Getting where you want to go in the business world is much smoother if you align yourself with the right people. These types of strategic alliances can provide benefits to both you and your partners.
Steven Covey calls this a “win/win.” Here are just a few ways that you can use strategic alliances to improve your economic bottom-line -— and your ally’s too.
Custom heifer growers
Eight years ago, we developed a strategic alliance with a heifer grower. He purchases our four- to six-month-old heifers at a contracted price (that is also below market price). One month before they calve, we buy them back at a contracted or constant price. We maintain the heifer records, specify vaccination schedules, and bring the heifers home to breed artificially. They then go back to the grower to be put out on pasture for exercise. We bear the loss when they die or are ill at our facility, and he bears it while they are at his facility. We both get the desired tax and cash-flow benefits, we get our genetics back and the grower has a place to sell feed, and solid self-employment.
We found a like-minded, nearby grower to grow the corn-silage hybrids that we selected to produce high-quality dairy forage. The grower gets compensated for the decreased tonnage and some part of the milk output, while we get silage that is mature when we want it and provides the benefit of high milk production.
In order to pack the nearly 2,000 tons of silage that a Klaus eight-row silage cutter can chop each day, we needed more horsepower and more weight to get a solid pack. We rented once, but the next year the equipment wasn’t available when we needed it. While we couldn’t afford a $200,000 tractor on our own, we created an LLC to purchase a John Deere 9420 tractor with the custom harvester, and paid half the money. We rent out the equipment through custom harvesting to create a revenue stream, and we have the size, dependability and quality of a new tractor for our own use. The LLC is now looking to purchase a one-pass machine for tillage that we can use with the tractor, thus reducing compaction issues, labor and fuel costs.
Growers interested in smoothing out the highs and lows of the alfalfa hay market — and also gaining a steady customer — approached us about a strategic alliance. They were interested in producing a specific product, and we were interested in quality, consistency and regulating our own variable expenses. We ended up negotiating three-year contracts with a price that is based on relative feed value. The contract specifies a guaranteed amount of hay each year that is at or above a certain quality level. We no longer spend time trying to find alfalfa with the quality we want, and everyone makes a reasonable profit.
Build strong, reliable relationships
The most important part of strategic alliances is to build solid relationships and keep the fences strong. Put everything in writing — even if it is someone you have done business with forever. The widow or surviving family of your strategic partner may not have the same idea of what you agreed to when you try to get your feed or cattle. It is also a great reference source when you can’t remember what you agreed to.
Consider which areas of your business could benefit from strategic alliances.
Mary Kraft co-manages Badger Creek Farm in