Does Your Business Need a Matchmaker?
Q: I operate a small business and am interested in forming strategic alliances with other organizations whose services complement my company's. I understand there are "strategic-alliance matchmakers" that provide assistance in this regard. Where do I find them? -- B.L., St. Louis A:
Q: I operate a small business and am interested in forming strategic alliances with other organizations whose services complement my company's. I understand there are "strategic-alliance matchmakers" that provide assistance in this regard. Where do I find them?
-- B.L., St. Louis
A:Strategic-alliance matchmakers are most often investment bankers. These financial professionals are adept at researching and making contacts with all types of companies. They're also expert negotiators and can bring an experienced perspective to dealmaking. You can find investment bankers by looking them up online, asking other CEOs for recommendations, or getting references from your accountant, lawyer, or banker.
Investment bankers typically charge a premium for their services. What you'll need to decide is whether your company's best interests are served by hiring one, or if you can effectively line up alliances on your own by doing some strategic networking.
Here are some reasons to use an investment banker:
You want to keep your initial approaches to potential partners discreet.
For various reasons, you may not want word getting around that you're looking for alliances. Using an investment banker keeps your company's name out of the loop during the early phase of communications and allows you to remain anonymous until you're ready to step forward, says James S. Twerdahl (www.twerdahlassoc.com), a Los Angeles investment banker.
You need help finding the right partnerships.
An outside expert who puts together alliances for a living is likely to have more contacts across more geographic and industry lines than you do. A professional deal broker should also be able to advise you on the types of alliances that will be most beneficial to your company's growth.
A experienced third party is usually valuable when it's time to negotiate a deal.
"An investment banker can be a real asset in negotiating a deal, so that some distance can be maintained between the principals," Twerdahl says. Make sure you find someone who looks out for your interests but can also show potential allies that the deal will be positive for them, too.
"Investment bankers come in all sizes, and each practice is different," Twerdahl says. "It's very important for prospective clients to carefully interview those whom they might consider hiring."
It's helpful if the investment banker you select has experience putting together deals between businesses about your size. If you hire someone who typically works with much larger firms, your company may get lost in the shuffle. But if you choose someone who usually deals with smaller outfits, he or she may be unable to manage the scope of the deal.
GOING IT ALONE.
Compensation for matchmaking services may be paid out on an hourly-fee basis, but it's more likely that you'll be asked to come up with a retainer and then pay a "success fee" when a deal is consummated, Twerdahl says. Retainers may range from $10,000 to $25,000 -- or more for very large transactions. Success fees go from about 10% of the deal's value for small companies, down to about 1% to 2% for very large deals.
But do you really need an investment banker to help forge strategic alliances? Many small concerns manage to find partnerships without formal assistance, says Martin Lehman, a counselor at SCORE's (www.score.org) New York office. Networking in your region and within your industry is key to going it alone. Trade shows or industry conferences are great places to meet other business owners whose services might complement your own.
Many business people also have well-connected friends who might suggest partnerships or arrange a meeting between two CEOs who could boost each other's companies. Be aware, however, that if you take advantage of an opportunity like that, it's customary to compensate the informal matchmaker -- either with a finder's fee or a percentage of future revenues.
Other possibilities: "Unless your business is very unusual, there are trade associations that will be able to tell you about other organizations or companies you could network with," Lehman says. "There are also all kinds of chambers of commerce that would be delighted to help you...and would be excellent sources of information."
You can also ask key suppliers about other businesses in your space. Just make sure to emphasize that you're interested in growing your outfit and not sabotaging your competitors, Lehman suggests. Read trade publications and look for articles and advertisements from businesses you think might be potential allies, then approach their CEOs on a friendly basis.
"Of course, you could look in the Yellow Pages and find names and addresses of similar companies and contact them, but people tend to be suspicious, so you must make clear your intentions," Lehman says. After all, there's no point in making enemies when you're looking for allies.
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