Laurie Montcrieff, owner of a small tool and die manufacturing company, took manufacturing collaboration to the max and ended up creating a company that will have over $70 million in sales its first year. Hers is not an isolated story. In the Chicago area, a coalition of over 90 companies has formed to find ways to sell their outputs to one another, turning scrap and waste into a marketable commodities, while eliminating disposal costs. Their combined profits and cost reductions, when added together, totaled $4.5 million, an average bottom line impact of about $50,000 per company.
The Colorado Association for Manufacturing and Technology in Denver sponsors programs that help manufacturers find partners for collaboration, sometimes even among companies that are competitors.
Can collaboration work for you? Laurie Moncrieff makes it sound simple. Some owners are good at operations, some at sales, some at finance. Why not combine so each can benefit from the others’ strengths?
It’s not that quite that simple. I would offer a few rules for collaboration, rules that are particularly important if companies are considering merging.
Rule Number One: The only equation that works is strong + strong. If two strong companies collaborate, the result is likely to be a stronger entity, one with more brains, more experience more market opportunities and more financial clout. On the other hand, when two weak business join, the result is likely to be a business that’s even weaker. Strong joining weak is a toss-up, but I don’t recommend it.
Rule Number Two: Observe strict division of labor. To put it in more folksy terms, don’t step on other peoples’ toes. If you’re an owner, you’re used to telling people what to do. But in a collaborative situation, some of those people may be off limits. This is even more true in the case of a merger. If you move from being the owner of a small manufacturing company to being the VP of Engineering for a larger one, you can’t tell the sales people what to do any more. In fact, you may even have to get the sales VP’s input about product design.
Anybody who’s built a company has a strong personality, and accepting a role where your word isn’t law can be difficult. The way to avoid conflict is to clearly specify roles.
Rule Number Three: Write everything down. Obviously, some documents associated with a collaborative venture will need to be drawn up by lawyers. But major decisions that don’t require legal help – decisions, say, about how bonuses will be awarded – need to be documented in writing. It’s amazing how peoples’ memories differ about what was said at a meeting. I can attest to this from personal experience.
I’m sure there are a lot more rules, like making sure your IT systems can talk to one another. But by sticking to these three you’re off to a good start.