The other day, I was driving through L.A. and something unusual caught my eye: a sushi restaurant with an attached medicinal marijuana dispensary. Immediately it struck me as genius (for obvious reasons), but I never would have thought to combine the two. The parking lot was packed on a Saturday afternoon. Though I didn’t track down the owner and ask for specifics, I would assume that each side of the business is greatly bolstered by the other.
It got me thinking about complimentary businesses. I wondered how many enterprises could dramatically better their business with a complimentary component. But how does one go about choosing a Burt for his Ernie?
I’d recommend a brainstorm. Start writing down every product or service that caters to your core customer base. It doesn’t have to be even remotely related to yours. For instance, if you own a photography business, you might want to consider partnering with a hospital’s maternity ward. I hear that new parents love pictures of their kid.
Next, you might want to slim down the list by finding some shared attributes that could help you find the right fit. Is the business primarily online, or brick and mortar? Does location matter? Does the business share your values? Will they be easy to work with? Will they gain value from your arrangement? Are there opportunities to share marketing costs? How does the size of the business effect the relationship? Are there regulatory issues in play?
Now that you’ve narrowed the list, you have to strike the deal(s). Here’s a short list of deal-making basics:
- Keep it simple. If the arrangement is not completely clear, things will eventually get very messy.
- Know your bottom line. If your gross margins are 30%, then you can’t share 25% of your revenue with the partner (in most situations). I’ve seen deals where one party realizes after the deal is done that they’re losing money. That’s obviously bad for the relationship’s longevity.
- Watch how your partner responds during negotiations. If they’re terrible to work with during negotiations, they’ll be 10x worse after the deal is done. Don’t ignore gaps in communication, constant excuses or attitude.
- Level set expectations. Don’t ever over-promise and under-deliver. If you expect to send them two customers a month, then back the agreement down to one.
- Make it lucrative. Early in my career, I’d develop deals that just weren’t worth enough to pay attention. Even if the deal presents a net gain, ask yourself if it’s worth the time, effort and energy (as well as legal costs) to get it done.
- Hire a lawyer to get the deal in writing. This is almost as important as rule #1. People change. Circumstances change. Legal documents don’t change.