How to find a business partner for a start-up company?
Updated: 5 days ago
Author: Ivana Yaneva
Publishing date: 9/1/2022
The number of start-up organizations has been rapidly increasing. As to 2021, in Europe, there are 160 000 verified start–ups (European StartUps, 2021) and although the COVID19 Pandemic influenced the market negatively, European entrepreneurs and business owners have been getting back on track in 2021. This dictates a necessity for creating strong business partnerships in order for the new organizations to grow, develop USPs and be able to raise their status within the competitors’ market.
Working with unfamiliar people is an inevitable struggle, especially when it comes to a new establishment that is just initiating new projects, and creating communication policies for comprehensive relationships with its stakeholders. However, the necessity of working with others is part of the process of professional growth and it requires flexibility, and eagerness to apply interpersonal skills to form a well-functioning team that possesses diverse abilities, especially technical and functional, and is able to build competitive advantage (Katzenbach and Smith, 1992, p.52). This does not apply only to internal teamwork, such as diagonal, lateral, top-down and down-up communication. It also includes external relationships with partners, customers and other relevant shareholders.
This article will explore the different ways to search for relevant business partners for a start-up organization. This study will focus on the process of determining the right media tool to use in a partner search, communication styles that apply to the dialogue opening, adaptation to the professional style of the receiving organization and the creation of a partnership proposition. The goal of this article is to introduce opportunities for finding relevant partners for a start-up with a focus on future organizational growth.
Results and analysis
3.1 Benefits of finding partners
One of the biggest challenges entrepreneurs meet is financial management (British Business Bank, 2021). The financial resources, and their planning, of a new organization, often determine whether a start–up will be successful or it would fail (Berger and Udell, 2002). The latter occurs due to the impossibility for the company to sustain its employers, develop new products or services, use needed technology and/or space, establish itself on the market, lack network etc. because of no financial resources available. To ensure the early success of the company, in terms of finances, a young organization should strive for building networks and partnerships. Those can be affiliate partners, sponsors, co-founders, investors and collaborators. It is salient to establish a relationship with those that will gain financial profits to the company but also develop a loyal, transparent connection with the receiving side. Nevertheless, keeping in mind those financial problems can be solved through loans, for instance (Edward Lowe Foundation, n.d.). This would not change the ways one operates their business, however, it would deprive them of the opportunity to bring new ideas and projects to the table, as well as expand their cultural landscape. Therefore, setting a clear goal that reflects on the organization’s needs is salient when deciding on new partnerships.
Expanding the cultural perspectives of a young organization is not only ethically right but McKinsey’s “Diversity Wins” report (2020) shows that is also important for organizational adaptation to new trends (Hunt, Prince, Dixon-Fyle & Dolan, 2020). Although the research does not focus on cultural expansion, it does create a question around how diversity and inclusion affect professional management and organizational growth, business-wise, morally and financially. McKinsey’s report states that “diverse companies are more likely to financially outperform their peers” (2020); hence striving for new diverse partnerships can have an effective brand positioning effect but also increase profits. Internally, it is a change that must be evaluated and reflected on throughout the entire management in order to achieve results. Otherwise, if not done properly, integrating diverse partnerships can result in overwhelming the employees through work-load as well as creating confusion based on different cultural factors such as religious viewpoints, gender-based assumptions, stereotyping, differences in professional language, working methods and many others.
3.1.3 Improving skills set
As a young organization, the skill set of the employees is yet to be developed. It is not uncommon, that start-ups are focusing on performing projects and gaining capital rather than upgrading their skills levels due to time deficiency and prioritization. Nonetheless, such unicorns have to keep in mind that the staff skills determine the efficiency of the company itself, therefore their ability to develop loyal relationships with customers. This, however, is the most important part – to be aware of your employees’ strengths, use them to your advantage and look for opportunities to fill in the skills gap they might be facing. Although challenging the staff through new projects and offering them possibilities for seminars, workshops and training is the most effective way to work on their weaknesses, if the company is struggling to maintain functional organizational structure, new party/parties might have a positive effect on task division due to their knowledge in different spheres. Moreover, building a partnership gives the start-up access to unfamiliar contacts that will expand the network of the company (Korchak, 2017).
‘Interestingly, financing is not the top reason for start-ups to pursue partnerships, or even among the top three. Their top motive is getting access to the larger partner’s market.’
3.2 The process of finding partners
The process of finding partners for a start-up is differentiating depending on the type of partnership the organization is striving for after evaluating its objectives, goals and defining the timeframe of success.
Moreover, before starting to look for actual partners a company should be aware of the past and ongoing trends in the market, as well as spot potential future ones through thorough research. According to CB insights (2021), 42% of the starts-ups fail due to a lack of understanding of the market demand. Hence, creating loyal partnerships is an activity that should be strongly preceded by knowledge about the start-up itself. Afterwards, this knowledge should be applied to the foundation of specific goals, through stating the actions that should be taken for achieving those, and sufficient external market research to draw the direction leading to the right partner.
3.2.1. Types of partnerships
In the business world, there are many types of partnerships one can establish depending on the basis of 1. Objectives, 2. Tenure, 3. Nature, 4. Legality, 5. Duration, 6. Liability (Kamola, n.d. ). Nevertheless, only the most feasible ones will be discussed below.
General partners can be characterized by being responsible for the management operations within the start–up as well as their ‘’unlimited liability’’. On the other hand, limited partners own a financial stake within the company, however do not have managerial rights. Limited partners can be referred to as stakeholders of the company. Ergo, they are not accountable for possible business debts because they are not legally managing them.
In order to discuss how each of the partnerships can be found and built, one should gather knowledge about the difference between the legal rights each of them carries. To do so, information on the types based on the above–stated criteria will be given.
Partnerships according to the company’s objectives
Partnership at will – this type of collaboration draws a contract that allows any of the involved parties to legally exit the partnership, with a given notice, due to the open-ended nature of the agreement.
Particular partnership – this agreement depends on the timeframe of the venture it was created for. Once the venture has been completed, the partnership is dissolved.
Partnerships according to tenure
Fixed-term – if the parties agree to create a partnership for fixed-term, they are setting an end date to their contract. After this date, the partnership automatically expires.
Flexible is the partnerships that do not state a fixed timeframe, however are not formed due to a specific venture.
Partnerships according to liability
There are four types of partnerships based on liability rights (Tanski-Philips, 2020). Each one of them carries its advantages and disadvantages, however, it is salient to compare the factors that affect your business and come to a compromise of which one of the types will fit you and your potential partner best.
If you are planning to form a general partnership the agreement should include each of the parties roles and shares as well as specifications on future intentions for closing the business if the partnership dissolves. This kind of partnership is easy to establish and is flexible, however, is taxed on a personal income rather than on a company level (Tanski-Philips, 2020). Moreover, the parties involved are liable for each other’s actions.
On the other side, limited partnerships require at least one limited and one general partner (Tanski – Philips, 2020). As said before, the limited partner does not have as many responsibilities and is not liable, therefore they do not face as many risks as the general partner that is held accountable for decision-making and managing the business.
Another type of partnership is called limited liability partnership - LLP (Tanski-Philips, 2020). Here, in case of someone legally takes over your business, you are not likely to lose your personal assets. Depending on your geographical location one can have liability protection from other parties involved in the partnership. A downside of this formation is that usually only certain professionals can establish LLP, such as lawyers and doctors.
LLC partnerships consist of two or more members and each of the members’ personal assets is protected, moreover this type of partnership offers tax flexibility. Although members can be held liable for other members’ actions they cannot be sued for business’s actions or debts (Tanski-Philips, 2020).
The essence is drawing careful conclusions based on efficient research on what is the company striving for is the key to finding the appropriate partnership type for the organization.
3.2.2. Where to look for new partners?
Research published in Pundera Ledger (2021) exhibited that 92% of the business owners worldwide are firm believers that exposing their products and services through website content is the most effective strategy when it comes to leads and purchases. This statement refers to the thought that the majority of entrepreneurs rely on online presence, of any sort (Shepherd, 2021). Therefore a good place to start looking for partners is online due to the large database that is available to the public eye.
Depending on the type of business one is determined to partner with, different channels are accessible for usage. Starting superficially, Search – Engines are helpful suppliers of general data that open opportunities to find top companies easily. Nevertheless, Search – Engine Optimization works with particular words and phrases taken from the company’s website content that is being optimized to rank higher on the results page of the search engine. Thus, finding and exploring your niche successfully might require a broader timeframe.
However, promoting partnering with entrepreneurs and assisting in finding, contacting and maintaining relationship with them is now a prosperous field. Website such as https://stealth.li/ , https://cofounderslab.com/ , https://www.starthawk.io/ , https://founders-nation.com/ , https://www.cofoundme.org/ etc. provide entrepreneurs with a channel as well as large network to connect with.
Moreover, with the rise of social media in businesses’ marketing efforts, contacting potential partners through LinkedIn and Reddit meets results (Kriss, 2020). Reddit is helpful when it comes to small businesses but it requires patience to find the right subreddits for you, and afterwards a suitable business.
Another social media that provides indirect networking services is MeetUp. Although the app has the tendency to excessively spam email boxes, it devotes events and groups specifically tailored for business meetings and connecting with potential partners.
Events and conferences prove to be a functional way to network or instead contact the organizer directly to promote your products or services. Professional events offer a suitable environment for professionals to find just the right contacts to develop their business. Although the online world offers numerous opportunities and channels, going offline so as to expand your network is an activity that has proved effective for hundreds of years (Team, 2017). Networking groups such as the Chamber of Commerce, or niche networking groups, provide a great number of people that will be interested in partnerships. And if not, if the right impression is made, the connection will prove to be a salient part of the business growth in the future.
3.3. How to maintain communication
The communication between partners should be established on mutual trust, integrity about future goals as well as legal documentation proving the existence of an agreement between the parties. However, the cultural aspect of exchanging emails, having real-life conversations or even team-buildings should be based on cultural awareness for your partners’ preferences and ways of taking this partnership further. Especially when it comes to international deals, the manner of speaking should be appropriate as well as the propositions.
Moreover, once established a partnership, the parties must maintain certain levels of communication in regards to progress, and further development.
Finding partners for a start-up company is almost a requirement for fast success. The advantages and the contacts external faces bring to the organization raises its chances to establish itself in the competitors’ market and promote their USPs with a better financial outcome. However, one should not underestimate the psychology between finding and communicating with stakeholders – extensive research on the start-up objectives and goals, as well as on the identity and culture of the potential new addition to the company. Although it is a difficult activity that also calls for an internal reorganization of tasks and employees systems, connecting with other businesses is an essential part of growing a company and shows whether the start-up is headed in the right direction.
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