Platt Perspective on Business and Technology

Online store, online market space – part 31: developing B to B partnerships and collaborations to gain better collective terms from suppliers 4

Posted in startups, strategy and planning by Timothy Platt on October 20, 2013

This is the thirty first installment in a series on building an online store as a new business (see Startups and Early Stage Businesses, postings 20 and loosely following for Parts 1-30.) This is also my fourth consecutive installment to more fully discuss business to business collaborations, and how they can bring value to all participants. Also see my earlier, related series installments: Part 20: vetting and brokerage as business expansion -1 and its Part 21 continuation.

• I have written up to here in these collaboration-oriented postings, about issues and approaches that would work for startups and early stage businesses that are still getting going,
• But would also apply to more established mid-sized businesses that simply seek to develop new approaches to competitive strength, and particularly when facing larger business competitors.
• I write this posting with a very specific focus on the small business, and the startup or early stage business
• With its minimal headcount, and with everyone there wearing multiple hats, and with operational processes and systems still developing and simple and small.

I have, over the past several postings been addressing three basic questions:

1. What types of business would benefit from this type of collaborative agreement? (See Part 28.)
2. What criteria should they use when selecting potential partners and negotiating with them in setting up and running these agreements? (See Part 29.)
3. What types of goods and/or services would make the most sense for them to collaboratively buy together and under what terms? (See Part 30.)

I round this out here by posing a follow-up question:

4. Who should manage these negotiations? And here I split this off into two distinct if related topic areas: selecting and negotiating with potential purchasing collaboration partners, and negotiating with selling businesses, that a collaboration would seek better purchasing terms from.

The larger a business and the larger and more diversified its staff is, by specialized skills and experience, and by job descriptions and titles, the more likely it is that one or more people would be hired there who could specifically manage these business to business collaborations and relationships, and both with potential collaboration partners and with selling businesses that their business might buy from as a member of a purchasing group. Small businesses and I add lean and agile businesses in general usually do not have and cannot afford to bring in-house that type of specialization. (For material relevant to lean and agile businesses, see my two series: Virtualizing and Outsourcing Infrastructure at Business Strategy-and Operations, postings 127 and following, and Moving Towards Dynamic Performance Based Business Models, at Startups and early Stage Businesses, postings 123 and following.)

These businesses need to expertly select and manage the business to business relationships that they enter into too, in order to develop a maximum sustaining value from them. But they in general have to pursue a different route to achieve that.

The balance of this posting addresses approaches for meeting that challenge, starting with negotiating the formation of purchasing collaboration groups. I will delve into some of the issues particular to negotiating with a selling business while a member of this type of group next. Meanwhile I add up-front of my comments on these particular business situations, that they represent and can be seen as case study examples of a still more generally occurring staffing challenge that businesses can face in multiple ways and contexts – where they need the results that would come from having specialized expertise on-tap but where they cannot sustain larger headcounts as would be required for that, as would be possible for their large business competitors.

• In most cases for the small headcount or lean and agile businesses, any finalized decision at least, to enter into a significant business to business collaboration is going to require an explicit sign-off from their chief executive officer. For a rigidly top-down and authoritarian organizational system this same most senior level sign-off might be required for even the largest organizations, even if at the risk of that turning into micromanagement of other senior managers and executives who should be handling this work. But for small, and lean and agile businesses this becomes a basic business necessity.
• But in most cases the CEO of one of these businesses is going to be busy enough with enough other responsibilities so they will need help with this too. Ideally, such a CEO would be presented with a polished and well researched and considered presentation as to their options that they would decide from, and with that in writing with an executive summary if they work best with that or through face to face meetings if they prefer that, where the written documentation might be more for records purposes.
• The people who day-to-day would be involved in carrying out this collaboration if signed, would at least play a significant role in selecting possible business collaboration partners and would develop at least a first draft review and analysis of any pros and cons that they can see in any potential collaboration relationship under consideration. That would, of course, include a review of the past history and the current financial and competitive positions of any potential collaborative business partner. And it would include at least a brief summary of what this collaboration would seek to and be expected to accomplish, and its impact on this business. Ideally, such a review would offer three scenarios: one positive and predicated on good outcomes and conditions at every step, one more negative and allowing for problems and set-backs, and one more neutral. This way any executive decisions to enter into one of these agreements would be based on a more nuanced understanding of their potential.
• In-house personnel know their own business, and especially when that business is lean and everyone is wearing multiple hats and has to work professionally across a range of issues and responsibilities. But that does not insure that anyone there would know how to perform this type of three scenario review and analysis. So I raise here the possibility of bringing in a consultant to help guide the business and its hands-on responsible staff members through this process.
• And one of their responsibilities that participating in-house employees would face in this would be to develop and provide relevant business-specific information about their organization that this consultant would need. A second would be to make sure that their consultant meets with the right people and that their work is developed in a form most useful for their business. And a third responsibility would be that they watch and learn, and ask questions and bring this expertise in-house as much as possible, so they can at the very least do more of this work in-house next time.
• Another professional that I would always add to this type of participants list is legal counsel, as these business to business collaborations are always laid out and developed as contracts, whether written or verbal – and either way they can be quite binding.
• So I write here of making this into an at least informal team effort, but even when it is informal, making sure it is done consistently and effectively for its potential cost/benefits and for its risk remediation, due diligence consequences. And even when this is done seemingly informally it should always be conducted for its learning curve potentials.

As I final thought here, I acknowledge that this sounds very structured and formal, and it does for a reason. Misunderstandings and gaps in preparation and decision making lead to problems, and their consequences can essentially always be expected to exceed any savings made from cutting corners in setting these agreements up. If a business is to enter into this type of collaboration, then due diligence processes for doing this right should be part of the basic business model and its overall operational and strategic systems.

I am going to follow this posting with an installment where I will look specifically at negotiating as a member of a purchasing collaboration or consortium with a selling business. Meanwhile, you can find this series and related postings at Startups and Early Stage Businesses and also at Business Strategy and Operations and its continuation pages Business Strategy and Operations – 2 and Business Strategy and Operations – 3.

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