Joint ventures are not always successful. This can be hard to imagine especially when it promises a lot of benefits for all concerned. There is less risk. There is sharing of resources. There is more people to get ideas from. There is help around. Generally, it is like having another you working towards a goal.

Joint ventures can be entered into by two or more parties depending on the need. Often, joint ventures are created in order to produce a product or realize a project that will need different resources and these resources cannot be provided by just one person or company. Think about it as organizing an event. To plan the party and make it a success, you need a good caterer, a good party planner, great sound system, decorations and stage set-up. Each of these companies provide expertise that you cannot provide. When these people or companies come together, each putting their own products, technology, service or expertise on the table, that is what is called a joint venture.

There are several vital elements to a joint venture and you need to look into each one to make sure that it will be a success.

The first one is the partners involved. Who will be the partners in the endeavor? Do you know them? Have you researched their personal background and company history? If it is a company, have you reviewed its performance and its current CEO or its leadership in general? It is important that you know these things about the partner that you will be seeking. A joint venture can fail when two incompatible partners come together.

The next element is the contractual agreement. This is established so that the partnership, the goal, its duration and the contributions of each will be put into writing. This minimizes confusion and other potential problems in the future. Discord will also be avoided because people will know what their role is.

Another element is the purpose and duration of the contract. Joint ventures are not forever although it may seem like it. It can be long-term or short-term. Often, joint ventures do not last long, often along the duration of the project. Some though especially those who have products to sell, continue for years and years until a partner decides to back out of the contract or refuses to extend the contract. It is advisable that the duration should be two to three years after the “creation period” to give time for the product to get into the market.

Partners in the joint venture need to put into writing how long the partnership will last and if there is a provision for extending the contract for another period of time. This should be established at the start of the partnership. This way, everything is clear and each partner knows for how long the venture will be.

Lastly, there should be the joint property interest, which states which properties are shared and will be distributed to the partners in case the venture is dissolved. This states the percentage of the joint property that each partner will get depending on their initial and continual contribution.

 

Joint ventures are important in business. Getting into one is a way for most companies to make the most of their resources without having to risk much and raise a lot of capital. This is especially true for young companies who are just starting their operations and are still testing the waters.

But as much as it is one viable idea for businesses, it is not always beneficial. In fact, out of the many who attempt to get into a joint venture, only a few manages to really survive the first five years. This is not because of the “joint venture” per se but because the partners or the partner companies are incompatible.

That is actually the first rule that you should know when opting for a joint venture. Just because a company fits your needs-criteria, it does not mean that it is already a perfect fit to you or your company for a joint venture. You see, a company may provide the service, the product or the technology that you need for a project but if they are not a company that you trust, partnering with them may mean suicide for you. There are a lot of smaller companies who have gotten eaten up by big companies because they made the mistake of getting into joint ventures with those industrial sharks.

Choose your partner well. preferably it should be someone or a company that is similar to you in stature or if ever slightly smaller or bigger. Partnering with a big company may give you instant access but it can be a problem for you in the long run. The partner should also trustworthy and whose work ethic coincides with how you do business. If you find a company who is comfortable in testing the laws and you can’t, it will be a disaster. It is better to not start the partnership at all than to bail out of an agreement.

Another important consideration is to make sure that everything is made into writing. That way, you can be sure that everybody will be doing their part. It is not impossible for people to slack off especially when they know that another partner can take over their responsibilities for them. This can be a huge problem and may create discord among in the group.

Another vital thing that you have to look into is the profit sharing and the contribution of each of the partners to the enterprise. This is perhaps the most important aspect of the joint venture because this is after all what all these companies are after. Although the partners are primarily giving something to the joint venture, some will have more contributions than others. It is important that you check all these and make sure that you have the profits and the compensation distributed to the partners fairly.

Take note, the word is fairly and not equally. This means that distributing the profits equally to all partners is not the way to go. It should be distributed to the partners according to their contributions to the joint venture.