April 26, 2017

The Value of Alignment in Partnerships

Jason Gayl

Jason Gayl
Founder and Managing Partner/Cyber Capital Partners

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Achieving strategic, cultural & financial alignment is key to a successful partnership - whether it's the partnership between investor and entrepreneur, CEO and manager, potential strategic partner or merger candidate. Anytime two people or entities look to partner, there needs to be a deliberate analysis of the "fit".

As a management consultant and a buy-side advisor, I would assist private equity funds and strategic acquirers in evaluating acquisition and investment candidates, and companies looking for strategic partners. The effort is predominately about seeking the right partner.

Too often the entrepreneur will knock on the first 20 doors he or she knows might have money to help fund the company. The founder stops knocking at the first organization or person who says yes. The CEO seeking a marketing person frequently hires the first one who seems to fit the need. The merger happens because the two CEOs played golf together and liked each other. And much to their dismay, these partnerships are often fraught with misaligned goals and expectations.

Honest self-reflection, introspection and communication are the necessary traits for pursuing the right partner. Building an acquisition or investment criteria first means doing a deep exploration of an industry or vertical that is likely to yield success if the investment thesis - the business idea, the market opportunity - is well executed on. First, the organization or individual needs to have a meaningful discussion about their unique ability to achieve success. Slightly differently stated, what are the reasons that they will have success, and just as importantly, what are the factors missing. Once the missing pieces are identified, it becomes fairly simple to identify the attributes sought from a partner.

The entrepreneur may have a great idea, understand how to develop it, but has no meaningful marketing experience. Finding the right strategic partner requires finding someone who not only has the meaningful experience, but also the proven success, the thriving network of trusted partners, the passion to make it happen again, and the commonality of objectives. This requires casting a wide net. Go meet with dozens, hundreds of people and organizations. Along the way, the entrepreneur learns a lot about what drives success in marketing. They don't need to become the expert themselves, but they learn to understand who understands the game a bit better.

Narrowing down the candidates from say 10 that really seem to know what they are doing to a reasonable number requires the next step: cultural assessment. Have the difficult conversations - it will prompt very quick reactions and the ability to see if the person sitting across from you is a jerk or has your back. Who wants to work with a jerk? Even companies where the obvious statement is that our two cultures are aligned can find out quickly that a team of former Navy members and a team of former Air Force members might not actually see eye to eye. The goal is to work with like-minded team members. It makes it far easier to go to work in the morning.

Thirdly, but just as important - there needs to be financial alignment. This is not only how much does each party get compensated (and does it work for the other) but also, what are philosophies on money, exits, what happens when there is a shortfall, what happens when there is a windfall. So if the search starts with 50 candidates, and 10 are identified as good strategic fits, and 5 are identified as good cultural fits, make 5 offers that give your organization everything it seeks. Over the course of negotiations, the opposite side of the table will either start feeling like the adversary or the partner. 

If you wind up with 5 partners, no matter the selection, the likelihood of a successful partnership is high.

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