Why and how small businesses should collaborate, not compete

Everyone is feeling the current recession's effects, and perhaps no one more so than small business owners. Economic downturns present a host of challenges such as increased supplier costs, decreased revenue as consumers tighten their belts and reduced capital.

Usually, businesses are in competition with one another. After all, customers only have so much money to spend. However, there's a strong case to be made for small- to medium-sized enterprise (SME) leaders to team up rather than contend with each other to survive a recession.

Benefits of collaboration

The overarching advantage of working with other businesses, rather than against them, is the ability to save on overhead expenses. How so? Firstly, cooperation enhances operational efficiency. This is far more cost-effective than diverting resources (primarily monetary) inward to educate employees in areas in which they may be lacking (more on this in a bit). Furthermore, mutual support means shared resources, which can reduce costs (this will be explained in greater detail later).

Another bonus is increased brand recognition. When companies partner together, they can market these new partnerships, which gets the word out to multiple audiences. In turn, this helps people discover brands they may not otherwise have been aware of.

Rather than targeting individual and disparate audiences, organizations can kill two birds with one stone, so to speak. Greater brand awareness can lead to increased sales. The combination of improved revenue streams and lower operational costs culminates in enhanced and more stable cash flows.

Collaboration can get your name in front of more consumers.

Capitalize on strengths

No matter how competent, skilled and experienced your staff members are, the unfortunate reality is that every person, and therefore every business, has its weaknesses. Instead of pouring time, money and energy into procuring development programs, companies that team up can play off each other's competitive edges.

Here are two good examples, as Kate Isler wrote for Entrepreneur: If your business isn't the best at marketing, it could be worth the business owner's while to collaborate with a small agency that's specialized in this arena.

Although that is an additional expense, it'll be far less expensive than training your own employees. Then, your organization can offer that company something in return, which can get you a reduced rate on their services.

A second scenario could see an organization that struggles with distribution. Rather than expending valuable resources on trying to improve logistics on its own, that company could enlist the help of a local logistics company that specializes in this field. The same quid pro quo arrangement as in the example above could apply.

Share resources and technology

As Forbes explains, it can be exorbitantly expensive to invest in the equipment that's necessary for your organization to operate. Instead, you could team up with a company that has the apparatus you need, and vice versa. This exchange can cut corners effectively. Furthermore, business owners should remember that knowledge and experience are vital resources, too.

As Harvard Business Review explains, business leaders can no longer rely solely on internal executives to create and execute business strategies. Marketplaces and supply chains are far more complex than they used to be, and organizations often need fresh eyes and external input on their operations.

By collaborating, businesses can learn from each other based on insights that might not have been available to them previously. While this may sound a lot like sharing insider knowledge or trade secrets that can damage an organization or cause them to lose leverage further down the road, the converse is true. Knowledge sharing lets companies stay competitive in the long run because they'll be better poised to take advantage of new opportunities in the future.

Plan strategic alliances

Before you can capitalize on all of the above, business owners need to identify their ideal partner — not just any company will do. To achieve this, owners must perform a needs analysis to determine what factors are impeding their success and conduct research to see which business partners may be suitable.

After making contact and coming to an agreement, both parties must sit down together to write up proposals and contracts, stipulating every relevant condition to protect them. Involved personnel must then ensure they keep communication channels open because transparency is vital. So, it's advisable to have regular meetings.

We know economic conditions are just the tip of the iceberg when it comes to the challenges that small businesses face. Reach out to the Law offices of Donald W. Hudspeth, P. C. to get the assistance you need.

Categorised in: Arizona LLCs, Business Law, Starting a Business in Arizona

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