The business relationship in a joint venture will typically last anywhere from 5 to 7 years.
Joint ventures form with a unique business goal in mind and are generally dissolved once the specific goal is achieved.
It is hard to find any official statistics that will tell you the rates of joint venture success or failure.
There have been a few studies conducted in this field.
The only reliable reseach we have found is a paper by Erin Anderson, published in the December 1990 edition of Sloan Management Review.
That study is now 30 years old and so unlikely to remain valid.
Nevertheless, a quick search on your favourite site will turn up several results telling you the failure rate is around 60%.
But success or failure isn’t like a roll of the dice.
You can look out for signs of failure and take action against them.
There are many reasons why Joint Ventures fail and five of the most common reasons are:
- Lack of a proper Joint Venture Agreement.
- Lack of finance.
- Control issues.
- Unrealistic expectations.
Setting aside a lack of finance, you can see, other four of these five reasons are due to what are known as “human factors.”
We have stressed several times the importance of a proper JV Agreement.
Indeed we cannot emphasise this enough.
Unless the partners in the JV are open and honest about their motivation and expectations for the project, it will most likely fail.
The other human factor reasons come down to the integration of human resources and knowledge sharing.
Ways of Measuring Joint Venture Success
There are several formulas for actually measuring the performance of your joint venture.
It varies depending on whether you want to:
- Increase your company profits
- Share Research and Development costs
- Extend your market position or maintain it
- Improve your distribution channels
- Develop new technology for your company
- Offer a larger variety of products
- Reduce competition for your company
- Reduce the risks of making a large investment
Financial Success Goals
You may have a simple financial goal which would mean Joint Venture Success for you.
If you’re looking to increase your profits by a certain percentage, this is very straightforward.
All you have to do I look at the profits of your business before and after the JV, then compare the numbers to determine if your venture is working for you.
Other Success Goals
Some goals and objectives are harder to determine.
Even if your goal was to reduce competition you could figure that your profits would increase.
You can’t be sure.
From the above failure percentage, you can guess that your chances of success would be around 40%.
But consider that the 60% number includes large, international partnerships set up with very ambitious goals. There are many complex economic and political reasons governing them.
You can think the chances for your small venture would be higher.
With that knowledge, it is reasonable to say that if you follow the steps in this series of articles, you have about an 80% chance of success.
Do your homework, get the right partner, and communicate during the process.
Risks Involved in Joint Ventures
Everything we do involves a risk.
It would be unprofessional of us to write about something and not tell about the risks.
But consider all risks in context.
I mean, choosing to get in your car and drive to the grocery store gives you a risk of being in an accident.
You can’t go through life without facing some amount of risk.
You need to be aware that a joint venture concept can only be effective when the partners have a true willingness to move forward as partners.
Signed contracts are just a piece of paper and are meaningless unless you have that mutual trust and understand and accept the terms of it.
There are some risks you need to consider when you enter a joint venture. Here are a few:
- You’ll just waste your time
- You could lose money
- You might share some important technology or information and get nothing in return
- You may not really get anything significant from the venture
- You could lose your company’s credibility
You should know that even though there are a few risks, the rewards can far outweigh them.
If you do your homework beforehand, you can help prevent these things from happening.
Owning a business can be very rewarding.
It can also be one of the most exciting times in your career.
If you do it right, you could make all those dreams you have for your life come true.
It all depends on what you want for your business and how quickly you want it.
Joining forces in a joint venture can make it happen much faster.
Just remember the dos and don’ts of setting up and operating a joint venture and you’ll do fine.
- Make your partner choice carefully or it could be costly
- Use a lawyer to be sure you protect your interests
- Negotiate the rates for your venture and develop a contingency plan for any cost overrun.
- Plan how the venture will operate carefully
- Have a good contingency plan.
- Enter a joint venture that isn’t thoroughly planned out.
- Assume the partnership is running well. Always actively manage.
- Ignore issues. Discuss them with your partner.
- Let the Joint Venture distract you from your core business.