The benefits of collaboration within organisations should be obvious. Collaboration brings in different kinds of expertise, input and perspectives to a task or project, and fosters a positive feeling of working collectively towards a common goal. It makes businesses more effective and improves the employee experience.
Similarly, there can be benefits to SMEs working together. Research by American Express and Oxford Economics found that 26 per cent of small business leaders cited partnerships and alliances to increase accessible customers as important for revenue growth. With the same study finding that the most popular long-term objective of SMEs, by far, is revenue growth – cited by 91 per cent of respondents – this is clearly an area worth pursuing.
While revenue growth may be a priority for many SMEs, learning skills, such as how other businesses go about marketing, accounting, sales, HR or accessing capital, and about their successes and failures, can be hugely beneficial. This can be done through networking groups and incubators, along with online resources such as trade forums and LinkedIn.
Gaining an outside perspective on your business helps avoid tunnel vision, allowing you to see the big picture of what’s going on in your business. It also opens your organisation to new ideas. Getting involved with a local chambers of commerce is one way to facilitate this kind of collaboration.
Small businesses can also improve their buying power by working together. Small businesses are often at a disadvantage when buying from distributors and wholesalers, as they don’t have the ability to buy in bulk. By joining forces – through purchasing cooperatives, for example – small businesses can reduce costs and create economies of scale, boosting their purchasing power in the process.
Co-opetition, which describes two competitors coming together to work on business opportunities, is another potential area of collaboration.
This doesn’t mean working with a direct competitor, but more when complementary businesses cooperate to promote their mutual products and services. For example, a small business consultancy could promote or resell the services of a partner accountancy firm for clients that need those specialist services. Or a nursery could offer parents a discount at a children’s clothes shop.
Referrals and recommendations are another powerful way in which small businesses can assist each other. You could even co-host an event for your mutual clients, introducing them to the other company and creating further networking opportunities.
Another advantage of SMEs working together, particularly on a new venture or market segment, is that it reduces risk for both parties.
By joining forces, each company needs to invest less and devote fewer resources than if going solo. Although the additional revenue or boosted profit will be shared, the reduction in risk could be worth it. And if the venture is a success due to the partnership, it could be argued that splitting the proceeds, is more than fair. Furthermore, the knowledge and skills gained can benefit an SME for years to come.
Of course, it won’t always make sense for SMEs to work together, so part of the challenge is identifying when additional input is needed, and whether working with another SME is best or if another approach should be pursued.
But, when circumstances are right, SMEs working together can be the start of a beautiful relationship.