Over the last couple of weeks, we have talked quite a bit about cash forecasting, various ways healthcare and life science companies can improve their cash flow, why businesses need CFO leadership, why outsourcing CFOs is a popular choice for private companies, and how to effectively use an outsourced CFO. All these topics are focused on helping owners of and executives working for private companies survive and thrive right now.
Today we are going to shift gears and discuss a strategic growth topic. Strategic partnerships or joint ventures are a powerful way to increase your potential for success and reach new heights. They can also be a powerful way to transform your company. The point of any partnership, whether it’s a business partnership or a marriage, is to create more than what you could have created alone. Let’s reflect back on when you launched your business. What I have found is most of our clients started their businesses (or previous owners or generations of their family) to address a problem. Chances are you did too. One of the characteristics that really sets entrepreneurs apart is their “glass half-full” perspective. They have the ability to see problems as opportunities and use ingenuity to convert a problem’s solution into a successful revenue stream or business. In order to fully seize these opportunities, founders often need to pivot the business until they get the “formula” or “secret sauce” just right.
This is where a guide with industry and business experience, like The Healthcare CFO, fits in. An experienced partner can come in from the outside and help you identify and seize new opportunities and develop a strategy and action plan to pivot your organization. Likewise, pivoting requires some trial and error. Challenges often call for new dynamic ways of doing things and you might need a fresh perspective. It helps having a team with broad diverse experiences to help you assess your progress and challenge the results. Especially this year, with all the other issues businesses and their owners are tackling.
So, let’s consider some realistic hypothetical examples:
You are founders of an early-stage healthcare software-as-a-service (SAAS) company. You have completed prototyping and there is a lot of interest from prospective customers. You turned WFH on its head to leverage the power of a remote work force. But the challenge is finding funding to leap ahead of the curve. Equity is still hard to come by as investors are jittery about the economy and young companies that haven’t reached critical mass. Debt has historically been out of the question, but you did get a PPP loan. But it was not enough, and you need additional funds. Time to explore other creative arrangements with a strategic partner who can share in the financial risk and possibly leverage their existing relationships and/or infrastructure. We help startups and early-stage companies through our Startup CFO Solutions.
Biotechnology or Life Science Companies
You have a growing established biotech or life science company. As you emerge from 2020, you are looking to expand your products/service into adjacent markets and/or explore new markets altogether. You need to networks, cash, and know-how along with opportunities to create and build your company brand and reputation. Right now you could use a partner to help you diversify to enter new markets.
Maybe you are a physician/owner(s) of an independent general or specialty practice(s). In years past, you had have to invest cash occasionally to make payroll after high volume service months. While you have made some technology investments in the last year, you really have not fully explored what technology can do for you. Your business has always been a brick and mortar business. Add to that, you have a fair amount of debt - credit cards, real estate, and equipment debt backed all backed with personal guarantees. Now you are trying to come up for air and catch up after last year. You need help managing your cash, building your working capital, getting your most valuable assets on your balance sheet (accounts receivables), and you are open to new thinking, new services, and ways of doing things. We help medical practices through our Physician CFO Services.
All of these companies face tremendous obstacles. The owners and their leadership teams have invested a lot of time and money exploring strategies to overcome these obstacles.
Now step back and think about if there were a white knight that could help overcome these obstacles, what would that partner look like. What does that partner possess that could help you transform your business? Write down your thoughts and commit to developing a partnering strategy for your company today. A strong strategic partnership can be critical to your success in transforming your startup, small physician or family owned business, or established middle market company. And that’s why we’re discussing it today.
How Do You Plan for Successful Joint Ventures?
Maybe you can relate to one of the examples above. Collaboration in some shape or form has many benefits, but first, you need a strategy and then you need to do some homework.
So how do you plan for successful joint ventures? It is actually easier than you think – start with a simple assessment. When you consider the exponential value of what could be at stake (that includes opportunity costs) – the time invested is well worth the effort.
Your assessment should cover a multitude of questions relating to your business, such as:
Who are you partnering with, and what is their reputation?
What are the motivating factors behind the partnership’s proposal?
What are the risks or negatives?
What resources will you contribute, and how will they be valued?
How do you want decisions made?
This is by no means a comprehensive list. It is designed to get you started. To dive even deeper into this topic, schedule a Zoom call with us today to discuss our Strategic Advisory Services and how we can help you with your partnering strategy.
Why Partnering Strategies Fail
All too often, a thoughtful evaluation of the company and/or business owner’s wants and needs are overlooked due to lack of business networks or experience, pressure to build reputation and reach instant success, or just in the haste of trying to accomplish something under short deadlines or limited cash. It’s important not to rush and overlook this process as these relationships often will impact your bottom line for many years to come.
I think it’s fair to say for all companies, 2021 is about rebuilding and thriving. Right now, I know it’s hard to look past challenges and to think about these questions. But that is why NOW is precisely when you want to have these conversations as an organization. Start with the basics above and write down what you can.
Spend Time Thinking About The Future And How Your Will Preserve Your Success Once Its Attained
I would also encourage you to think through scenarios of once you attain success.
I learned a valuable lesson with my firm a couple of years ago about how important it is to write down your expectations of your partner and their expectations of you. I recommend getting into the details of how you agree to operate or play in the sandbox together and how you will come together to discuss conflicts. What I learned is sometimes when partners are successful, one (or both) may lose sight of why they were successful together and begin behaving in a ways that the other partner views as undermining the value of relationships created and the investments partners made. Where the rubber really meets the road is when you thought both businesses subscribed to the same set of values and you later find out through their actions that is not the case. It can
The more business owners I talk to, the more I realize this happens more than you think. So plan ahead for success and have a back up plan just in case. Save yourself a lot of time and money and heartache down the road.
What a Successful Partnership Looks Like
The most successful long term partnerships I have seen (international ones lasting multiple decades) are mostly equitable and provide mechanisms for changes in circumstances like order quantities, joint venturing, and repricing provisions.
These successful strategic partnerships generally have a joint operating agreement and provide a roadmap for navigating conflict. Partners value the relationships, and they work hard at maintaining their relationships. Oftentimes they will have board meetings (sometimes referred to as owners meetings) that meet quarterly and annually. As their relationships mature, they continue to care about the wellbeing of both firms and the partners they work with. They also recognize these partnerships will not last forever, they will not always agree, and the circumstances will change over time. So they strive to address them amicably.
The Healthcare CFO is a strategic partner to our clients. Our guiding purpose is to help private medical, healthcare, and life science companies survive, grow, and prosper. Right now, we are helping clients manage their cash flow, plan for where they want to be next year, identify new revenue and market opportunities, develop relationships and establish new strategic partnerships, cut costs and look for creative ways to further reduce their cost structures, and successfully negotiate new business.
We offer customized solutions and have been delivering Virtual CFO Services utilizing a remote work model through our parent company, The Energy CFO, since January 2018. We specialize in working with private companies - founders, experienced entrepreneurs, management teams, physicians, and family businesses.
We want you and your company to thrive in 2021. Contact us today for a no obligation Zoom consultation with our Managing CFO. Contact us here.