If you’re the owner of a small business, chances are you’ll be approached with a partnership opportunity at some point. But before you jump into any new business partnership, it’s important to not only evaluate the potential partner, but also determine whether the opportunity would mean growth for your company.
That’s why we asked 12 entrepreneurs from Young Entrepreneur Council (YEC) the following question:
Q. When your business is approached with a partnership opportunity, how do you evaluate whether the business partnership will be lucrative or not?
1. Ask yourself if it's worth your time
The first thing to do is understand the key metrics of the business partnership opportunity. In my experience, a lot of people approach us for partnerships that would take more time than be advantageous. You have to always think, “Is this getting us to our goals faster?" The key metrics with each partner will be different, but keep audience size and demographic in mind. –Jayna Cooke, EVENTup
2. Test the waters with an affiliation
Partnership decisions will always include a few gray areas. Try to think of a project that will allow you to test the waters before you fully commit to a merger. You want to make absolutely sure that the partnership will not dilute your brand, and that the revenue proposal, in reality, is as solid as it seems on paper projections. Look for full transparency, too. No question should be off limits. –Nicole Munoz, Start Ranking Now
3. See if it conflicts with your company structure
I get several partnership opportunities every year. Some require me to change my company drastically, and some align very well with my structure and vision. I only select ones that fit our current structure and mission, or require fewer changes. This helps me protect against any possible failure. I also won't go with an opportunity that would make me lose my current profitability. –Piyush Jain, SIMpalm
More articles from AllBusiness.com:
- Pros and Cons of Limited Partnerships
- 7 Ways to Prevent a Business Partnership From Going Bad
- Preparing the Perfect Written Partnership Agreement
- Should You Start a New Business Solo or With a Business Partner?
- How to Make a Business Partnership Work
4. Look for profit
I make my evaluation based on the ideology that "one plus one should equal more than two." If so, I will do the same assessment on my partner, and ask myself, "What do you get from forming the partnership that provides more than the impact of two?" If you fully consider the above-mentioned thought, then you should be able to correctly identify whether a prospective partner is lucrative or not. –Kevin Xu, Mebo International
5. Understand the level of commitment
When considering partnering with another individual, company, or organization, consider the question, "Do you want to get married?" Any partnership is a marriage. The degree of your lives intersecting transcends the vocational or entrepreneurial spectrum. This relationship will affect your other relationships, so if you're actually married, or plan to be, a partnership adds another one. –Matt Shoup, CafeConLecheWithMatt.com
6. Evaluate the basic benefits of the business partnership
There are three basic benefits to a partnership deal: revenue, knowledge, and future business. If the partnership can quickly increase your revenue without a large increase in expenses, expand you or your team's knowledge to make you more valuable without a large time commitment, and potentially open the door to additional future opportunities, then go for it. –Robert Lee, Circa Interactive Inc.
7. Do a simple cost/benefit analysis
Partnerships are agreements of mutual benefit, but they can also be a time sink with expenses that outweigh the advantages. There has to be a clearly defined upside to the business and its clients. Partnerships are only worthwhile if they provide efficiencies, improve user experience, or enhance revenues without negatively impacting existing business and revenue sources. –Vik Patel, Future Hosting
8. Look at the big picture
Don't always focus on the "now" opportunity when evaluating potential partnerships. Look at the big picture and determine whether or not the partnership can help open other doors or lead to additional opportunities down the road. Simply dismissing an opportunity because it won't provide immediate financial returns can sometimes hurt you in the long run. –Jonathan Long, Market Domination Media
9. Look for brand synergy
I don’t really look at numbers or followers, but more at the brand itself. I ask myself, "Is this a brand that makes sense to work with? Does it look and feel right with us as a brand? Do they put as much attention to detail in marketing campaigns as we do in ours? Do they have the same passion as we do? Do they have the same end goal as us? Are they as results driven as we are?” –Mark Samuel, Fitmark
10. Decide if there's leverage
Never enter a partnership unless it provides you with leverage. If the partnership doesn’t create more results with less effort, it’s a waste of time. When assessing the deal, don’t forget to consider the control, opportunity, and time you’ll need to give up . –Brian Smith, S Brian Smith Group
11. Consider whether the business partner aligns with your values
As a startup founder or new business owner, you can be easy prey for the seasoned sales professional or business development VP. Their job is to make money from your company and to make it seem like they are doing YOU a favor in the process. Be patient and honestly ask yourself, "Is this a person or organization that I want to be associated with? Are they ethical, honest, and fair?" –Joshua Dorkin, BiggerPockets
12. Add a threshold for first-year sales
Quickly sort so-called opportunities into two buckets: those that have a clear path to monetization and those that don't. For those you can foresee generating revenue, you should also add a threshold for first-year sales. While an opportunity may generate $10,000 in sales, it's not likely worth the time to strategize and execute on it, whereas a million-dollar idea is likely worth the effort. –David Ciccarelli, Voices.com
RELATED: The Pros and Cons of a General Partnership in Business
