Nat Enterprise(Tenth installment of the upcoming book Natural Enterprise. List of previous installments here.)

Two of the fundamental principles of business are: Relationships trump credentials in buying (and many other business decisions), and It’s not what you know, it’s who you know that counts. These truisms show just how important business networking is, especially in an enterprise that doesn’t have a lot of people or spare time to invest in relationship-building.

Let’s start with some definitions: Networking is the process of building and nurturing business relationships. Alliances are contractual arrangements between two or more businesses to achieve shared objectives, usually with a limited life.

There are many good business reasons to network:

  • Improve knowledge about customer needs
  • Increase customer trust, and hence sales and penetration
  • Find new customers
  • Increase knowledge about markets and good business practices
  • Get answers to questions and business problems inexpensively
  • Market test or virally market new product or service ideas
  • Get your best customers to spread the word about your credentials and expertise (much more effective than self-promotion)
  • Find new suppliers, contractors, employees, advisors, or coaches
  • Conduct informal surveys to tap into the Wisdom of Crowds
  • Collaborate informally on open-source or other projects

Although there is a variety of Social Networking tools available to help you network online, the first generation of such tools is not very effective or easy to use. The best networking still entails face-to-face contact, ideally one-on-one, and the only tool needed is a rolodex.

In a previous article I identified ten keys to effective networking. To recap, they are:

  1. Do your research (who you want to meet, and when/how best to meet them)
  2. Develop ‘elevator speeches’ (rehearse what you want to say to make powerful first impressions)
  3. Don’t underestimate the ‘strength of weak links’ (the people who know the people you know, who can expand your connections and lead to important new relationships whose value you cannot anticipate)
  4. Listen and help (show you care, and that you can offer something, before you try to sell anything)
  5. Never lie, and don’t tolerate bullshit from others
  6. Understand that every conversation is an implicit contract (know what the other person wants from a conversation, and be clear about what you want)
  7. Follow through and follow up (never break a promise or procrastinate)
  8. Learn to tell stories well
  9. Prune your networks
  10. Manage your networks (move relationships with the most important contacts forward first)

In contrast to networks, business alliances are usually formed for more formal, ambitious business purposes:

  • Collaborate on major sales proposals and projects: Creating a proposal or project team to bid jointly or to make a pitch that requires more capability than your business alone can offer, or where the customer wants bundled products or services. In this sense an alliance is a bit like a subcontracting arrangement, but with a more equal partnership.
  • Joint purchasing: Forming a buying group with competitors or others buying the same supplies, to increase purchasing power and lower costs.
  • R&D / new product development: Share the cost and risk of leading edge research. Bring more skills, ideas, piloting capability and funding to the NPD process than any single company can garner.
  • Joint marketing: Marketing alliances can include competitors in an industry (as with multi-dealer auto showrooms), companies at different points in a supply chain (as when a wholesaler and retailer collaborate), or even companies in unrelated industries (such as house builders who promote a furniture company’s products in their model homes).
  • Licensing: Innovative companies can recognize opportunities to license an idea from one industry and apply it to a completely different industry, with the developer and the licensor of the idea sharing the revenues from its application.
  • Leveraging business school skills: Entrepreneurs can ally with educational institutions to obtain inexpensive knowledge, consulting advice, and knowledgeable employees or interns.
  • Project alliances: A consortia of companies can achieve scale and other economies by working together on a major project.
  • Enter new markets: Alliances with companies already established in another country can often succeed better and faster than trying to penetrate a new market alone.
  • New ventures and spinoffs: Joint ventures between companies with a variety of competencies can be a very effective way of launching or spinning off a new venture. Outsourcing is often best accomplished by an alliance between a company and a group of its former employees.

Most of the ten keys to effective networking described above will also ensure effective relationships with alliance partners. In addition, there are three critical success factors to a good business alliance:

  1. Communication: Because alliances are between organizations that each have their own structures and communication protocols, there is a tendency for alliance partners to each focus on their role in the partnership and under-communicate (and under-collaborate) with their partners. This can result in misunderstandings, unmet or unreasonable expectations, and important tasks falling between the cracks.
  2. Goal and role clarity: Each partner in the alliance needs to understand the others’ goals (objectives for participating in the alliance) and roles, to ensure conflicts and gaps are minimized and expectations are met.
  3. Measures and motivation: Each partner in the alliance needs to have some skin in the game, or their participation in alliance activities will be subordinated to its own internal activities. And there needs to be agreed-upon, objective measures, targets and deadlines so that each partner’s performance can be assessed and if necessary improved.

The value that your business gets out of networking and alliances will be a function of three things: The up-front work you spend in preparing for, researching and planning for network and alliance activities, the amount of quality time you invest in the networking and alliance activities themselves, and the depth of your communication skills. Good networking requires tact, rehearsal & practice, articulateness, brevity, excellent listening skills, and careful documentation and confirmation of agreements and action plans. But it can also be fun, and one of the most financially and socially rewarding aspects of business.

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