Sharing in business: How to cooperate with others

In the third part of his series about working with competitors, Peter Rouse looks at the structures for business collaboration.

In this final instalment (see part one, ‘Why sharing opportunities with competitors is a viable business option’ here and part two, ‘How to select a partner for business collaboration’ here) I will look at a number of different forms of collaboration and the structures, in terms of documentation and organisation, that go with them. None of this constitutes legal advice and it is wiser to spend a little seeking professional advice at the outset rather than a lot more if things go wrong. What you can do to keep the bill down is to do your homework and prepare a clear written brief for your adviser so that you aren’t charged for the time taken to extract the information from you during meetings and correspondence, which can quickly mount up due to not being organised. If you don’t want to deal with a solicitor then you can now also deal direct with a barrister who may end up being cheaper.

Simple collaboration

This requires little more than an understanding between you, perhaps recorded in an exchange of emails for example, and that you work together to get something done. If there is a little at stake and not much to lose there is no point overcomplicating things. The very least you might do is make sure that you and your collaborator each carries business liability insurance and agree to each be responsible for any damage or injury caused by your own people.

Bidding or teaming agreement

This is where you agree to participate in a tender for work where you or another business will be a sub-contractor; you agree to work together to win the business and, if appropriate, sharing tender costs. The following is a link to an example of a standard form agreement.

Strategic alliance

This may mean agreeing, for example: to share know-how and other intellectual property to be utilised within specific parameters, or sharing in research and marketing costs associated with developing a new market segment or territory; or sharing each other’s production facilities. The parties are perhaps not going so far as to share in the costs or proceeds of a single project but want to get to know each other and see how well then get along. A written agreement or memorandum of understanding helps to being clarity to mutual expectations. Here is a link to a sample form of agreement.

Subcontracting

This is a form of collaboration that many small businesses will have heard of but many will never have tried themselves. Sub-contracting still means making sure that the firm you choose to work with can deliver. The legal mechanism is a contract and you can find pro forma agreements online that will get you started and keep your legal bill down when you consult a lawyer as you will have worked through what needs to be covered using the agreement terms as a checklist.

Joint venture (JV)

This again involves a contract and is inherently more complex than a subcontracting arrangement in that decisions are not ultimately yours but are effectively shared using whatever mechanism you agree for the management of the venture. A JV does not have to involve the creation of a separate legal entity but it may be the preferred route. This level of engagement with another business needs careful thought and proper advice from lawyers and accountants. Close engagement with another business, especially creating a new business in which both become shareholders brings with it all the same issues as would arise in another other startup as to who is contributing what; who gets what; and how it all gets divided up again if the collaboration breaks down or the venture fails for any other reason. Intellectual property issues inevitably arise and must be addressed clearly in any documentation as they include rights that are not readily divisible or can not be divided (such as trade marks and domains).

I hope that having read this series you might give some thought to finding a co-venture partner, or perhaps several partners, who you can work with to mutual benefit in order to access opportunities otherwise closed to you due to the size and capacity of your business. Perhaps you like being the size you are and growth of itself is not important; even then, collaboration may the way to bring in more profitable business and to ensure a good flow of business when local demand is seasonal or is in decline. It does mean overcoming barriers to trust, starting by being clear with yourself as to what you want to achieve and what you are prepared to share to do so.

Further reading on business collaboration

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