Tom Dowling was a long-time client of mine however when he arrived at my office the other day; he owned a unique look on his face. I understood he had something cumbersome on his mind yet wasn’t certain quite the way to question him about it. I didn’t need to. Once he sat down, he began speaking immediately. “Brian, you know we’ve been having an excellent run with the business, and you’ve been beneficial in the process. However today I think we might have tapped out our expansion, and honestly, I’m worried. I’ve invested the last 25 years expanding the company, and right now I’m wondering perhaps we’ve progressed as far as we can .” Tom paused and gazed out the window. “Brian, will you be able to help me brainstorm with this one ?” I nodded.
Tom’s business Dowling Foods concentrated on botanical extracts and specialty food ingredients and had just started some new facilities, which have been no small achievement logistically or lawfully. The time Tom started the business close to 30 years ago, it was a small specialty ingredients dealer. Both its merchandise lines and revenue had increased incrementally. With the national supply network set up, Dowling Foods was expanding very quickly. This was precisely Tom’s worry: Where will its long-term growth originate from? Should the business search for new acquisitions or does it make more sense to look for extra capital?
Being a corporate transactional attorney from Freeborn and Peters with a strong track record in tax, I understood that Tom’s issues were normal. Company owners and executives have trouble with the best methods to make their businesses relevant and expanding. Whenever a business owner meets with his or her attorney, there is an excitement to give a laundry list of expansion ideas and ventures instead of investigating what was indeed driving worries. Understanding Tom, I believed that he would embrace a few ideas to push our conversation along.
“Tom, I recognize where you are coming from. We’ve investigated a variety of suggestions through the years. Are you wondering if we should review a few of them ?” I inquired. “That may indeed help,” he stated, and my hunch was verified.
“Well, a few of the items we’ve outlined before involve starting more sites and getting a glance into franchising your company. We’ve additionally taken a look at licensing your merchandise, broadening into other markets and of course, strategic joint ventures, or .” I made the error of grabbing a breath, and that’s when Tom interjected.
“Yes, ok that’s exactly what we discussed. Let’s return to that concept on joint ventures. It’s just what the business has to undertake,” Tom declared with such energy that I realized he had discovered his solution. “With the achievements we’ve had in our merchandise, I am convinced we can grow our products to overseas. The issue is how and I believe a joint venture is the best option,” Tom carried on.
“Well, Tom, you happen to be smart enough to realize that a joint venture is a great choice to partner without needing to commit completely, or merge. It may be the idea to check out,” I replied, understanding that Tom had already made up his mind and probably had some possible partners into consideration. “Just be aware of, my role is to help you stay dedicated to the particulars such as pre-planning. A lot more joint ventures fall short than you imagine – not due to poor merchandise – but since individuals don’t establish their goals in the beginning .”
Just as much as Tom wished to move ahead, I invested the time to speak with him regarding pre-planning and goals. He did possess some joint venture partners in mind – businesses and individuals he had casual relationships with for several years and who may, in reality, be great beginning areas.
If either searching for or verifying the best joint venture partner, there is zero replacement for taking your time. After many years of assisting organizations to get into joint ventures, I’ve discovered that the method for choosing the right partner consists of four essential factors:
1 . Evaluate – comprehensive investigation of potential partners – your first “good partner” may not check out once an examination is carried out.
2 . Short List – produce a couple of potential partners and generate a priority rating.
3 . Credential Verify – although a lot of business owners believe they “know” a person, credential examining and references will help close the deal or alter someone’s mind.
4 . Agreement Framework – you can find numerous methods to establish a joint venture ( and it’s essential to recognize the needs/wants/desires of the prospective partner. Therefore, the correct strategy will be determined.
Determined by our conversation, Tom took aim at Canada as his chosen preliminary location of growth as well as instantly turned down a couple of prospective joint venture partners. “I feel they possess credit concerns, and we want a business partner with similar values and stableness as us,” he said, adding, “You were correct to take me through this method of selecting a partner. It’s allowing me to make clear who will be well suited for us .”
I could see Tom was deliberating now. “Brian, I understand there are some benefits to finding a strategic partner. At our phase, something such as this is appealing given it enables us to examine expansion fairly rapidly and with a lesser degree of risk compared to a merger or acquisition,” he declared.
“You’re correct, Tom. A joint venture can be a method to get economies of scale. Similar to an acquisition, the joint venture parties can remove duplicative capital and labor to lead to the total profitability of operations .”
Tom sighed. “There you go. Speaking like a Freeborn & Peters attorney again. However I suppose that’s why I employed you .” We both smiled.
“I prefer all the benefits to the joint venture, yet I believe we ought to discuss concerning the downsides. I understand. I understand. You can’t imagine I’m the person inquiring about drawbacks, huh ?” Tom stated slyly.
Today it had been my turn to laugh. I had wished to evaluate the downsides but understood I had to look for the appropriate opening.
“Tom, you are an astute entrepreneur. In case you don’t grasp the drawbacks, then you aren’t truly getting into a joint venture with eyes open,” I said.
Again, I spent the time with Tom to discuss the factors why Dowling Foods may not wish to get into a joint venture. I didn’t believe our conversation would dissuade Tom. I understood he wanted to proceed; he simply needed to conduct some major contemplating on the appropriate strategic partner.
• Losing control. Food businesses going into a joint venture has to be prepared to deal with some degree of decrease of the management over the operations of the joint venture. The level of power allotted to the parties is several, versatile along with the topic of meaningful discussions.
• Offering a “peek”. Businesses that go into joint ventures with other people in their market can be unwittingly providing an opponent with beneficial information regarding its financial situation, operations or philosophy. This “free peek” can return to plague the business later on.
• Restriction of options. Joint venture partners will usually work out to avoid one another from competing with the joint venture. In methods which were not foreseen when the joint venture was consummated, these types of conditions can offer restrictions on a joint venturer’s capacity to grow beyond the joint venture.
• Profit Sharing. Merely because a joint venture is profitable will not indicate that it was more profitable compared to one party having “gone it on their own .” The benefits of joint ventures include the cost of needing to share some degree of margin with the joint venture partner.
• Accountability. Specific businesses could have problems in confirming what it once deemed as private information with its joint venture partner.
• Employee concentration and fidelity. Frequently, joint venture partners’ efforts to a joint venture consist of the dedication of employees to the joint venture. Depending on whether the joint venture is eventually profitable, an employee might find himself changing loyalties from his original company to the joint venture and, maybe in the end, to the other partner.
• Concealed Agendas. At the center of a joint venture partnership is a degree of trust. Nevertheless, joint venture parties remain independent businesses, so they frequently do not divulge their most critical objectives with the joint venture.
• Cultural Contrasts. Although it might not be obvious in the consummation of the joint venture, the parties’ cultural contrasts (both from a geographic and company procedures impression) can become a substantial hurdle to a prosperous joint venture. Provided Tom’s wish to joint venture with a Canadian organization, I didn’t believe there will be an issue here, yet I brought up the concern nonetheless.
Our session was running late, and I could observe that Tom was getting anxious.
“Tom, we have plenty to go over. We ought to discuss capital contributions, concerns of management, tax implications along with a couple of other items. How are you holding up ?” I inquired.
“Well, I’m kind of at my session time limit, Brian. Truth be told, I do wish to go over all these items yet only after we get nearer with our joint venture partner. I must discuss internally to my management staff too and gain their opinions,” Tom said.
“We’re at an introductory phase .” I agreed. “Tom, what about we plan another meeting after you’ve talked to your staff. You may let me know if perhaps there is any usefulness to me coming to that meeting .”
“There may be. Allow me to mull that over. In the interim, are you able to send me a synopsis of our discussion today, along with a summary of the factors we must review might this deal get off the floor ?”
I smiled. As did Tom. “Of course,” I said. Most likely, Tom and I were about to proceed and get his expansion plan up and running. There would be plenty of work to undertake. For more information on the business of joint ventures, please visit Freeborn Peters.