Outlook 2001: Strategic Alliances
With established tech players reporting lower than expected earnings in the last months of 2000 and the NASDAQ tumbling to its lowest close since March 1999, 2001 will most likely not be starting on a high note for technology companies.
Emerging tech startups looking for that first or second round of funding will especially feel the crunch, as venture funds grow increasingly cautious of where they make their investments. It's not because of a lack of capital, but rather, because venture investors are becoming more and more aware of the fact that they must "hit a homerun" with at least one of their portfolio companies, and cannot afford to prop up the middling performers for extended periods of time.
Many VC's are already hedging their potential losses by investing heavily in the top players in their existing portfolios and turning a blind eye to all but the most promising new investment opportunities. As Mount Vernon Strategies (MVS) Senior Partner Charles Collier put it during his December 14 appearance on Bloomberg TV's Marketline, going into 2001, the venture investment landscape will be characterized by "lots of money out there, but fewer deals".
So what can an aspiring technology company with a need for an infusion of capital do to distinguish itself from competitors in the eyes of potential investors and ensure that it is involved in one of these "fewer deals"?
Of course, a sound business model, value proposition, and management team still go a long way. But go-to-market strategy is perhaps more important than ever for the emerging technology company in illustrating that it has a viable business proposition with potential for substantial returns to investors. Many companies have been going beyond traditional sales and marketing approaches to demonstrate that they are not only making the most out of their marketing dollars, but that they have also mapped out an effective and attainable path to market. In doing so, increasing numbers of firms are turning toward strategic alliances as a key point in their business strategy.
MVS devotes one of its core practice areas solely to the formation of
strategic alliances for its clients-levels of engagement range from simply
introducing clients to potential alliance partners to providing an
outsourced business development, marketing, and alliance management
solution. Similarly, the range of business issues that strategic alliances
are targeted at addressing is quite wide. Among others, these issues
include:
Of course, building a successful alliance requires much more than just finding the right partner. Even after the alliance agreement has been signed, both parties need to forge an effective relationship, not just a functioning arrangement. As a result, not only must executive managers be actively involved, but all employees must be educated regarding the nature and importance of the alliance relationship at hand, and their role in cultivating it. Tracking alliance-related profitability improvements and managing alliance-related knowledge are also vital to the success of the relationship.
The complexity of such alliance undertakings, coupled with their strategic importance in this time of heightened investor skepticism, has prompted increasing numbers of emerging technology companies to employ the services of strategic alliance consultants. Collier believes that it is a wise move that will pay off not only in terms of profitability, but more importantly, in terms of long-term competitiveness and survival. "After all" he notes, "strategic alliances are a highly effective way for companies to stay competitive without exposing themselves to many of the pitfalls associated with traditional market entry approaches."
Mount Vernon Strategies is a Boston-based strategic and management consulting firm that works with emerging companies in the Internet and technology sectors. The firm's practice areas include alliance & partnership building, business planning, marketing strategy and research, operational development, and financial analysis.
