Strategic Alliances: Alternate Road to Success

The standard playbook for the technology entrepreneur says: develop the technology yourself, market the resulting product yourself and try to keep as much profits as possible for yourself. The only "outsiders" are investors who are needed solely for their money and who are often seen as necessary evils. While this strategy can be made to work, it ignores the benefits of strategic alliances which can provide R&D expertise, marketing channels, investment dollars and an imprimatur for your company and its technology from a major player in the industry. This alternate strategy of collaborative relationships allows technology companies to grow their businesses by accessing the technology, markets and money of industry leaders.

To structure and implement a strategic alliance, a technology company must focus on four primary areas: identifying its business goals, preparing the company and its technology, identifying the benefits of different strategic structures and formats and focusing on key negotiating issues.

To make a strategic alliance advantageous, the entrepreneur must clearly define and follow his business goals. The alliance is doomed to fail if the entrepreneur does not achieve his business goals - such as certain levels of control, funding, or marketing or R&D commitment from the larger partner. The entrepreneur also must incorporate the strategic relationship into his planning and operations. Maintaining the strategic relationship can be difficult if there is no cooperation, respect or chemistry between the parties. Improving the alliance is critical because it may be difficult to effect a divorce of the parties once the marriage is complete.

Preparing for a strategic alliance requires a technology company to understand its technology, product/service and business and their potential. The strengths and weaknesses of the company must be honestly assessed in order to conduct negotiations. The value of the technology's proprietary rights must be analyzed and, if possible, increased through patent, copyright and trademark filings, securing prior rights and conducting searches for competing intellectual property. The technology company also must have a professional team in place to manage the strategic relationship. An untended relationship will not bring additional value to your company.

The structure of the strategic alliance can take many forms - license, cross-license, joint marketing, joint R&D, co-marketing or joint venture. These various structures involve common issues such as the applicable geographic markets, the applicable technological or product applications, the exclusiveness of the relationship, which party is adding the most value to the relationship, and present and future equity participation. Use the structure which best addresses business issues such as who has the technology expertise, how far has the product been developed, how much funding is needed to bring the product to market and how can the alliance be terminated. As to the crucial issue of control, tackle this issue early to establish the parameters of the ongoing relationship. The agreement may be valueless if the management and governance of the relationship is not clearly delineated.

When addressing negotiating issues, select counsel and business advisors who have experience in bringing similar deals to closure. Relevant issues include exclusivity, territory, rights to future inventions, payment/royalty scheme, cooperation or division of resources in R&D or marketing, protection of proprietary rights and confidentiality, termination and dispute resolution. Where the development and licensing/manufacturing of products are involved, issues arise as to milestones, acceptance procedures, manufacturing rights, forecasting supply needs, warranties, indemnification and limitations on liability.

Your strategic partners are often your most fertile source for equity investment because they understand your business and technology and the associated risks. They also know the upside of your business and already have a vested interest (the strategic relationship) to make it work.

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