's competitive business atmosphere. I'm of course talking about Joint Ventures, or specifically, teaming up with another person, group of persons, or business entity for the purpose of expanding your business influence and creating a more powerful market presence.

Joint Ventures are in, and if you're not utilizing this strategic weapon, chances are your competition is, or will soon be, using this to their advantage.... possibly against you!

Our primary goal is to make you a successful joint venturer. This will happen if you are an informed entrepreneur. Thus, it is necessary for us to dive into the technical aspects of joint ventures. Specifically:

  • What is a joint venture?
  • How does it work?
  • Should I start a joint venture?
  • What are my chances of success?
  • What are the risks involved?
  • What are the legal implications of a joint venture?

What is a joint venture?

A joint venture is a strategic alliance where two or more parties, usually businesses, form a partnership to share markets, intellectual property, assets, knowledge, and, of course, profits.

A joint venture differs from a merger in the sense that there is no transfer of ownership in the deal.

This partnership can happen between goliaths in an industry. Cingular, for instance, is a strategic alliance between SBS and Bellsouth. It can also occur between two small businesses that believe partnering will help them successfully fight their bigger competitors.

Companies with identical products and services can also join forces to penetrate markets they wouldn't or couldn't consider without investing tremendous resources. Furthermore, due to local regulations, some markets can only be penetrated via joint venturing with a local business.

In some cases, a large company can decide to form a joint venture with a smaller business in order to quickly acquire critical intellectual property, technology, or resources otherwise hard to obtain, even with plenty of cash at their disposal.

How does a joint venture work?

The process of partnering is a well-known, time-tested principle. The critical aspect of a joint venture does not lie in the process itself but in its execution. We all know what needs to be done: specifically, it is necessary to join forces. However, it is easy to overlook the "hows" and "whats" in the excitement of the moment.

We will look at the "hows" in our review of the Eight Critical Factors of Success. For the moment, let's keep in mind that all mergers, large or small, need to be planned in detail and executed following a strict plan in order to keep all the chances of success on your side.

The "whats" should be covered in a legal agreement that will carefully list which party brings which assets (tangible and intangible) to the joint venture, as well as the objective of this strategic alliance. Although joint venture legal agreement templates can readily be found on the Internet, I suggest you seek the appropriate legal advice when entering such a business relationship.

Should I start a joint venture?

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