Testing the Business Case for Mergers & Acquisitions with a Partnership

Last week I was reviewing Harvard Business Review articles for an upcoming award event, and one of them contained a surprising insight on success rates behind Mergers, and Acquisitions.

The papers I read was called Strategy in the Age of Superabundant Capital by Michael Mankins et al. (Harvard Business Review March-April edition). In this article the authors state that:

“Companies that expand via frequent, smaller deals over many years generate between 8.2% and 9.3% total annual shareholder returns. […as opposed to 4.4% annual total shareholder returns for “big bet” deals…]. And the more deals you do, the better you get at finding and closing the best ones.”

Screen Shot 2018-01-22 at 14.12.26
Exhibit from the Mankins et al. article

This statistic made me think:

If M&A deals with a smaller scope, and higher frequency already deliver a higher capital return, then what could de-risking an M&A deal by testing them out in a partnership experiment actually deliver?

Partnerships are quicker to set up than M&A deals, because they don’t require the formalisation of a new organisational entity, and they are less costly to execute because there’s no financial transaction involved between the partners.

On top of that the Business Model Canvas, and the Partnership Canvas combined, can increase the speed of execution, because the visual tooling creates alignment between partners more quickly, and clearly, and also accelerates iteration speed, and overall agility of the partnership experiments.

Can a partnership experiment thus be a good way to test the thesis behind M&A deals by making it easier to find out how they will play out, and lowering the risk associated with failure of the thesis? What are your thoughts here?

Check out the upcoming Partnership Design Masterclass!
If you want to learn more about using the partnership canvas, and applying it to Partnership Design, then check out our Masterclass ticketing page for information & booking.

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Direct contact? Send an email: info@partnershipcanvas.com

Partnerships with early stage ventures

“When is the right time to think about partnerships?” is a question often asked about early stage ventures. Often, in turn, the frequent advice is to first get your own shop in order, before thinking of collaboration.

Although there is some truth to this advice, demanding a fully validated business model before starting with partnership strategies is bullshit blanket advice. There are more nuanced ways to address early stage partnering risks!

My advice to early stage venture partnerships, or to established companies that want to work with early stage ventures is to sense-check the potential of a collaboration. Here’s some pointers for doing this, covering the biggest risks:

  1. Know your X-factor. You could have a technology, a hard to access user-group or community, and unique expertise that might be a resource for others to leverage. Scan for that something you have, which you can amplify, and which also has the potential to amplify someone else.
  2. Mingle with the right people to sculpt the collaboration. There are people with specific mindsets for exploration, and those with a mindset for exploitation. Either persona strongly impacts the type of conversation you’ll have about your partnering. The former might be blunt, and start with saying things like “it’s a joint venture or bust!”. The explorative mind is a better prospect for shaping the early stage venture collaboration. Seek out the people who are willing to invest the time with you in defining a joint hypothesis for the partnership, things to experiment on, and discover.
  3. Causality is king! Figure out a theory what the business value of the partnership could be. Define testable ways for how the partnership could change the customer experience in both partners’ business models! And remember, it’s never about the experience the partnership causes to you, making a splash in the media, standing besides a big name brand on a press release. It’s all about the experience the partnership causes to your customer.
  4. Keep money out of the equation. You don’t know what value the partnership creates yet. On top of that, a partnership works best for you when you can capture its value within your own business model. Build a narrative for an equitable business case, where both sides stand to gain from the partnership’s created value, and work from there. The money equation will reveal itself when you’re testing, and seeing how revenue from the partnership will actually distribute over both partners.
  5. Be prepared.  According to KPI, the law of partnership design says that for every 1 hour of making great ideas with your partner, you’ll need to spend 2 hours convincing your own team of their merit. Make sure you involve the right decision makers, and apply the partnership design process in a simulation before engaging with the partner. That way you anticipate many of the “yes buts” from your own team on design decisions. It shifts the process from a drudge of iterating on partnership meetings, to constructive creativity of iterating on partnership execution.

There is no clearly defined graduation moment for your business to start partnering. Play with partnering strategies as early as you think it makes sense to do so. Tools like the business model, and partnership canvas are made to explore such what if scenario’s. By applying them in a short strategy session with your partner, your team, or even just for yourself, the tools give you enough sense to determine whether you’re at the right time to partner, or to determine when you will be.

Keen to learn about innovating with early stage venture partnerships? Join us in the Partnership Design Masterclass on September 19th in Amsterdam.

You can also join the Partnership Design Linkedin group to interact with the Partnership Design Community.