Transform Your Company With Strategic Partnerships

In our Energy CFO Blog series, we've extensively covered topics such as cash forecasting, strategies for enhancing cash flow in energy companies, the significance of CFO leadership for business owners, the rising popularity of Outsourced CFO Services among private firms, and the optimal utilization of outsourced CFOs. These discussions are specifically designed to aid companies in sectors such as oil and gas, oilfield services, energy services, engineering and construction, mining, chemicals, renewables, manufacturing, and energy technology in both surviving and thriving in the current market landscape.

Forge powerful strategic alliances and transform your company.

Today, however, we will change our focus to delve into the development of your Partnering Strategy. Establishing strategic partnerships or joint ventures can elevate your potential for success and propel you to new heights. These strategic alliances can also be a powerful way to transform your company. The advantages of any partnership, whether it’s a business partnership or a marriage, lies in the ability to achieve more collectively than one could accomplish alone.

Think back to the moment you embarked on your entrepreneurial journey. Many of our clients, or previous generations of their family, established their business with the aim of solving a specific problem. Chances are you did too! Entrepreneurs and business owners are distinguished by their optimistic outlook, seeing the proverbial glass as half full. They have the ability to see problems as opportunities and use ingenuity to transform solutions into a thriving business or revenue stream. To truly capitalize on these opportunities, business founders often find it necessary to adapt and refine their approach until they discover the perfect "formula" or "secret sauce."

This is precisely where a strategic advisor with deep industry and business expertise, such as The Energy CFO, becomes invaluable. An experienced partner can provide an external perspective, assisting you in recognizing and capitalizing on new opportunities, as well as formulating a strategy and action plan to redirect your organization. This process of pivoting your business inherently involves some degree of trial and error. Overcoming challenges often requires new ways of doing things, and gaining a fresh outlook can be beneficial. It’s advantageous to have a team with diverse backgrounds to evaluate your progress and scrutinize outcomes.

This year, in particular, has underscored the necessity for adaptability and resilience in business practices. So let’s consider three realistic examples of everyday challenges business in our industry face that could benefit from these type of strategic relationships:

• Your services company is doing well, yet you know you need to diversify your revenue stream so you can adapt to change and continue growing. Perhaps your company has attempted entering adjacent or new markets, but has not achieved the desired performance milestones. Everyone in your company seems to have a different opinion how to best achieve the results you seek. You have strong relationships with your existing customers, but they seem hesitant to sign up for these new offerings. Furthermore, the profit margins on this new line of business are not where your company needs them to be viable long-term. Ongoing pricing analysis reveals gaps in your offerings, and unfortunately, the cost structure for this new venture is 15% above that of other service lines. To add to these challenges, the working capital demands for this emerging line of business are both higher and more prolonged compared to your traditional business requirements.

  
  

• Your supply chain managers are actively seeking ways to boost supply chain resilience, mitigate supply chain disruptions attributed to tariffs, develop reliable supplier networks in close proximity to operations. It’s possible that your team has pinpointed a few small, historically underutilized domestic manufacturers who could be developed to capture a larger portion of essential single-source suppliers. Moreover, management is investigating the potential to collaborate with international suppliers who are considering moving operations closer (reshoring or nearshoring) by offering them incentives and other supply commitments. Additionally, they are assessing the benefits of forming alliances with smaller rivals who have options for sourcing nearshore or with industrial companies serving different sectors interested in new site (greenfield) developments.

  
  

• Your closely held midstream oil & gas and downstream power/utilities construction business has experienced significant growth over the years. With the founders thinking about retirement within the next decade, and no successor from within the family identified, discussions have turned towards planning for the future. In a recent meeting, the board members decided to explore a few strategic options. One possibility is to engage with younger firms eager to broaden their market presence. The shareholders are open to facilitating a buyout, as they are confident they would see returns over several years, given the anticipated expansion in the commercial infrastructure sector. Additionally, they are interested in learning more about Employee Stock Ownership Plan (ESOP) opportunities and wish to talk to other companies involved in recent deals about their success in preserving local jobs. Their aim is to keep supporting the loyal workforce and business community by preventing positions from being transferred to other locations as in many other private transactions.

Every one of these businesses encounters significant hurdles. The owners, along with their leadership teams, have invested a lot of time and resources devising strategies to overcome these obstacles.

Now, pause for a moment— and contemplate:

• What it would be like if a white knight figure could assist in overcoming these barriers?

• What attributes would such a partner need to have to aid in transforming your enterprise?

Take some time to jot down your ideas and make a commitment to crafting a partnering strategy for your company today. Establishing a strong strategic partnership can be crucial to successfully transforming your small or mid-sized company (SMB) or family-owned enterprise. And that’s why we’re discussing this topic today.

How Do You Plan for Successful Joint Ventures?

Perhaps you find yourself identifying with one of the scenarios mentioned earlier. Engaging in collaborations, regardless of the form they take, offer numerous advantages. However, before reaping these benefits, it is crucial to develop a solid plan and conduct thorough research.

So how do you go about planning for a successful joint venture? It’s actually easier than you think. Begin with a simple evaluation. When you consider the potential exponential value of what could be at stake (including the opportunity costs), the investment of time is well worth the effort.

Your evaluation should encompass a variety of inquiries concerning your business, such as:

• Who are your potential partners, and what kind of reputation do they have?

• What are the motivating factors behind this partnership proposal?

• What are the risks or drawbacks might be involved?

• What resources will you offer, and how will their worth be valued?

• What is your preferred approach for making decisions?

While this checklist is not exhaustive, it serves as a starting point. To dive even deeper into this topic, contact us to schedule a Zoom call to discuss evaluating your partnership strategy comprehensively.

Why Partnering Strategies Fail

All too often, a thoughtful consideration of the company’s or business owner’s objectives and requirements is neglected. This oversight stems from a lack of business experience, a strong desire to quickly establish a reputation, or simply the urgency to achieve goals within tight deadlines or financial constraints (limited cash is usually the one). It’s crucial not to rush or bypass this process, as these partnerships AND personal relationships with the partners often significantly impact your financial outcomes for years to come.

I believe it’s fair to say that, for all businesses, this year is focused on adapting and growth. Currently, it may be challenging to see beyond the hurdles and for some to contemplate such questions. However, this is precisely why now is the perfect time to engage in these discussions as an organization. Begin with the fundamental considerations mentioned above and document what you can.

Spend Time Thinking About The Future And How You Will Preserve Success, Once Its Attained

Consider dedicating time to envisioning your future and strategizing how to maintain success once you've achieved it. Reflect on potential scenarios that could happen post-success (good, bad, and ugly) and how you would ideally want to handle these scenarios in light of your company's and your objectives and requirements.

A few years back, my experience with my company taught me the significance of documenting mutual expectations between partners from the start, detailing how you plan to collaborate and resolve any disagreements. I discovered that success can sometimes cause partners (one or both) to lose sight of the foundational principles that led them there, leading to behaviors perceived as greedy, untrustworthy, or detrimental to the relationships and investments built together. The true challenge arises when you assume both parties share the same core values, only to later realize their actions indicate otherwise.

Through conversations with numerous business owners, I've come to understand that such situations occur more frequently than one might expect. My experience with my company has led to distinct differences in our business model, new ventures, as well as our company culture. Therefore, it's wise to prepare in advance for success, thereby sparing yourself considerable time, money, and emotional distress in the future.

What Does A Successful Partnership Looks Like?

The most enduring and effective partnerships I've observed, specifically some international partnerships spanning multiple decades, are characterized by fairness and adaptability to changing circumstances. This is particularly evident in sectors such as LNG gas energy projects, petrochemicals, mining, and oil and gas upstream ventures.

These successful partnerships generally have a robust joint operating agreement (JOA) and provide a roadmap for navigating conflict and resolving disagreements. The original negotiators of these contracts thoughtfully approached these agreements, had a clear internal mandate from their organization regarding general terms and conditions, and success was a clear and equitable agreement (not one with onerous or untenable outcomes). Partners prioritize their relationships, investing considerable effort into nurturing them. As these partnerships evolve, there remains a strong commitment to the welfare of both companies and their collaborators. Partners understand that these joint ventures will not last forever, disagreements will arise, and the circumstances will change over time. They respect their partners and they make concerted efforts to resolve issues amicably.

The Energy CFO is a strategic partner to our clients. Our guiding purpose is to help private energy companies adapt, grow, and prosper. At present, we assist clients in managing their finances, strategizing for future goals, pinpointing fresh revenue streams and new markets. In addition, forging industry relationships and forming new strategic alliances, effectively negotiating new ventures, reducing expenses, and exploring innovative methods to further decrease their cost structures. We offer tailored strategic advisory solutions including business strategy and growth finance consulting.

Our expertise lies in collaborating with founder led companies (or "working owners"), family enterprises, and seasoned executive management teams with technical expertise. We work alongside operators, oilfield veterans, midstream energy services, engineering firms, construction and maintenance companies, manufacturers, project developers and their EPC teams, energy technology and systems, energy professionals, industrial products and services, and growth startups. Most of our client’s customers are operators and many are large global companies.

Our aim is for your private enterprise to not only adapt, but thrive as our nation retools its policies and refocuses its priorities. Why not reach out to us today for a complimentary CFO consultation with our Managing CFO? Contact us here.