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Coopetition: Turning a Strategic Partner Into a Financial Opportunity
Why Cooperating With Your Competition Could Be a Great Move
As a member of the C-suite, the idea of working with your competitors may seem counterintuitive. After all, how many hours have you spent devising ways to outshine them in the market? However, "coopetition" — when competitors work together — does exist. Does this approach offer the right strategy for your company to pursue? If it does, how should you structure the arrangement so that everyone wins?
While coopetition may not sound like a prudent business asset management strategy, many large companies use it to maintain and improve their efficiency and competitive standing. For small and mid-sized companies, working with a competitor can result in the creation of new products, cross-selling to existing customers or bundling products and services to deliver a more compelling offering. Some agreements don't come with customer-facing implications. For example, if your business has excess space in a climate-controlled warehouse, it may make the most sense to rent the facility to a competitor in your industry.
Building a closer relationship with a competitor allows visibility into their inner workings, and vice versa. Ultimately, this may set the stage for a subsequent merger or acquisition — especially if a partnership exceeds expectations. Since an acquisition typically requires some form of financing, it often makes sense to engage your banker to vet the coopetition agreement that could lead to a purchase. By involving your financial partners at every phase of the deal's due diligence process, companies can see the arrangement through the eyes of a trusted financial advisor and reject agreements that overstretch them. They can also avoid deals based on overly aggressive or inaccurate financial projections that your financial partner questions.
Creating the Foundation for Success
A successful competitive partnership depends on a clear and compelling vision of how both parties will cooperate and benefit. To that end, before entering into an agreement with a competitor, analyze their strengths, weaknesses, opportunities and threats, which is known as a SWOT analysis. If the results reinforce the benefits of partnering, create a memorandum of understanding detailing the arrangement. To prepare this document, start with the end in mind. Be as specific as possible — the more information you compile at this stage, the better, as it removes the potential for confusion in the future.
Avoiding Scope Creep
In addition to focusing on the goals of the arrangement, draw clear boundaries regarding the scope of the coopetition. For example, if you agree to create a new product, be specific about what it is, the intended customer, price point and who will own the intellectual property. If you lack certain pieces of information, such as the anticipated selling price, specify a date to revisit that component in the future.
To minimize the potential for coopetition to take on a life of its own, make sure there's a process in place to handle changes to the agreement. For example, if all parties see the need to expand the relationship, avoid any misunderstandings by revising the original memorandum of understanding to reflect the changes each company would like to see.
Establish Frequent Check Points
Make sure that the coopetition agreement provides every party with ample opportunity to share their concerns. There should be a standing meeting or phone call to check-in and solicit feedback. Make sure you share any concerns as soon as they materialize. A process for mitigating disagreements should also be included.
Creative business asset management strategies can improve your company's competitive standing significantly. Nonetheless, working with competitors requires careful planning, robust communication and a willingness to cut ties if the relationship sours.
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