Q: We are currently pursuing a strategic partnership with a vendor of ours. We would like to have a better degree of control on resource allocation in his business. I am curious as to how you would investigate making a move like this? What things should be considered? Equity partner Vs. non-equity partner? We are looking to expand our product base to our customers by using this vendor to build the products and don’t want to have problems down the road. Any insight you could give would be helpful.
A: This can be a double-edged sword.
The relationship you have with this vendor can be adversely affected should this business deal not work out.
At the very least you’ll want protection to be certain that you can continue to have them as a source of supply in the event that the business deal goes sour.
Personally, I always prefer partnerships where everyone has a meaningful equity stake and a say in the business commensurate with what they bring to the business. By the same token, you don’t want to be in a position where your hands are tied at every step because there are too many generals and not enough soldiers. The business needs a clear definition of who makes the key daily decisions. Don’t turn this into a committee run business.
Partnerships are great when everyone contributes but they can become an awful mess when all parties have an equal stake and say on all matters.
You can tie up the entire decision making process. Therefore, if you will be running the business day to day, then you have the final say on all matters (except for: borrowing money, selling the business, taking in new partners, hiring high prices individuals, etc).
The key for you is to determine what it is that you want this partner to deliver now and down the road.
Who will run the business? You mention that you would like to have a “better degree of control on resource allocation in his business”. I’m not certain what this means however, if this component is your priority then make certain that every mechanism is in place to be certain you achieve your goal. It’s worth it to give in on other issues to realize what you want.