Creating alliances even with competitors is a step more small companies are taking. Before you decide to build bridges with some unlikely partners, find out what experienced "competitor network" companies have to say about making it work.
It's Not Easy
"The biggest problem is CEO ego," says Bill Hanley, chief executive of Galileo Corp. "You get five people together who are used to running their own show, and now they have to become part of a team that is interdependent. That's difficult." Hanley says it took 18 months for his group of fiber-optics companies to coalesce and develop trust -- 18 months of hand-wringing doubt, of wondering, "How much information should I divulge? Could I have this client to myself? Am I jeopardizing my own position in the marketplace?" If there is one phrase uttered most often by CEOs involved in competitor-network relationships, it is this: "It all boils down to trust." Not just trust that your competitor won't steal your secrets or your customers, but trust that forfeiting some of your independence will yield a handsome return.
It Takes a Leader
Show us a successful network, and we will show you a leader who champions it. He or she is the person who drives or coordinates cooperation, the one who refuses to let the others slip back into the old way of doing business. For Harry Brown, that has become a full-time job. "One of the things I've learned is that you can't expect things to flow without day-to-day involvement," he says. Brown's company, $8-million EBC Industries, is usually the lead company on jobs that require input from several of his network partners. Because he accepts liability and responsibility for the final product -- in this case, machine parts -- he has to make sure that his partners' standards are compatible with his own.
All networks don't function like Brown's, but all were started by individuals with vision. Although CEOs often play that role, a third party can also offer the outside perspective needed to plant the seed. Network brokers, whose very existence is testimony to the growing prominence of this trend, sometimes have a flair for getting overburdened CEOs to see the big picture. And increasingly, state or county economic-development offices promote and aid networking efforts. For instance, Rodney Brown, director of the business and entrepreneurship division of the Kentucky Cabinet for Economic Development, spends 95% of his time helping small companies create manufacturing alliances. "Our role is to turn on the light, then get out of the way," he says.
It Redefines Competitor
Rodney Brown recently "turned on the light" for Robin Hunt of H&W Plastic and Charles Rothe of Summit Molding and Engineering, both small custom-molding companies in Kentucky. The two formed a networking arrangement, the Plexus Group, to pursue projects larger than either could manage on its own, in new markets that both would like to penetrate. "What I struggle with most is having to spend a lot of time explaining Plexus to people who know me as H&W Plastic," says Hunt. "They wonder why I would do this with a competitor."
But is Rothe really a competitor? Like so many entrepreneurs who have formed similar relationships, Hunt discovered that a company that looks like a competitor very often appears less threatening when you get a little closer. For example: Rothe's machines are bigger than Hunt's, which means he usually attracts a different kind of job; his expertise is in engineering while hers is in sales and marketing. In short, what they do becomes secondary to the skills and resources they possess.
"What happened in our case is that companies that thought they were going after the same market applications and business segments weren't actually doing that," says Hanley of his fiber-optics network. "We had evolved to serving different segments of the market that were noncompetitive." That realization helped quell the partners' nagging fear of losing customers and compelled them to identify and evaluate their own unique capabilities.
It Makes Specializing Less Risky
"The way the marketplace is developing now, you have to be more specialized, and you have to be fast," says Patricia Stansbury, president of Stansbury Staffing Inc., a $3.7-million San Francisco-based recruiting and placement firm. That's virtually a universal truth in the new economy. But with specialization comes risk: when you develop a niche, you invariably make painful choices about what you won't do. Stansbury's relationship with four competitors eases that pain for everyone involved.
"We'll call each other and say, 'I can't fill this order for my client; can you help?' " she says. "I know they won't go behind my back and try to get the client." Why? Because they need one another too much. Stansbury specializes in graphics, technology, administration, and human resources; another partner is developing a specialty in legal placements; yet another is focusing on conferences and conventions. Their relationship gives them the freedom to specialize because they know they aren't forfeiting their ability to serve a broad range of clients. "It's my relationship with the client that makes all the difference," says Stansbury. "They don't have to call the agency down the street, because I'm doing it for them, and they like that."
It Depends on the Weakest Link
Yes, that's uncomfortable -- even dangerous. Your worst nightmare is that your partner's poor quality standards become your problem, jeopardizing your relationship with your most valued clients. It happens. About a year ago Nick Harville, an Oregon network broker, assembled a group of companies to develop wastewater-treatment systems for a particular industry. "On our first project, we found that one of the people in the network was making recommendations for equipment that wasn't up to manufacturer's specs," says Harville. The system didn't work properly, and the group had to absorb substantial retrofitting costs. The offending partner was ousted, and Harville restructured the group. The lesson is obvious but bears repeating: a network or a partnership is only as strong as its weakest link.
DONNA FENN is the author of Upstarts! How Gen Y Entrepreneurs are Rocking the World of Business and 8 Ways You Can Profit From Their Success (McGraw-Hill, 2009), about ways Gen Y is changing the entrepreneurial landscape.