What Is the Difference Between a Joint Venture & Strategic Alliance?

by M.T. Wroblewski; Updated December 03, 2018

You spend money on print and broadcast ads because they attract attention. You've probably spent a princely sum on your website – writing it, designing it, launching it, optimizing it and then ensuring that it does the heavy lifting for your business by investing in an inbound marketing strategy. And like many small-business owners, you're probably still catching your breath as you learn just how expensive it can be to maintain a vibrant and consistent social media presence. It's probably gotten to the point where someone on your marketing team can mention a marketing initiative and – cha-ching – you can quickly do the mental math and tabulate how much it will cost you. No one has to tell you that spending money on marketing is a fact of life of running a small business. You take it as an article of faith that you have to spend money to make money.

Or do you?

Creating a strategic alliance is one way you can develop your business and spend little, if any, money. It will take time, but it can be among the best time investments you ever make in your business, provided you find the right strategic ally. And now that this point is on the table, no one ever said that you're limited to only one. In other words, as long as you have the time, you can forge several strategic alliances with like-minded small-business owners who just may be hoping that someone like you comes knocking on their door.

Define Your Terms – and Intentions

Many people use the terms strategic alliance and joint venture interchangeably. They do the same with sales and marketing, promotion and advertising and even colleagues and partners, too. While these people mean no harm, and probably don't intend to mislead, commingling the terms can create misconceptions and confusion. So before you approach a business owner about forging a strategic alliance, be sure you're 100 percent clear on:

  • What a strategic alliance is. What a joint venture is. How the two unions differ. The benefits of forging a strategic alliance. How you might go about setting one up.

A strategic alliance is a collaborative agreement between two or more companies that wish to pursue mutually beneficial goals while remaining completely separate entities. In the course of pursuing their shared goals, the companies may share their resources. In fact, this is one of the primary benefits of strategic alliances. Two companies can pool their knowledge, experience, distribution channels and whatever else they see fit, essentially filling gaps in their respective operations.

A joint venture is essentially the same type of entity, with one crucial difference: the two or more more businesses sign a contractual agreement and thereby create a third, jointly owned company, Innova Counsel says. This third company “functions as a separate entity,” sharing in the profits or losses.

Assess a Strategic Alliance vs. Joint Venture

To crystallize the differences, it's worthwhile to compare and contrast a strategic alliance vs. joint venture:

  • In a strategic alliance, the two or more parties agree to terms and can “seal the deal” with no more than a handshake. Or they may draft a letter of understanding or letter of agreement to spell out the terms and set expectations. A joint venture is formed by a binding contract.
  • In a strategic alliance, the two or more companies remain separate entities. In a joint venture, a new entity is formed.* A strategic alliance is not considered a separate legal entity; a joint venture is.
  • A strategic alliance is usually managed by representatives of both companies. New management is usually found for a joint venture.
  • A strategic alliance is often forged to maximize the benefits and opportunities that both companies bring to the table. In a joint venture, the emphasis is often on limiting risk.

The prospect of another contractual agreement in your life may loom large to you. It does to plenty of small-business owners who ultimately decide that a strategic alliance better suits their goals and, frankly, sidesteps a legal entanglement they'd rather live without. Their legal plate is full enough with the business and obligations they already have.

Still, you may be wondering: If a strategic alliance isn't governed by a contract, when does it end? The short answer is, when the goals are achieved. Alternatively, “the agreement for a strategic alliance could have a sunset date or be open-ended with regular performance reviews,” Innova Counsel says.

In reality, however, many strategic alliances run their course and simply fizzle out. Although the possibility always exists for disagreement, a falling out doesn't have to precipitate the end of a strategic alliance. In fact, you may be heartened to learn that many business owners remain on friendly terms as they return their focus squarely to their own business.

See Why Joint Venture Strategies Appeal to Business Owners

  1. A business-to-business collaboration holds the greatest promise when the business owners offer products or services that complement and even enhance each other. In fact, this symmetry could help consumers understand and embrace the strategic alliance; it will make sense to them when it comes time to market and promote it. And, like any other business relationship, it helps enormously if the two business owners are like-minded, respect each other and trust each other, too.
  • “A potential partner must have complementary strategic objectives,” Reference for Business says. “A venture will not succeed if the objectives are in conflict, but the objectives do not need to be identical.”

When the conditions are right, a strategic alliance can:

  • Exposure your products or services to customers who might otherwise have eluded you. Generate crossover referrals from your strategic ally. Pool resources, from people to technology.
  • Allow you to introduce a new product or strategy that would be difficult or inefficient to introduce on your own – in other words, diversify. Increase your current market penetration. Raise your business profile, especially if you market and promote the strategic alliance effectively.
  • Reduce costs by sharing costs.

Follow Pointers, but Follow Your Gut

Asking someone how to set up a strategic alliance is a little like seeking advice about how to ask someone out on a date. You can heed the advice, follow your own best instincts or you can do a little of both to chart your own path. Plenty of productive and successful strategic alliances have been formed simply because two small-business owners put their heads together – and clinked two beer mugs together – after a chamber of commerce function. Small-business owners are always thinking, and sometimes inspiration strikes at times you cannot plan or predict.

Still, it might be wise to:

  • Define your goals, first and foremost. They don't have to be earth-shattering. They could solve a “simple dilemma” that has eluded you, such as how to thank big-spending customers. In this case, forming a strategic alliance with a gift basket company or wine club could provide the answer.
  • Identify potential strategic allies. This is the tricky part. A strategic alliance benefits from some business symmetry. And one business should not derive all the benefits – namely, money, customers and exposure. So if you run a chocolate shop, bakery or even a restaurant, those strategic allies could be compelling. Think of your potential allies in terms of crossover marketing, too. Would your ads, brochures and other marketing collateral complement your ally's business? Would theirs look at home in yours?* Reach out with the framework for a strategic alliance in mind, but ask for suggestions and ideas. Just as no one knows your business like you do, your potential strategic ally knows things about his business you are not privy to, either.
  • Put your agreement in writing. Be specific about what each party hopes to achieve, itemizing action steps with bullet points, if need be: “We will share customer databases”; “We will create a joint advertising campaign to highlight our two primary products”; “We will share a booth and share expenses at the next XYZ Trade Show.” A letter of agreement is ideal, though an email might suffice. In this case, take the extra precaution of printing it and signing it, just in case questions arise later. Spelling things out just makes good sense.
  • Make a good-faith effort to confer with your strategic ally on a regular basis. Meet for lunch twice a month. Or touch base by phone once a week. You want your strategic alliance to sizzle, not fizzle out. And like all business relationships, it will flourish only with time and attention. Besides, you want somebody to celebrate with when you see how much money your strategic alliance has saved you – and made you – while your competitors look on with envy.

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