12 Advantages & Disadvantages of Joint Ventures

Find out the 12 advantages and disadvantages of joint ventures.

What are the Advantages and Disadvantages of Joint Ventures?

As a government contractor, you realize that teaming with a business partner can be a great way to capitalize on Government Contracting opportunities.  Especially if your business lacks the resources, capital, and marketing knowledge to make it happen.  Before you venture down this path let’s look at the 12 advantages and disadvantages of Joint Ventures. Next, we will look at the advantages of joint ventures.

Advantages of Joint Ventures

1.      Expertise and Unique Viewpoints

The first advantage is the unique insights and expertise that your business partner brings to the table.  This allows both companies to brainstorm on the government solicitation together. Resulting in a better solution to the government’s problem than each party could have accomplished individually. Next, we will look at the second advantage.

2.      Greater Resources

The joint venture allows both parties access to each other’s resources.  If your business is not as established as your Joint Venture partner this allows you access to their resources.  Your JV partner may have specialized technology and staff that you know have access too.  In addition, to the added capital and equipment that can be used on the project.

Now, we can look at the 3rd advantage.

3.    Temporary Relationship

A joint venture is a temporary relationship.  Once the project is completed the relationship will end.  This is not a long-term commitment like an equity investor or partner.

The fourth advantage is up next.

4.     Profits & Risks Are Shared

Each JV partner will share the profits or losses as well as the risks associated with the project.  This allows each party to limit their exposure.  Your investment in the project will be less than if you elected to tackle the project by yourself.

The fifth advantage is coming up next.

5.     Limited Lifespan and Business Exposure

Remember that the Joint Venture is not a long-term commitment.  The Joint Venture will expire after the contract has been completed and all warranties have expired. This is a great way to test relationships with potential partners.  In addition, your business exposure will be less since because it will only cover a portion of the products or services that your business offers. 

6.     You Can Exit a Joint Venture

All Joint Ventures have ways that a business partner can end the relationship. However, if possible, it is best to stick it out until the project is completed. But if you reach an impasse then know that you have a way out of the relationship.

 7.      Joint Venture Assets Can Be Sold

Joint Venture assets can be sold.  The joint venture will specify who owns what assets. As a result, you can sell those assets once the project has been completed.  You may be able to sell the asset to your joint venture partner. 

8.      Joint Ventures Have Increased Success Rate.

Your chances for success are greater due to your joint venture partner.  Thus, increasing your business’s credibility.

9.     Building Relationships and Networks

Think about the relationships and networking opportunities that will be available to you through this joint venture.  Many small businesses have capitalized on these opportunities to strengthen their relationships with their clients.  In addition, your joint venture partner can introduce you to new networks and potential clients.

10.       Increased Potential

You can capitalize on this opportunity to create more opportunities in the future.  Your joint venture partner will introduce you to their partners.  These new businesses could be future business partners.

11.      Save Money Using Joint Ventures

A Joint Venture allows you to save money by sharing expenses.  You will not be responsible for 100% of the marketing and expenses because it will be shared with your joint venture partner.

12. Increased Your Past Performance

Completing the project with your Joint Venture partner will allow you to use this experience on your Capability Statement.  This is especially helpful if expanding into new markets or just increasing your capacity.

As with anything in life if there is an upside then there must be a downside.  Let’s look at the downside to Joint Ventures.

Disadvantages of Joint Ventures

1.     Unclear Objectives Specified in Joint Ventures.

Sometimes the parties to the joint venture get hung up on the potentials and fail to clearly state the joint venture objectives.  As with anything in life, communication is the key.  Many times, the biggest problem between the two parties is the lack of communication and expectations.

2.    Joint Ventures Are Not Always Flexible.

A joint venture does not offer flexibility that you have as a small business owner.  You cannot just decide and run with it.  You must get input from your partner and both of you make the decision.  Also, you may be spending all your time on joint venture projects and as a result, your business may suffer.

3.     Each Company is not equally involved.

Since each party is responsible for only certain tasks the involvement of each company is going to be different.  This may have an impact on your individual business.

4.     Unbalanced expertise, assets, and investments

Bringing together different companies can be very trying.  Each company will come with a different set of experiences, assets, and investments.  Ultimately, this can have a negative impact on the effectiveness of the joint venture

5.     Culture Battles of Joint Venture Partners.

I can guarantee you that each company will bring in their own management styles and company cultures to the joint venture.  This can lead to poor cooperation and integration.  Trying to melt together different beliefs, and preferences can be a time-consuming process.  If not dealt with it could impact the success of the project. 

6.     Restricted Outside Activities

Many joint venture contracts will restrict outside activities of the participating companies while working on the venture project.  Make sure that you understand what you are getting into if you don’t want this to negatively impact your entire business.

7.    Lack of Proper Research and Planning.

Remember that the success of the joint venture depends on how thoroughly you researched and analyzed the project objectives.  If you did not spend the time necessary on this step it could backfire on you.

 8.     The Joint Venture Is Harder to Exit When a Contract is Involved.

Every party to the joint venture goes in with the best of intentions.  Sometimes there is a clash between the companies that results in one business seeking to exit the relationship prior to contract completion.  This is something that you should plan for and be prepared to handle.  I am not saying that it is going to happen.  I am saying that preparation is 90% of your success.  One of the biggest things you can do is communicate excessively with your joint venture partner.  I have seen a lot of relationships fail due to a lack of communication.

9.     The Temptation to Depart Joint Venture.

When the Joint venture is new both companies will spend a lot of time supporting the joint venture objectives.  Since things are going well you might be tempted to leave because it is going well.  Do not do that.  Under no circumstances should either party step away from its obligations to the joint venture.

10.  Lack of Communication Between Joint Venture Parties.

Each party to the joint venture has different goals, and objectives.  These goals and objects can get in the way.  If this happens take a step back.  Reevaluate the issues as you see them and call in your partner for a one on one.  Nine times out of ten you will find that there is a clear lack of communication between the parties.  Make sure to communicate more than you think necessary.  Also always put your communications into written form.  This way you have a document of what was said that you can refer to later if needed.

11.  The Joint Venture Partner is not reliable.

If happens sometimes.  Partners won’t necessarily devote 100% of their attention to the project.  As a result, they become unreliable.  It may be necessary to meet with the partner and find out what is happening before you can decide what to do next.

12.  Unrealistic Objectives For Joint Venture

Sometimes joint venture partners do not spend the time researching and coming up with clear objectives.  You cannot spend too much time developing the joint venture objectives.  These objectives need to be agreed upon by both parties to be successful.

As with any business venture you need to be prepared.  The more you know about your potential business partner the better off you will be.  Many times, a small business owner will be working directly with the business development staff of a larger business, and not directly with the business owner.  As a result, it can take longer for decisions to be made by the larger business.

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