Equal partnerships are hard to make work because they are rarely truly equal. Even if they are equal for one brief shining moment, they don’t stay equal. First prize is a partnership in which all have shared interests. Second prize is having a shared framework for making decisions. In the absence of those, make sure you have leverage to influence your partner to do the right things the right way.
“Partnership: A relationship usually involving close cooperation between parties having specified and joint rights and responsibilities.” – Merriam Webster’s 3rd definition
Arguably the most critical “specified” rights are decision rights – who makes what decisions. In unequal partnerships in which it’s clear who’s making which decisions, decision-making generally works. Conversely, equal partners, trying to make all decisions jointly, are generally doomed to failure. Eventually they disagree, get frustrated, and grow apart. The answer to how to make it work is right there in the definition: be specifically and explicitly clear who’s making which decisions and how.
Many of my books have been co-authored. Things worked well when I was the lead author and I made the final decisions or when someone else was the lead author and they made the final decisions. Failing in having one overall decider, things worked well when we gave different authors specific responsibilities for specific sections. They were able to focus on those sections, become experts and make decisions for “their” sections.
Conversely, it was more challenging when decisions were shared and we had to come to consensus. It’s hard to get everyone to agree – especially without an agreed framework for decision making.
When that happens, parties can work together to expand the market. When any one of these is missing, the parties default to competing with each other or just accepting market conditions. This article looks at four cases.
You should probably put all this in the context of Porter’s Five Forces framework to understand the overall industry:
- Competition in the industry
- Potential of new entrants into the industry
- Power of suppliers
- Power of customers
- Threat of substitute products
Then, it makes sense to focus on buyer strength, supplier differentiation and alignment of interests to sort collaboration opportunities.
Low Relative Buyer Strength and Low Supplier Differentiation
Welcome to the bottom of the barrel, also known as the market. Suppliers without differentiation look a lot like commodities. Buyers choosing between equals often choose based on price. And relatively weak buyers don’t have many opportunities to negotiate or bargain. They pay whatever price is on offer.
United Sporting Goods took advantage of a situation like this in the early part of this century. They were the country’s largest distributor of guns to retail gun shops. Realizing they had no single customer representing more than 5% of their business and no single supplier providing more than 8% of their product, they controlled the market. They set prices for both suppliers and buyers, reaping over-sized rewards as the market maker.
However, when the market for guns collapsed after Trump was elected in 2016, they collapsed as well. Live by the sword, die by the sword. Live by the market, die by the market.
Low Relative Customer Strength and High Supplier Differentiation
Advantage supplier. They have the leverage and can drive terms and prices up over the short-term. The obvious risk is that if the suppliers push too far, other suppliers will come in, get close to their points of differentiation, and undercut their prices. There’s a very real short-term versus long-term trade-off for these suppliers.
High Relative Customer Strength and Low Supplier Differentiation
Advantage customer. They have the leverage and can drive terms and prices down over the short-term. It’s exactly the same as the previous situation, except in reverse. If the customers push too hard, suppliers will exit their undifferentiated product lines or the business as a whole. Advantages don’t last forever.
High Relative Customer Strength and High Supplier Differentiation
Which gets us to the top of the heap. Strong customers and differentiated suppliers can become mutually valued collaborators. As long as their interests overlap, they can work together to increase the market for the good of all involved.