A successful joint venture allows two individuals, corporations, or governmental entities to achieve a marketplace success they would not have been able to achieve alone. Properly chosen and implemented, joint ventures can be a great way for businesses to get in on opportunities and profits it would otherwise miss out on.
A joint venture operates on the concept that while you help another organization get what they want, you in turn get what you want. Forming a joint venture allows two businesses to take advantage of the other’s existing infrastructure, customer base, intellectual capital, market reach, credibility and responsiveness.
A good recent example of this is the joint venture Hulu formed with Disney. Both Disney and Hulu needed each other. Disney’s ABC is one of the most conservative media companies and it needed alternative distribution methods. At the time, Hulu ranked as the No. 4 online video site in the U.S. By providing prime-time shows from its ABC network (Lost, Grey’s Anatomy), Disney reached into new markets and its shares rose $1.13 or 5.4% at the time of the announcement. At the same time, Hulu got the shows it wanted from Disney.
Some of the reasons businesses enter into JVs are to enable fast access to new skills and technologies; lower cost production; or gain access to both local and distant markets. Even companies that considered themselves competitors have created joint ventures because they understood that certain aspects of their businesses would be stronger if they worked together.
Big companies enter into joint ventures – new business entities created through the joint venture agreement – all the time. There are too many good ideas out there for companies to do it on their own anymore. It’s advantageous to innovate with others, get to the market fast, and hit it hard by collaborating with others.
When a small business enters into a joint venture with a bigger business, oftentimes it’s because they have a breakthrough idea or product, but they do not have the reputation or distribution channels that the larger company has. Ultimately, it all comes down to leveraging.
There are two ways to structure a joint venture: either by contract or by creating a separate entity. The right structure for the joint venture depends on what you are trying to achieve. Regardless of the kind of structure you choose, you’ll want to hire an attorney experienced in putting together such deals.
To schedule your consultation with Mike McColloch, please contact him at (760) 632-1100 or through his online contact form.