How to do more with what you have? How to bring your
products to more people? These are the challenges of
entrepreneurship: to multiply the imagination and efforts of
one person a thousand-fold through the cooperative efforts of
many. It's a passion, the kind of passion that drives
entrepreneurs, and sometimes it leads them to cooperate.
Cooperative agreements among business owners may seem
unlikely, but high-tech computer and biotechnology companies
have demonstrated the usefulness of this approach, and their
example has attracted the interest of entrepreneurs, as well
as the researchers who study them. One of these is Candida
Brush from Boston University.
Professor Brush began with a question: How common are
cooperative business arrangements among young, small retail
and service businesses? She approached 97 such firms in
central New Jersey, and she found that only 20% of these
firms had engaged in any cooperative business arrangements in
the previous 3 years. Next, she explored how they cooperated
and found (in order of frequency) that they cooperated by sharing
industry information, joint promotion and advertising, joint
purchasing, and sharing office space and management
expertise. These areas they considered non-core to their
business. They were opportunities to help them reduce the
constraints posed by limited resources.
Finally, Ms. Brush compared the businesses that used
cooperative arrangements with those that did not, and she
found those that cooperated were clearly different. They
were smaller, concentrated on local markets, and took in less
money. Furthermore, their cooperative activities did not
enhance their profit, their agreements were most often
informal, and partners in these cooperative activities ranged
widely through their random associations. They were chance
encounters.
Consider the example of a day care business in River Heights,
New Jersey that Ms. Brush profiled.
This business offers a unique service in addition to the
normal offerings of a day care center: riding lessons and
pony rides at a nearby riding academy. The riding academy
provides this service at a nominal cost to the day care
center because the academy gains exposure to a large group of
potential customers, and it highly prizes this exposure. The
riding academy was selected because it was a next door
neighbor. It was serendipity. If it had been located across
town, no agreement would have been likely.
Professor Brush was troubled by her findings. She wonders if
cooperative arrangements by young retail and service
businesses aren't undertaken to stave off failure. They
certainly aren't leading to stellar business performance, and
she felt it might be instructive to explore more fully the
example of high-tech companies, so she went to 3 of them and
investigated their use of cooperative agreements.
High-tech companies use cooperative agreements often, and
many firms are founded with such arrangements in place. The
firms she examined tended to cooperate with partners able to
make contributions to the value of their products, for
example, with suppliers of components they use or companies
that could open new markets for them. These high-tech
companies evaluated potential partners and cemented their
arrangements with contracts. Their goals were profit
oriented, and they evaluated arrangements according to the
improved profit they produced.
If your company is young and small, Ms. Brush believes you
could learn a lesson from the high-tech companies she
studied. Think of businesses that have something you want,
like customers, or resources you need. Next, think of
businesses that might want something you have. If you
stumble across any matches, it might be appropriate to
evaluate attractive candidates and draft a formal proposal
for them to consider
Reference: Brush, Candida G., and Radha Chaganti (1996)
Cooperative Strategies in Non-High-Tech New Ventures: An
Exploratory Study. Entrepreneurship Theory and Practice,
Winter, 1996, 37-55.
Business Practice Findings, by James Larsen, Ph.D.
Cooperative Business Ventures
Researcher explores the practice of cooperation between firms.