External collaboration is essential to business success today and is growing in popularity. But, rather than simply “falling into” collaborative relationships or leaving it to chance as they once did, business owners are mindfully networking to build their external dream team. So, should you be doing it too?
On this page, we’ll explore external collaboration and provide you with a few potential starting points, so you can start incorporating it into your business strategy immediately.
What is External Collaboration?
People often talk about building a dream team inside a business. So naturally, the company benefits when you have the right mix of internal talent, and everyone works together well. The same applies to external collaboration, though it involves working with people outside your business or third-party entities.
Some collaborative relationships are built on mutual yet independent benefit, while others are incentivized through financial means. Other times external collaborators are intrinsically motivated. Perhaps helping makes them feel good, or they want to be part of a movement.
Examples of External Collaborators
Anyone who your company does not employ could become an external collaborator. A few examples are highlighted below.
- Business Accelerators
- Communities or Organizations
- Government Agencies
- Other Companies (Including Competitors)
- Patent Holders
- Schools/ Universities/ Institutions
- Service or Process Providers
- Venture Capitalists
Examples of Third-Party Collaboration
Now that we know what external collaboration is and who’s involved, let’s review a few examples of what it looks like in practice.
- Outsourcing: Entrusting a third party with a task your business might otherwise perform—for example, payroll processing.
- Crowdsourcing: Bringing together a group of people to obtain resources, services, or knowledge. Wikipedia, the collaborative online encyclopedia, is one example. Uber is another.
- Polling: Requesting information from your audience or similar demographic. —for example, sending surveys or hosting focus groups.
- Alliances: Working alongside another entity that shares your goal—for example, hosting a sidewalk sale with neighboring businesses.
- Joint Ventures: Pooling resources and working with another entity to achieve a specific business outcome or complete a task.
- Partnerships: Creating an ongoing relationship with a third party—for example, leveraging another entity’s proprietary technology or intellectual property.
7 Benefits of External Collaboration for Your Business
You may already be picking up on some of the benefits based on the examples. However, external collaboration helps businesses in a myriad of ways.
1. Saves Time
Many forms of external collaboration can help you save time. For example, if you’re outsourcing your marketing to an agency, any time you previously spent managing it is time you can put back into your business.
2. Outside Expertise
Nobody is an expert at everything, and sometimes it doesn’t make sense to keep certain specialty roles in-house. Law is a great example here. You may need an attorney to draw up or look over documents from time to time. However, it doesn’t make financial sense for most small businesses to hire an in-house attorney.
Consultants fall into this bracket too. For example, you may want someone to look at your pricing, identify new markets, or ensure you comply with industry-specific regulations. Yet, these are often short-term engagements or one-time activities.
3. Learning Opportunities
A third-party perspective can give you unique insights you might not otherwise gain. For example, you can poll your customers to identify new products or features they’d like. You might also form a joint venture or partnership with a company or entity that has knowledge in an area your team does not.
We saw this during the race to create a COVID vaccine too. BioNTech and Pfizer formed a joint steering committee, then collaborated on research, development, and ways to scale manufacturing. Nearly a third of vaccine candidates came from partnerships like this, according to University of Michigan research.
4. Cost Savings
Outsourcing is arguably the most predominant example of external collaboration for cost savings. Business processes such as customer service, accounting, and payroll are entrusted to third parties daily.
Sometimes businesses engage in joint ventures or partnerships for the same reason. The Swiss watchmaking industry is a great example. Most luxury watch movements have historically been made by one company called ETA. Also known as a caliber, the movement is the internal working of the watch. Even a basic one consists of 100 parts or more. It’s a huge undertaking to manufacture a new movement between development, engineering, tooling, and procuring supplies. So, when ETA announced it would no longer sell movements to competitors, many created new reciprocal agreements with other competitors. For example, Tudor, the parent of Rolex, partnered up with Breitling. Each agreed to provide the other with one of their proprietary movements. Tudor also created its own manufacturing company, Kenissi, and then sold 20 percent of it to Chanel, thus allowing Chanel access to manufacturing resources. Although these pairings seem unlikely because of competition and brand rivalry, they enable the businesses to continue operating cost-effectively.
5. Ongoing High Performance
It may be easy to see how some of the collaborative efforts covered so far can improve a company’s long-term performance, but there are also other ways.
For example, the cosmetics company L’Oréal has held a “Cherry Pack” exhibition for its suppliers. It allowed suppliers to view customer trends it was working on, including unpatented ideas, and allowed them to weigh in with their ideas. The increased innovation helped drive the company forward. Suppliers could also take the information they learned and develop packaging in advance, improving product deployment speeds.
6. No Long-Term Commitment
Unlike most business/ employee relationships, there’s not necessarily a long-term commitment with external collaboration. However, you can agree to work together for whatever term you feel is beneficial.
7. Gain a Competitive Advantage
You’ve now seen how external collaboration can spur innovation, reduce costs, help your business gain new capabilities, and more. These things all contribute to strengthening your business and can help you gain a competitive advantage.
Best Practices for Working with External Partners
It’s important to note that there are risks associated with some forms of external collaboration, but most can be addressed with a bit of foresight and planning.
Manage Security and Privacy Regulations
First, ensure you’re following all privacy regulations. This is more of a concern in sensitive industries like healthcare and finance, but something to consider if your business has any kind of personal data. You’ll need to ensure you’re allowed to share the data with your external collaborators and that any sharing is done in a secure, legally compliant manner.
Providing Support During the Collaboration
Good communication is crucial during any collaboration. Identify any potential pain points and ensure your collaborators can receive assistance as needed.
Access Management When External Projects End
Know how any data will be handled when your collaboration concludes. For example, suppose you’re using specialized collaboration software or even something simple like Dropbox, Google Drive, or OneDrive to share files. In that case, you’ll need to have a shutdown protocol determined in advance to limit access to any proprietary information. In addition, make sure collaborators understand how long they’ll have access and what steps they can take if they need something after their access period ends.
Be especially cautious with this if you’re outsourcing processes such as payroll and accounting, as your collaborators will likely have access to your data and your financial accounts. It’s also a concern in marketing, as contributors may have access to social media accounts. Again, leaving them linked or passwords unchanged presents security risks.
External Collaborations Your Business Should Consider
Most businesses begin external collaborations in a few key areas. We’ll go over some of the most common below.
It’s essential to work with an attorney on all legal matters. Your lawyer can help ensure your business is set up for success and mitigate risks you didn’t even know existed. Your attorney will also help you draw up any formal contracts that are needed as you bring on other external collaborators.
A Third-Party Certified Public Accountant (CPA)
Small business owners often do their own accounting, but given the number of things on their plates, it’s done on their own time. Working with a CPA allows you to focus more on your business and have an expert handling your books for added peace of mind.
Your industry and business will determine what types of consultants are in the best position to help. A great consultant can help your business operate more efficiently, increase profit, and avoid costly mistakes.
An Invoice Factoring Company
Invoice factoring companies help their clients accelerate cash flow by providing instant payment for their outstanding receivables. Businesses often leverage their services when cash is tight due to growth, seasonal shifts, or unexpected expenses. Although your arrangement with a factoring company does not have to be long-term, establishing one is helpful before you need funding, as there’s generally no cost to begin or maintain a relationship. Fees are only accrued when you factor an invoice. Some factoring companies, like Viva, also provide value-added services for specific industries. Fuel cards for trucking companies are one example.
Improve Your Accounts Receivable Management by Partnering with Viva
If you’re struggling to collect on your invoices in a timely manner, growing, or simply want to be prepared for a cash flow crunch, a partnership with Viva can help. Request a complimentary invoice factoring quote to get started.
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