In our Energy CFO Blog series, we have talked quite a bit about cash forecasting, various ways energy companies can improve their cash flow, why business owners need CFO leadership, why outsourcing CFOs is a popular choice for private companies, and how to effectively use an outsourced CFO. All these topics are focused on helping oil and gas, oilfield, energy services, engineering and construction, mining, chemicals, renewables, manufacturing, and energy tech companies survive and thrive right now.
Today we are going to shift gears and we’ll discuss developing your Partnering Strategy. Strategic partnerships or joint ventures are a powerful way to increase your potential for success and reach new heights. They can also be a powerful way to transform your company. The point of any partnership, whether it’s a business partnership or a marriage, is to create more than what you could have created alone.
Let’s reflect back on when you launched your business. What I have found is most of our clients started their businesses (or previous generations of their family) to address a problem. Chances are you did too. One of the characteristics that really sets business owners and entrepreneurs apart is their glass half full perspective. They have the ability to see problems as opportunities and use ingenuity to convert a problem’s solution into a successful revenue stream or business. In order to fully seize these opportunities, founders often need to pivot the business until they get the “formula” or “secret sauce” just right.
This is where a strategic advisor with deep industry and business experience, like The Energy CFO, fits in. An experienced partner can come in from the outside and help you identify and seize new opportunities and develop a strategy and action plan to pivot your organization. Likewise, pivoting requires some form of trial and error. Challenges often call for new dynamic ways of doing things and you might need a fresh perspective. It helps having a team with broad diverse experiences to help you assess your progress and challenge the results. Especially this year, with all the other issues businesses and their owners are tackling.
So let’s consider some realistic hypothetical examples:
You are founders with a renewable solar startup. You have work arounds for COVID-19’s impact on your workforce. Actually, with so many people working from home now is a better time than ever to pitch renewable solar. The challenge is the payback to home owner’s spans several years. Still, if you could arrange affordable financing there is a lot of interest. But your biggest problem now is you cannot find financial firms interested in financing retail solar businesses. Whereas in the past the credits were one hurdle, right now as a result of shutdowns and growing unemployment rates, lenders are not very interested in consumer credit risk.
Maybe you are an owner(s) of an Independent onshore oil and gas company. You are one of the ones who did not over lever (so not headed to bankruptcy) and can scale back your activities or go into holding. Maybe you are a survivor or learned from the survivors of the 80’s downturn and squirreled away a year or two of working capital (for times like these). You need to do some drilling to hold your leases but you need or want to split the risk. There are only two banks left that are lending to the oil and gas industry. So you are considering farming out with competitors.
Or maybe you are very large family owned energy services company. Your primary services are engineering and/or pipeline or power utilities construction services. During 2020, you quickly shifted your marketing teams focus to your small civil business while also exploring new projects or complementary services further downstream and/or in the mining and chemicals complex. Even subcontracting under a larger public EPC group. You need to develop a more diverse revenue stream – preferable one that hedges your existing business while opening a new door to a vast “blue ocean” opportunity.
All of these companies face tremendous obstacles. The owners and their leadership teams have invested a lot of time and money exploring strategies to overcome these obstacles.
Now step back and think about if there were a white knight that could help overcome these obstacles, what would that partner look like. What does that partner possess that could help you transform your business? Write down your thoughts and commit to developing a partnering strategy for your company today. A strong strategic partnership can be critical to your success in transforming your startup, family-owned business, or established middle market company. And that’s why we’re discussing it today.
How Do You Plan for Successful Joint Ventures?
Maybe you can relate to one of the examples above. Collaboration in some shape or form has many benefits, but first, you need a strategy and then you need to do some homework.
So how do you plan for successful joint venture? It is actually easier than you think – start with a simple assessment. When you consider the exponential value of what could be at stake (that includes opportunity costs) – the time invested is well worth the effort.
Your assessment should cover a multitude of questions relating to your business, such as:
Who are you partnering with, and what is their reputation?
What are the motivating factors behind the partnership’s proposal?
What are the risks or negatives?
What resources will you contribute, and how will they be valued?
How do you want decisions made?
This is by no means a comprehensive list. It is designed to get you started. To dive even deeper into this topic, contact us to schedule a Zoom call to discuss assessing your partnership strategy.
Why Partnering Strategies Fail
All too often, a thoughtful evaluation of the business' or business owner’s wants and needs are overlooked due to lack of business experience, desire to build reputation and reach instant success, or just in the haste of trying to accomplish something under short deadlines or limited cash. It’s important not to rush and overlook this process as these relationships often do impact your bottom line for years to come.
I think it’s fair to say for all companies, 2021 is about rebuilding and thriving. Right now, I know it’s hard to look past obstacles and for some to think about these questions. But, that is why NOW is precisely when you want to have these conversations as an organization. Start with the basics above and write down what you can.
Spend Time Thinking About The Future And How You Will Preserve Success, Once Its Attained
I would also encourage you to think through scenarios of once you attain success. I learned a valuable lesson with my firm a couple of years ago about how important it is to write down your expectations of your partner and their expectations of you and how you agree to operate or play in the sandbox together and how you will come together to discuss conflicts. What I have learned is sometimes when partners are successful, one or both may lose sight of why they were successful and begin behaving in a way the other partner views as not being trustworthy or undermining the value of relationships created and the investments partners have. Where the rubber really meets the road is when you thought both businesses subscribed to the same set of values and you later find out through their actions that is not the case. The more business owners I talk to, the more I realize this happens more than you think. So plan ahead for success and save yourself a lot of time and money and heartache down the road.
What Does A Successful Partnership Looks Like?
The most successful long term partnerships I have seen (some international ones lasting multiple decades) are mostly equitable and provide mechanisms for changes in circumstances. There are several in lng gas energy projects, petrochemicals, mining, and petroleum industries.
These success partnerships generally have a joint operating agreement and provide a roadmap for navigating conflict. Partners value the relationships, and they work hard at maintaining their relationships. As their relationships mature, they continue to care about the wellbeing of both firms and the partners they work with. They also recognize these partnerships will not last forever, they will not always agree, and the circumstances will change over time. So they strive to address them amicably.
The Energy CFO is a strategic partner to our clients. Our guiding purpose is to help private energy companies survive, grow, and prosper. Right now, we are helping clients manage their cash flow, plan for where they want to be next year, identify new revenue and market opportunities, develop relationships and establish new strategic partnerships, cut costs and look for creative ways to further reduce their cost structures, and successfully negotiate new business. We offer customized solutions and we have been delivering Virtual CFO Services using a remote work model since January 2018. We specialize in working with family businesses, founders, and experienced executive management teams with technical backgrounds. We work alongside energy and chemicals developers, operators, energy software, energy manufacturing, engineering, and energy service companies. Many of our client’s customers are some of the largest companies in the world.
We want your private company to not only survive, but thrive as the country recovers from this period. Why not call or email us today for a no obligation Zoom consultation with our Managing CFO. Contact us here.