Are you thinking about doing a joint venture? Almost 60 to 70% fail within the first five years. Joint ventures can be complicated and you need to be prepared before you go into one. Ivan Golubic has led a ton of joint ventures in his 10-year tenure in Goodyear as VP, Corporate Development at Goodyear. He is going to help us discuss how to make joint ventures successful and what are the pitfalls that you need to avoid.
“JV is not a regular company, it's created with a specific purpose and a specific objective. And if you treat it with that focus and objective, then it's successful.”-Ivan Golubic
The biggest reason why most joint ventures fail is corporate culture. Both parties need to be able to work together and have an overall alignment of how they would get things done. No matter how good the strategy is, you can’t work with the other party, then the JV will fail.
Another reason for failure is due to the shift in strategy. When you form a joint venture, you normally have one strategy. And after some time, things change and you want to shift your strategy, the entire deal falls apart.
Lastly, priority issues. If the parent companies are putting their own priorities ahead of the joint venture, then you will have difficulties in operating the joint venture.
“Talk about things that are uncomfortable while you're still friends, not after you get in a fight or in an argument with the other side”
The key to any successful venture is to have a partner that you can trust. If you can’t trust the other party, then you can never have a successful joint venture. Both parties need to be approaching the deal in good faith, and in it for the right reasons.
Strategic objectives may vary on both sides, and that’s perfectly fine. Sometimes, it’s even better so that they are not competing against each other. However, you need to define what success means for the joint venture itself. Put objective and measurable KPIs so you have clear and achievable goals. Hire a third party consultant in creating a strict governance structure to ensure fairness on both sides.
Also, have a good exit strategy. If it doesn’t work out, both parties should know what to do to resolve the problem and preserve their relationship. Most joint ventures have supply agreement even after the dissolution so separating in good terms could be valuable.
“You can't have a dominant party in joint ventures. It just won't work because the other party will feel very disengaged. They will feel that they're not being heard” -Ivan Golubic
Both parties need to feel happy with the choice of leadership in the joint venture. There has to be a complete parity between parties. If one side feels that the leadership team favors the other parent, they will try to overcompensate by demands from the management and difficult approval processes.
One of the things that you can do to ensure equality is to avoid special requests. Whatever the leadership provide for one parent has to be provided to the other. If one parent asks for a particular document, you have to provide to the other weather he likes it or not.
Working with another entity is hard because you cannot control what the other party does. However, by being transparent, organized and having a fair leadership to govern the joint venture, you can increase your chances of success.