Ben Gomes-Casseres explains keys to success in partnerships. Learn from Pixar and Disney regarding how to create value, manage collaboration, and earn a return.
- A strategic partnership can boost your business. But it can also be costly if it fails. About one-third to two-thirds of partnerships fail depending on various conditions. To beat these odds, you must follow three rules. These rules are so fundamental that I call them the three laws of business combination. If you're gonna learn one thing from me today, let it be these three laws. The three laws are simple to grasp, but like the rules of chess, they take a lifetime to master.
The first law is this. One plus one equals three. By this, I mean that you and your partner must create more value together than you would separately. This is the value equation in every partnership. There are many ways to create joint value. If you share resources, it can lead to lower costs or higher sales. If you lean on what each party does best, you can create new products and services. You've heard this formula before. But it's worth stressing it here, because it's a must-have in every partnership.
If you need 13 lawyers around the table to figure out just exactly how you and your partner can create value together, stop right there. A great example of this law is the partnership of Disney and Pixar. Today, Disney owns Pixar, but that relationship started as a classic strategic partnership. In the 1990s, Pixar had a top-flight team in computer animation. But they didn't know the movie business and they had no way to reach the viewing audience. Disney had the opposite problem.
They had an audience but no computer skills. When the two companies put their heads together, the partnership yielded Toy Story, the blockbuster that wowed audiences worldwide. That was the first law of business combinations in action. The second law is this, one plus one equals one. This doesn't mean that the value created is only one. This is the management equation. It means that the partners must manage their relationships as if they were one.
As it says on the U.S. dollar bill, e pluribus unum. Out of many, one. Disney and Pixar followed this law too. Even when they were just partners before their merger, they put their teams together to learn from each other. They set up committees and meetings to make decisions together. Disney had the upper hand in some decisions and Pixar in others, but they made it work. They also followed the third law, though this law is often a source of friction. The third law is this. One plus one equals 1.4 plus 1.6, or 1.3 plus 1.7.
You get the picture. The fractions have to add up to the three that was created in the first law. This is the value sharing equation. You and your partners have to divvy up the value you created together, so that each of you gets a fair share. The value split does not have to be 50-50. It can be 40-60 or 80-20 or anything else. What matters is that you and your partner each get enough of a return for you to keep working together.
If any partner feels shortchanged, that partner may walk away or worse, sabotage the project. Disney and Pixar struggled with this law. At the start, Disney collected the lion's share of the winnings. But as Pixar's brand and capabilities grew, it was able to renegotiate a deal to get more for itself. Eventually, the partners decided to merge rather than to keep haggling over their shares. At the merger, Pixar shareholders collected seven billion dollars. That was a successful partnership.
You can repeat this kind of success. All you have to do is to master the three laws.
- Define a strategic partnership.
- Identify the three laws to successful business combinations.
- Describe the five steps to a good partnership.
- Determine how many partners you need.
- Define partnership terms.
- Evaluate how to manage partnership life.
- Analyze whether you are earning your share.