Factors to Consider Before Forming a Partnership

Jun 14, 2019
folder_opencategory: Business

Two of my friends from the NMSU University came with a proposal of forming a partnership to offer engineering consultancy services. They had a contract for 12 months where the client agreed to pay $ 75,000 per month. The agreement was to share this money equally amongst the three of us. Other benefits of this contract include a paid travel and maintenance expenses by the client. However, this proposal posed a challenge because of the conditionality of the partnership. The condition of joining the partnership was the resignation from my position as a Director of Engineering Services at Engulf and Devour. The business operations of Engulf and Devour are not good; hence my desire to move out. It is, therefore, a matter of time before handing over my resignation. However, there are a number of issues to consider before forming a partnership. This paper identifies seven important issues to consider and address before forming a partnership. These issues include the needs the idea seeks to satisfy, the competitive strategy to be chosen, risks and return, vision of the company, and sources of capital.

Identification of needs is an important factor that partners in a partnership must consider on the primary basis. The aim of an entrepreneur is to come up with services or products that will satisfy a particular need. Successful entrepreneurs are not driven by the desire to make money but to satisfy a particular need that the society faces (Byers, Dorf, & Nelson, 2011). Therefore, before joining this partnership, an important factor to consider is the need that the venture aims to satisfy. For example, in the mechanical industry there is a talk on the measures car manufacturing firms should enact to protect and conserve the environment. The need in this scenario is the creation of an environment-friendly car.

Identification of the need will enable partners to focus on a specific market segment. To achieve efficiency in offering services, it is important to identify a specific area where our team is skilled at (Parks, Olson, & Bokor, 2015). It will give the venture a competitive advantage over other engineering consultancy firms.

Consequently, identifying the vision of the partnership is another crucial element to consider. Vision refers to a statement of intent that a partnership aims to achieve over a given period of time. It is a statement of ambition and purpose (Byers, Dorf, & Nelson, 2011). By identifying the vision of the partnership, a prospective partner will know whether the goals and aspirations of the company are aligned to his/her goals and aspirations. For example, the Vision of Wal-Mart is to maximize its sales through a cost-leadership strategy, which is the vision statement that guides the various operations of the company. In a bid to maximize its sales, Wal-Mart offers cheap products at its stores. Now, Wal-Mart is the largest private employer in the United States. It is also one of the largest companies in the world in terms of revenue it generates annually (Parks, Olson, & Bokor, 2015). Therefore, the success of this company is a proof that a vision statement plays a key role in determining the success of a company or a partnership.

Other examples of companies with a strong vision statement that guides their operations are Google and McDonalds. The vision statement of Google is, “An online search that provides relevant and fast results” (Byers, Dorf, & Nelson, 2011). True to this statement, Google has managed to create software that provides accurate and relevant results. A good vision statement promotes a desired outcome, making the members of an organization work hard for purposes of ensuring that the company achieves its objectives. For example, the vision statement of this prospective partnership may contain the following words: “We strive to improve the productivity of our clients through innovative technologies, training and supporting their businesses.” By closely looking at this vision statement, it becomes obvious that it identifies both the purpose and intention of the partnership. Efficiency in following this purpose and intention will help the partnership to achieve success. As a rule, most business organizations normally collapse before their third year. A strong vision statement and its effective implementation will prevent the partnership from failing.

The source of capital is another important factor to take into consideration when forming a business venture. All business organizations require capital to fund their activities. There exist various sources of the start-up capital. These include loans from banking organizations, grants from the government, savings of the members of the partnership, and contributions from friends and relatives (Parks, Olson, & Bokor, 2015). For the partnership, the best options to obtain funds are banks and grants from the government. However, banks normally offer loans at an interest rate. To serve the interests of the partnership, there is a need of “shopping for loans” that have a low interest rate. Such an approach will ensure that our business does not have to pay too much money on interests. At the same time, grants from the federal government constitute a good source of funding for the future company (Parks, Olson, & Bokor, 2015)..

The federal government has some grant programs and policies aimed at promoting entrepreneurship in the country. An example of these programs and policies is the Small Business Jobs Act. This Act is a law passed by the Congress with the intention of promoting small-scale businesses. To achieve this objective, the law mandates the federal government to finance any small business organization that seeks funds from it (Parks, Olson, & Bokor, 2015). According to this law, an annual amount of 148 billion dollars is being allotted to fund the set-up and research of the small businesses. To implement this legislation, the government formed the Small Business Administration, which is an organization responsible for identifying small businesses and funding them. For a newly established partnership, there is a need of taking advantage of these policies and programs, thus applying for funds (Parks, Olson, & Bokor, 2015). Choosing such an approach will ensure that our organization has sufficient resources to succeed.

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The competitive strategy of the partnership is a critical issue to consider before the formation of the business. It should be taken into account that capitalism and liberalization are the characteristics of the American market. It means that organizations are allowed to compete, and customers have a choice of the products they want to buy (Parks, Olson, & Bokor, 2015). Chances are, therefore, high that the new business our team intends to form will encounter a strong competition. Coming up with a competitive strategy will help the business overcome market rivalry and become profitable. Thus, there are two important factors to consider while coming up with a competitive strategy. These factors are the SWOT analysis and the nature of the industry the partnership seeks to compete in (Byers, Dorf, & Nelson, 2011). Of particular interest are the strengths and weaknesses of the partnership. The partnership will have three partners, and identification of the skills and resources they provide is an important strength of this venture. Weaknesses of the partnership lay in the level of experience the partners possess in handling the business and the strengths of its competitors who have a large market niche that is difficult to penetrate by the new businesses.

Understanding the nature of the industry the partnership seeks to compete in will enable the business to know its competitors and preferences of its target customers. This knowledge will allow the partnership to develop a marketing and business strategy that will counter the strategies initiated by its competitors (Parks, Olson, & Bokor, 2015). For example, if the competitors of the partnership charge high prices for their services, the business can seek to use the cost leadership strategy to appeal to its target customers. Cost leadership strategy involves charging a lower amount of money for the services rendered. This strategy is also an example of a marketing strategy that may contribute to the success of the business.

Risks and returns are to be taken into consideration while making a decision to form a partnership. In fact, every business organization must analyze the level of risks it faces when making a decision on whether to invest in a particular business initiative. Organizations that take high risks normally experience a high level of returns (Parks, Olson, & Bokor, 2015). Some of the factors to pay attention to when analyzing the risks the partnership faces are the level of competition within the market, a projected response of the target customers when marketing the services of the partnership, and the expected profits in the short run and the long run. Effectively identifying these issues will enable the company to develop a risk mitigation strategy.

Identification of the market needs, competitive strategies, sources of capital, a vision of the company, and risks and returns are some of the most significant factors to consider while starting a partnership. Every business organization emanates for purposes of satisfying a particular need. As an engineering consultancy service, it is important to identify particular needs of the customers that our organization can satisfy. In addition, for a business to thrive, it must have capital. Loans from banks and government grants are the major sources of capital for the partnership. Having a competitive strategy will guide the business to come up with innovative ideas to compete effectively in the market. The vision of the company is a statement of purpose. All successful business organizations have a vision, and they have put in place measures aimed at ensuring their organizations implement these visions. Finally, the rate of return is an important factor when deciding whether to invest in a partnership or not. Most entrepreneurs will not invest in a loss-making industry.

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