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Moving New Businesses Into Profitability
Joint Ventures
In general, the joint venture (often abbreviated JV) exists when two or more businesses agree to create a mutually beneficial arrangement in which a third business is formed. They each contribute an agreeable amount of resources and share a proportionate amount of the revenue.
Joint ventures are created to solve business problems that either requires another's expertise or more capital than prudently acceptable. For example, you have a product to sell but limited in your ability to distribute the product. So you search for an internet company that has a lot of traffic and discover one that may match up to your product description. You contact the company and if it is beneficial to both parties, you create a joint venture to sell your product to their customer.
How the revenue, expenses, operations and control of the enterprise are determined depends on each arrangement. Some JV's are in the form of a corporation or limited liability company while others are partnerships. The form refers to the business entity, while the JV refers to the use of that entity.
It does not matter if the joint venture is for a single project such as an internet related business, or an ongoing continuous relationship - almost like a marriage with a very strong prenuptial agreement.
IS IT WORTH THE EFFORT?
Of course it depends on your mutual goals. If you are in a competitive market and want to dominate, you may need to share the wealth by creating a number of JV's. On the other hand, aligning your product with a better-known company may improve your brand; the same result but with different motivations. You can build on a company's strengths, reduce your financial investment and risk, and create a strong competitive advantage for your product.
The disadvantage, and there always is one, is that you may choose the wrong company to form the JV. You choose a company to distribute your product and when it becomes profitable, they form another company to produce a similar product competing directly against you. They no longer need to split the profits 50/50, but instead keep 100% of the profits.
HOW TO PROTECT YOURSELF
The Joint Venture all comes down to the purpose of starting it in the first place. Remember, it is for the mutual benefit of both parties. And if it is to mutual benefit to both parties, then there may be no problems; most often the arrangement will work.
It is vital to get the agreement in writing and preferably go through a broker to find a good candidate. A broker has developed a list of companies that are interested in forming a joint venture. He simply matches, for a fee, your product with an appropriate company.
EBay is a perfect example of a JV. You sell your product through an EBay store and EBay takes a percentage of your sale. They aren't competing with you, but benefit from the sales of your product.
The agreements they use cover almost all contingencies while allowing the store to thrive.
Joint ventures are created to solve business problems that either requires another's expertise or more capital than prudently acceptable. For example, you have a product to sell but limited in your ability to distribute the product. So you search for an internet company that has a lot of traffic and discover one that may match up to your product description. You contact the company and if it is beneficial to both parties, you create a joint venture to sell your product to their customer.
How the revenue, expenses, operations and control of the enterprise are determined depends on each arrangement. Some JV's are in the form of a corporation or limited liability company while others are partnerships. The form refers to the business entity, while the JV refers to the use of that entity.
It does not matter if the joint venture is for a single project such as an internet related business, or an ongoing continuous relationship - almost like a marriage with a very strong prenuptial agreement.
IS IT WORTH THE EFFORT?
Of course it depends on your mutual goals. If you are in a competitive market and want to dominate, you may need to share the wealth by creating a number of JV's. On the other hand, aligning your product with a better-known company may improve your brand; the same result but with different motivations. You can build on a company's strengths, reduce your financial investment and risk, and create a strong competitive advantage for your product.
The disadvantage, and there always is one, is that you may choose the wrong company to form the JV. You choose a company to distribute your product and when it becomes profitable, they form another company to produce a similar product competing directly against you. They no longer need to split the profits 50/50, but instead keep 100% of the profits.
HOW TO PROTECT YOURSELF
The Joint Venture all comes down to the purpose of starting it in the first place. Remember, it is for the mutual benefit of both parties. And if it is to mutual benefit to both parties, then there may be no problems; most often the arrangement will work.
It is vital to get the agreement in writing and preferably go through a broker to find a good candidate. A broker has developed a list of companies that are interested in forming a joint venture. He simply matches, for a fee, your product with an appropriate company.
EBay is a perfect example of a JV. You sell your product through an EBay store and EBay takes a percentage of your sale. They aren't competing with you, but benefit from the sales of your product.
The agreements they use cover almost all contingencies while allowing the store to thrive.
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Before a Joint Venture is Formed
Screen the partners
Check and verify the information you receive from screening the prospective partners
Develop a detailed business plan together as a JV.
Create an exit strategy for both you and the future of the product.
Determine the type of business entity: i.e. corporate partnership, limited liability company etc.
Know and secure your assets that may be used to fund the joint venture.
Develop a method for arbitrating any unusual circumstances that my arise throughout the duration of the JV.
Determin e the amount of compensation to the third parties that may join and provide services.
