Tag Archives: Joint-Venture

How Do You Choose Between Opportunities? Six Points

Situation: The CEO of a software company has been presented with two opportunities by a large customer – international expansion to support their sales and creation of a data warehouse facility. The company has the option of pursuing either or both. The customer is not offering up-front cash to support either opportunity. Should they pursue either or both? How do you choose between opportunities?

Advice from the CEOs:

  • Keep pursuing both opportunities and establish a series of decision points which will yield either a Go or No-Go decision on each. The big question is to determine how either will support company growth.
  • The customer is interested in both opportunities so ask them for assistance such as: removing barriers, client referrals, or some form of cash or investment.
  • For either opportunity to succeed requires a high level of internal buy-in and support from the customer.
  • If the company can afford to be aggressive now, this is a great time to move.
    • Look carefully at the ROI on each opportunity under different scenarios.
    • Do background work with potential clients to validate each market opportunity.
  • Specifically to International Expansion
    • Buy-in from the customer’s head of international sales is essential – without this it will be difficult to establish a solid relationship with the international sales team. Lack of this support will be a No-Go sign.
    • Can the customer provide office space, access to their infrastructure, administrative support, assistance in gaining necessary licenses to do business, etc. during start-up?
    • Could this venture be undertaken through a joint venture with an established international company? This would save start-up costs and allow validation of the opportunity before risking the company’s investment.
    • Execution will require a large-scale effort – both time and money. Include both in the Go/No-Go calculation.
  • Specifically to the Data Warehouse Facility
    • A competitor’s right of first refusal on this business is a barrier. However, the opportunity may be viewed as too small for the competitor. Is it possible to buy rights from this competitor?
    • Ask the customer to transition their customers to your company and its product.

What are Best Practices for Bringing Teams Together? Seven Suggestions

Interview with Jennifer Choate, President, Green Country Integrated Resources, Inc.

Situation: There are many opportunities to team with other companies, whether through partnerships, joint ventures or M&A. This is accompanied by the challenge bringing together different teams to succeed in new roles and tasks. What are best practices for bringing teams together?

Advice:

  • People are an investment. Just like the stock market is not up every day, neither will be the performance of your people. Bringing people into new relationships, roles and responsibilities takes patience, work and nurturing to build skills and to get the best out of people.
  • Build the organizational chart of the new organization that you will build. Fill in all spaces with the individual who currently holds responsibility for each role. This means that some people will have several different roles. This is OK. As you add additional people, they will fill many of these roles.
  • Build a set of company or project values to guide individuals through the trade-off decisions that will drive future growth. Involve the full team in this exercise so that ownership of the resultant values is broad.
  • Develop and express in a consistent way the boundaries of the company or project. If Enron had had as one of its boundaries “we don’t embezzle” a crisis would have been averted.
  • Focus on systems and processes, not just on tasks. The core of any organization is people and relationships. These are best expressed through systems and processes, not tasks. Tasks express discrete roles, even if these may be sophisticated, but don’t encompass the richness or complexity of systems, processes or the people involved.
  • When dealing with people always ask “What is my role?” and “What is their role?” In each situation, work to understand the other’s perspective and what opportunity or concern they are bringing to the table. Trying to make someone into someone that they are not doesn’t work.
  • Particularly in a company or venture that focuses on high levels of customer service, act urgently, but avoid emergencies. You want your response to customer needs to be swift, but do not want to destroy operational rhythm.

You can contact Jennifer Choate at jennifer.choate@greencir.com

Key Words: Role, Partnership, Joint Venture, M&A, Organizational Chart, Values, Systems, Processes, Customer Service 

Partnership Agreement for a New Venture: Seven Points to the Negotiation

Situation: We are negotiating a partnership venture. We would fund the entity, and the partner will earn ownership through sweat equity. How do we draft a fair partnership agreement?

Advice from the CEOs:

  • The most important factor is the ability of the two partners to drive a successful venture: proof of ability to contribute needs to be a prerequisite to allocating ownership.
  • How does the sweat equity partner prove their capability?
    • Create a schedule of milestones for the partner to earn ownership, based on mutually agreed objectives or revenue generation.
      • The beauty here is that you retain control until the partner has proven their value by delivering results.
      • The potential downside is long-term liability of the venture.
        • The longer that you retain majority ownership, the longer you retain majority liability.
        • Insure yourself against this liability.
    • Buyout clauses are important to retain your interest if the partner fails to deliver.
    • Include a liquidation clause in case the venture fails.
  • Negotiating the agreement:
    • Draw up a 6-month letter of intent. Specify what each side brings to the table and what each commits to deliver. Set clear, measurable, time-bound objectives.
    • Negotiate fair protections desired by each party.
    • Consider a consultant to facilitate settlement of areas of contention.
    • Theoretically, each party needs their own legal counsel. This adds expense but provides protections for each in the final agreement.
    • Factor the cost of legal advice as well as consultant facilitation into your planning model.

Key Words: Partnership, Joint-Venture, Sweat Equity, Agreement, Negotiation, Buy-Out Clause, Liquidation Clause, Letter of Intent (LOI)