As a business owner, most of the time you would want to make 100% of money on your own. While it is normal, it may not be true. In macro economist there is a term called “Comparative Advantage”. It means that given there are two entities that both of them can produce product A, one entity may have better technology and low cost over another enity than others so that, this entity is said to have “comparative advantage” over other entity in producing product A.
Given another example: Let’s say you are a restaurant owner and provide high quality vegetable. You have two choices to get those vegetable: you have your own farm or you buy it from others. While you can choose the first option because you are almost guaranteed that you have the ultimate, highest quality of vegetable, the cost of operating a farm is far more than you just bought it from others. This is an example of comparative advantage: you do not have comparative advantage on growing vegetable compared to farmer.
Comparative advantage is important for your business
So why it is important to learn this? What is the connection between strategy alliance and comparative advantage?
When you are selling stuff to people, chances are you have something good that other business cannot provide. However, just selling your stuff is dangerous because you are solely depended on one single income stream. Moreover, your business idea will, sooner or later, being “referenced” by other competitors and therefore you will soon have competitors. Given that you just have single product, if other people provide the same stuff to the market at a lower price than you do, your business will fail miserably.
To avoid this problem, here is a solution: you can package your product and other people’s products so that you can offer a brand new, more completed solution to your customer. However, there is another problem: how can I create another product that can bundle with the existing one? The cost of creating those product may be very high already, plus if this new product fails, your business can no longer exist.
Solution: find another business which has the product you want to bundle and partnering with them!
The Power of Strategy Alliance/Partnership
There are plenty of advantages if you can partner with other people. First of all, you don’t need to pay a lot of money in order to create a new product, it is because someone has it already. All you need to do is to contact them and come up with a deal that both parties are satisfied and bundle yours and others product to create a new offer, and sell it to your existing customers!
Second, both parties make money: if you partner with other business, you can simply sell their products to your cusotmers and get commission, while at the same time you sell your product to your partner’s customers and share commission to your partner. The worst case is that: you both don’t make any money, but you don’t lose any thing either! Normally, if you are finding a good product and a good partner, making money for both parties is really easy.
Thirdly, you got nealy unlimited opportunites: if one of your partners product is not good for your business, you simply find another one and try it again. The key here is still the same: finding out what product can compliment to your business and create a partnership. You have nothing to lose if the partnership deal is fail, you simply find another one and try it again.
I hope that this article can really give an insight to business owner who want to make money but don’t know how to do it correctly.