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How Your Startup Can Make Corporate Alliances

Sharing research and development costs; making powerful industry allies: The benefits of being part of a strategic network with other firms are well known. For startups looking to pursue such alliances, a new study from the Ross School of Business may help.

Ross professor Gautam Ahuja looked at the dynamics at play when new companies are able to join existing corporate alliances. The resulting study, "Structural Homophily or Social Asymmetry? The Formation of Alliances by Poorly Embedded Firms," appeared in the Strategic Management Journal. Here are a few of his findings:

1. Show off your innovative approach.
Ahuja says that firms already embedded in a network have similar systems and processes and therefore come up with the same kinds of solutions. A startup, on the other hand, "may come up with a completely different way of looking at the problem. Some of those solutions are going to be more efficient. So it makes sense for the big guys in the network to establish ties with these smaller guys to make sure they are tapping into different streams of thought and knowledge," Ahuja said in a Ross press release.

2. Pursue an alliance when you have something major to bring to the table.
Smaller firms that want to have an equal partnership with a large, embedded company will have to bring with them a product, customer base or process that the bigger company needs. Ahuja warns that this can be difficult though rewarding. Such startups are often able to move to the center of the network and enjoy relationships with other firms within the alliance.

3. Otherwise, know the risks.
If your small firm doesn't have a major offering but still wants a position in the network, Ahuja finds that many firms accept a minority stake in a joint venture. However, he warns that while this allows a firm network entry, it is often not able to form alliances with other central firms.

"It might be a necessary evil sometimes, because without your accepting the minority stake, it's not clear the big company will work with you in the first place," Ahuja says. "But with the minority position, your ability to link with a more central player is actually diminished."

Image courtesy of Flickr user tombothetominator, CC 2.0.