From CBIA News, May 2001

Extend your company’s capabilities by forming strategic alliances 

By Chris Amorosino

Free-lance writer in Unionville

How can you meet more customer needs? Reach new markets? Instantly appear bigger and gain a targeted list of new potential customers? And, how can you do all this without allocating more internal resources? Many companies have answered these questions by forming strategic alliances.

A strategic alliance involves an agreement between two companies to combine some resources to gain business, enter new markets, share financial risks, or provide complementary services to each other’s customers. For example, an accountant might form a strategic alliance with a bookkeeping and payroll company to provide complete financial record keeping and analysis. Such alliances allow small companies to provide more services to customers, thereby increasing their business and customer loyalty. 

Kostin, Ruffkess & Co., a West Hartford business advisory and CPA firm, has formed five strategic alliances in the last three years. The company’s core business is accounting, taxes and business advice. Richard Kretz, managing member, says that through alliances the company can now help its existing clients with insurance, mortgages, technology, investments and executive recruitment.

Business Invirons Inc., a family-owned company in Rocky Hill, increased its business 25% to 30% through several strategic alliances with architects. The company designs, builds and furnishes office space. To meet its goal of providing turnkey services for companies looking to expand, relocate or build, Business Invirons offered everything but architectural services. That led Mark Charette, the president and CEO, to begin forming alliances with architects about two years ago.

“The alliance works for both parties,” Charette says. “We can call them in to ... provide products and services for our clients. They do the same by calling us in on their projects.” He also says Business Invirons has been able to win some multimillion-dollar projects the company never would have been awarded without a strategic alliance with an architect. 

Mutual benefits

The latest alliance Kostin, Ruffkess formed is with Ladd Mortgage Co. in Canton. Ladd was attractive to Kostin, Ruffkess because it provides complementary services, is established and is successful. Larry DeFeo, the owner of Ladd, is a longtime client of Kostin, Ruffkess. The alliance benefits both parties. Ladd receives a whole new source of referrals. DeFeo wants to eventually sell the business and Kostin, Ruffkess is gradually buying it. “For us, our alliance with Ladd provides an easy entree into a very good business we wanted to be a part of. We don’t have to build from scratch, invest in overhead or make learning mistakes. Ladd already has a winning combination,” Kretz says. 

Beware of competing competencies

Dr. Benyamin Bergmann Lichtenstein, a professor of entrepreneurship and management at the University of Hartford’s Barney School of Business, points out that there are some pitfalls to strategic alliances. Sometimes what businesses think are complementary competencies actually end up being conflicting or competing competencies. A second pitfall Lichtenstein mentions is an imbalance of power: One company thinks it’s the strong one helping the weak one. A third concern is when a large business forms an alliance with a much smaller one: The small business carries a disproportionate amount of the risk because the large company can absorb a failed alliance much more easily than a smaller one. 

Start with analysis and vision

Lichtenstein says most problems with alliances start in the early stages — in the contracting — because the potential partners aren’t clear and they make assumptions. He recommends starting any pursuit of an alliance with a clear analysis of your own company’s competencies and a clear vision of where the company wants to go. “You want to honor who you are as a business,” he says.

“Forming a strategic alliance is almost like bringing in a new person to your company,” Charette says. He recommends treating an alliance as if you were hiring a key employee. Look at the company’s experience, knowledge, how the principals present themselves, and other factors you’d evaluate if you were hiring. “I certainly think strategic alliances are the way of the future,” he says. 

sidebar: Ten tips on strategic alliances

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