Business Model Canvas: Explained with Examples

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Got a new business idea, but don’t know how to put it to work? Want to improve your existing business model? Overwhelmed by writing your business plan? There is a one-page technique that can provide you the solution you are looking for, and that’s the business model canvas.

In this guide, you’ll have the Business Model Canvas explained, along with steps on how to create one. All business model canvas examples in the post can be edited online.

What is a Business Model Canvas

A business model is simply a plan describing how a business intends to make money. It explains who your customer base is and how you deliver value to them and the related details of financing. And the business model canvas lets you define these different components on a single page.   

The Business Model Canvas is a strategic management tool that lets you visualize and assess your business idea or concept. It’s a one-page document containing nine boxes that represent different fundamental elements of a business.  

The business model canvas beats the traditional business plan that spans across several pages, by offering a much easier way to understand the different core elements of a business.

The right side of the canvas focuses on the customer or the market (external factors that are not under your control) while the left side of the canvas focuses on the business (internal factors that are mostly under your control). In the middle, you get the value propositions that represent the exchange of value between your business and your customers.

The business model canvas was originally developed by Alex Osterwalder and Yves Pigneur and introduced in their book ‘ Business Model Generation ’ as a visual framework for planning, developing and testing the business model(s) of an organization.

Business Model Canvas Explained

What Are the Benefits of Using a Business Model Canvas

Why do you need a business model canvas? The answer is simple. The business model canvas offers several benefits for businesses and entrepreneurs. It is a valuable tool and provides a visual and structured approach to designing, analyzing, optimizing, and communicating your business model.

  • The business model canvas provides a comprehensive overview of a business model’s essential aspects. The BMC provides a quick outline of the business model and is devoid of unnecessary details compared to the traditional business plan.
  • The comprehensive overview also ensures that the team considers all required components of their business model and can identify gaps or areas for improvement.
  • The BMC allows the team to have a holistic and shared understanding of the business model while enabling them to align and collaborate effectively.
  • The visual nature of the business model canvas makes it easier to refer to and understand by anyone. The business model canvas combines all vital business model elements in a single, easy-to-understand canvas.
  • The BMC can be considered a strategic analysis tool as it enables you to examine a business model’s strengths, weaknesses, opportunities, and challenges.
  • It’s easier to edit and can be easily shared with employees and stakeholders.
  • The BMC is a flexible and adaptable tool that can be updated and revised as the business evolves. Keep your business agile and responsive to market changes and customer needs.
  • The business model canvas can be used by large corporations and startups with just a few employees.
  • The business model canvas effectively facilitates discussions among team members, investors, partners, customers, and other stakeholders. It clarifies how different aspects of the business are related and ensures a shared understanding of the business model.
  • You can use a BMC template to facilitate discussions and guide brainstorming brainstorming sessions to generate insights and ideas to refine the business model and make strategic decisions.
  • The BMC is action-oriented, encouraging businesses to identify activities and initiatives to improve their business model to drive business growth.
  • A business model canvas provides a structured approach for businesses to explore possibilities and experiment with new ideas. This encourages creativity and innovation, which in turn encourages team members to think outside the box.

How to Make a Business Model Canvas

Here’s a step-by-step guide on how to create a business canvas model.

Step 1: Gather your team and the required material Bring a team or a group of people from your company together to collaborate. It is better to bring in a diverse group to cover all aspects.

While you can create a business model canvas with whiteboards, sticky notes, and markers, using an online platform like Creately will ensure that your work can be accessed from anywhere, anytime. Create a workspace in Creately and provide editing/reviewing permission to start.

Step 2: Set the context Clearly define the purpose and the scope of what you want to map out and visualize in the business model canvas. Narrow down the business or idea you want to analyze with the team and its context.

Step 3: Draw the canvas Divide the workspace into nine equal sections to represent the nine building blocks of the business model canvas.

Step 4: Identify the key building blocks Label each section as customer segment, value proposition, channels, customer relationships, revenue streams, key resources, key activities, and cost structure.

Step 5: Fill in the canvas Work with your team to fill in each section of the canvas with relevant information. You can use data, keywords, diagrams, and more to represent ideas and concepts.

Step 6: Analyze and iterate Once your team has filled in the business model canvas, analyze the relationships to identify strengths, weaknesses, opportunities, and challenges. Discuss improvements and make adjustments as necessary.

Step 7: Finalize Finalize and use the model as a visual reference to communicate and align your business model with stakeholders. You can also use the model to make informed and strategic decisions and guide your business.

What are the Key Building Blocks of the Business Model Canvas?

There are nine building blocks in the business model canvas and they are:

Customer Segments

Customer relationships, revenue streams, key activities, key resources, key partners, cost structure.

  • Value Proposition

When filling out a Business Model Canvas, you will brainstorm and conduct research on each of these elements. The data you collect can be placed in each relevant section of the canvas. So have a business model canvas ready when you start the exercise.  

Business Model Canvas Template

Let’s look into what the 9 components of the BMC are in more detail.

These are the groups of people or companies that you are trying to target and sell your product or service to.

Segmenting your customers based on similarities such as geographical area, gender, age, behaviors, interests, etc. gives you the opportunity to better serve their needs, specifically by customizing the solution you are providing them.

After a thorough analysis of your customer segments, you can determine who you should serve and ignore. Then create customer personas for each of the selected customer segments.

Customer Persona Template for Business Model Canvas Explained

There are different customer segments a business model can target and they are;

  • Mass market: A business model that focuses on mass markets doesn’t group its customers into segments. Instead, it focuses on the general population or a large group of people with similar needs. For example, a product like a phone.  
  • Niche market: Here the focus is centered on a specific group of people with unique needs and traits. Here the value propositions, distribution channels, and customer relationships should be customized to meet their specific requirements. An example would be buyers of sports shoes.
  • Segmented: Based on slightly different needs, there could be different groups within the main customer segment. Accordingly, you can create different value propositions, distribution channels, etc. to meet the different needs of these segments.
  • Diversified: A diversified market segment includes customers with very different needs.
  • Multi-sided markets: this includes interdependent customer segments. For example, a credit card company caters to both their credit card holders as well as merchants who accept those cards.

Use STP Model templates for segmenting your market and developing ideal marketing campaigns

Visualize, assess, and update your business model. Collaborate on brainstorming with your team on your next business model innovation.

In this section, you need to establish the type of relationship you will have with each of your customer segments or how you will interact with them throughout their journey with your company.

There are several types of customer relationships

  • Personal assistance: you interact with the customer in person or by email, through phone call or other means.
  • Dedicated personal assistance: you assign a dedicated customer representative to an individual customer.  
  • Self-service: here you maintain no relationship with the customer, but provides what the customer needs to help themselves.
  • Automated services: this includes automated processes or machinery that helps customers perform services themselves.
  • Communities: these include online communities where customers can help each other solve their own problems with regard to the product or service.
  • Co-creation: here the company allows the customer to get involved in the designing or development of the product. For example, YouTube has given its users the opportunity to create content for its audience.

You can understand the kind of relationship your customer has with your company through a customer journey map . It will help you identify the different stages your customers go through when interacting with your company. And it will help you make sense of how to acquire, retain and grow your customers.

Customer Journey Map

This block is to describe how your company will communicate with and reach out to your customers. Channels are the touchpoints that let your customers connect with your company.

Channels play a role in raising awareness of your product or service among customers and delivering your value propositions to them. Channels can also be used to allow customers the avenue to buy products or services and offer post-purchase support.

There are two types of channels

  • Owned channels: company website, social media sites, in-house sales, etc.
  • Partner channels: partner-owned websites, wholesale distribution, retail, etc.

Revenues streams are the sources from which a company generates money by selling their product or service to the customers. And in this block, you should describe how you will earn revenue from your value propositions.  

A revenue stream can belong to one of the following revenue models,

  • Transaction-based revenue: made from customers who make a one-time payment
  • Recurring revenue: made from ongoing payments for continuing services or post-sale services

There are several ways you can generate revenue from

  • Asset sales: by selling the rights of ownership for a product to a buyer
  • Usage fee: by charging the customer for the use of its product or service
  • Subscription fee: by charging the customer for using its product regularly and consistently
  • Lending/ leasing/ renting: the customer pays to get exclusive rights to use an asset for a fixed period of time
  • Licensing: customer pays to get permission to use the company’s intellectual property
  • Brokerage fees: revenue generated by acting as an intermediary between two or more parties
  • Advertising: by charging the customer to advertise a product, service or brand using company platforms

What are the activities/ tasks that need to be completed to fulfill your business purpose? In this section, you should list down all the key activities you need to do to make your business model work.

These key activities should focus on fulfilling its value proposition, reaching customer segments and maintaining customer relationships, and generating revenue.

There are 3 categories of key activities;

  • Production: designing, manufacturing and delivering a product in significant quantities and/ or of superior quality.
  • Problem-solving: finding new solutions to individual problems faced by customers.
  • Platform/ network: Creating and maintaining platforms. For example, Microsoft provides a reliable operating system to support third-party software products.

This is where you list down which key resources or the main inputs you need to carry out your key activities in order to create your value proposition.

There are several types of key resources and they are

  • Human (employees)
  • Financial (cash, lines of credit, etc.)
  • Intellectual (brand, patents, IP, copyright)
  • Physical (equipment, inventory, buildings)

Key partners are the external companies or suppliers that will help you carry out your key activities. These partnerships are forged in oder to reduce risks and acquire resources.

Types of partnerships are

  • Strategic alliance: partnership between non-competitors
  • Coopetition: strategic partnership between partners
  • Joint ventures: partners developing a new business
  • Buyer-supplier relationships: ensure reliable supplies

In this block, you identify all the costs associated with operating your business model.

You’ll need to focus on evaluating the cost of creating and delivering your value propositions, creating revenue streams, and maintaining customer relationships. And this will be easier to do so once you have defined your key resources, activities, and partners.  

Businesses can either be cost-driven (focuses on minimizing costs whenever possible) and value-driven (focuses on providing maximum value to the customer).

Value Propositions

This is the building block that is at the heart of the business model canvas. And it represents your unique solution (product or service) for a problem faced by a customer segment, or that creates value for the customer segment.

A value proposition should be unique or should be different from that of your competitors. If you are offering a new product, it should be innovative and disruptive. And if you are offering a product that already exists in the market, it should stand out with new features and attributes.

Value propositions can be either quantitative (price and speed of service) or qualitative (customer experience or design).

Value Proposition Canvas

What to Avoid When Creating a Business Model Canvas

One thing to remember when creating a business model canvas is that it is a concise and focused document. It is designed to capture key elements of a business model and, as such, should not include detailed information. Some of the items to avoid include,

  • Detailed financial projections such as revenue forecasts, cost breakdowns, and financial ratios. Revenue streams and cost structure should be represented at a high level, providing an overview rather than detailed projections.
  • Detailed operational processes such as standard operating procedures of a business. The BMC focuses on the strategic and conceptual aspects.
  • Comprehensive marketing or sales strategies. The business model canvas does not provide space for comprehensive marketing or sales strategies. These should be included in marketing or sales plans, which allow you to expand into more details.
  • Legal or regulatory details such as intellectual property, licensing agreements, or compliance requirements. As these require more detailed and specialized attention, they are better suited to be addressed in separate legal or regulatory documents.
  • Long-term strategic goals or vision statements. While the canvas helps to align the business model with the overall strategy, it should focus on the immediate and tangible aspects.
  • Irrelevant or unnecessary information that does not directly relate to the business model. Including extra or unnecessary information can clutter the BMC and make it less effective in communicating the core elements.

What Are Your Thoughts on the Business Model Canvas?

Once you have completed your business model canvas, you can share it with your organization and stakeholders and get their feedback as well. The business model canvas is a living document, therefore after completing it you need to revisit and ensure that it is relevant, updated and accurate.

What best practices do you follow when creating a business model canvas? Do share your tips with us in the comments section below.

Join over thousands of organizations that use Creately to brainstorm, plan, analyze, and execute their projects successfully.

FAQs About the Business Model Canvas

  • Use clear and concise language
  • Use visual-aids
  • Customize for your audience
  • Highlight key insights
  • Be open to feedback and discussion

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What is an Action Plan? Learn with Templates and Examples

Amanda Athuraliya is the communication specialist/content writer at Creately, online diagramming and collaboration tool. She is an avid reader, a budding writer and a passionate researcher who loves to write about all kinds of topics.

  • Key Partners in Business Model Canvas

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business model for partnership

© Entrepreneurial Insights based on the concept of Alex Osterwalder

In this section, you will learn about the next building block in the Business Model Canvas which is Key Partners (or Key Partnerships) that an entrepreneur needs to have to perform its key activities and ultimately provide its value proposition to its customer segment.

We will look at 1) key partnerships , 2) types of partners , 3) motivation behind partnerships , 4) key partners and value propositions , and 5) case studies .

KEY PARTNERSHIPS

A business partnership is when two commercial entities form an alliance, which may either be a really loose relationship where both entities retain their independence and are at liberty to form more partnerships or an exclusive contract which limits the two companies to only that one relationship.

The following factors are very important to keep in mind when forming partnerships:

  • Right Partnership Agreements: Whether your partnership is with a business or an individual, it is important for all the relevant parties to have clear partnership agreements drafted along with legal counsel.
  • Defining Expectations: Many times new businesses fail to establish their expectations from the outset leading to much confusion and conflict later. An entrepreneur needs to ensure that he has shared his expectations openly with his partner and vice versa from the beginning.
  • Impact on your clients: When forming a partnership, it is important to evaluate your value proposition and your key resources and make sure your partner is filling any gaps in either. This can only be done by also evaluating how the partnership will translate to the customer.
  • Win-Win situation: For a partnership to be healthy and sustainable, there need to be visible gains on both ends.
  • Selecting partnerships: Some partnerships may seem lucrative in theory but fail to get off the ground practically. In addition, changes in the business context may also make some business partnerships irrelevant. In such cases, it is important to end these partnerships quickly to avoid further wastage of resources.

This building block refers to the network of suppliers and partners that make the business model effective. The reasons for a company opting for a partnership are myriad, but healthy partnerships are instrumental in making a business success or a failure. A company can optimize its resource utilization, create new resource streams or mitigate risks behind major business decisions by taking on a partner before starting a new course of action. It is important to note here that your organization maybe partnering with a number of organizations for various reasons, but not all their relationships will be key to your business.

Partnerships can change over the course of a business’ lifecycle. The types of partnerships that may be a necessity during year 1 of a start-up will differ significantly from the nature of the required partnership in year 3.

Key Questions

When evaluating the various key partnerships that your business requires, it is fruitful to analyze the nature of the partnership based on the following key questions;

  • Which partnerships are critical to our business?
  • Who are our critical suppliers?
  • Which of our suppliers and partners are sourcing our key resources?
  • What type of partnerships would suit our needs?
  • What is the best cluster/ supply chain where I should be located?

[slideshare id=41589722&doc=businessmodelcanvas-swlisbon14-141115053427-conversion-gate02]

TYPES OF PARTNERS

Partners and partnerships can be categorized into four different types;

  • Strategic alliances: These types of alliances are between non-competitors. So if you are working through different channels, like a news agency can supply news to both online and offline channels.
  • Co-opetition: There can also be strategic partnerships between partners. Such a partnership will help spread the risk both companies may take. It may also help when both partners are trying to do something new; additionally it could mean a confirmed supply stream. For example, there is a need for earth metals in mobile phones. So securing the supply of rare earth metals could be the reason for competitors to form a strategic partnership.
  • Joint-Ventures: Another thing could be to develop a joint venture in a new business. Both partners could have a mutual interest in developing new business, possibly due to the emergence of a new market or access to a new geographic area. Both organizations will only opt for such an option if they both provide some inputs into the business. Hence, a Dutch company that specializes in producing cheese might choose to go into a joint venture with milk producing local company to start making cheese in the new region.
  • Buyer-Supplier Relationships: These are the most common type of partnerships which assures that you have a reliable source of supplies coming in and for your supplier this means they have a steady confirmed buyer for their product.

MOTIVATIONS BEHIND PARTNERSHIPS

Partnerships are a tricky business involving a lot of negotiation and an element of trust. There can be a number of reasons why organizations would make the decision to take on a key partner rather than doing things themselves or taking on a partner but not considering them as key to the success or failure of their business. Primarily, one of the three kinds of motivations can be attributed when a business chooses to enter a partnership.

Optimization and economy of scale

Most organizations are heavily focused on the bottom-line. And many focus on cost-cutting or smart spending through optimizing the allocation of either their resources or activities. This is the most common motivation for people to enter into partnerships of different types.

When you are looking for efficiency in your company or optimizing your productions chains, key partners can help you achieve this goal. It is unrealistic to think, as an entrepreneur that you have the resources in place to conduct all your key activities in-house. Most partnerships give organizations the ability to share their infrastructures or outsource some activities to more cost-effective options.

Citroen, Peugeot and Toyota joined hands to create a small, cheap car for the masses that they tried to sell for 5000-6000 euros. These cars looked almost the same except for the chassis and a few internal and external details.

Reduction of risk and uncertainty

If you have a good relationship with a key partner, you reduce the inherent risk that comes with doing your own business. You also guarantee supply to your business rather than being dependent on suppliers who aren’t key partners and would therefore not give precedence to your business over others.

Many competitors may form strategic partnerships to share the risk of bringing something new into the market while still competing in various aspects in the industry. A classic example of this is the advent of blu-ray technology which was developed in collaboration by some of the world’s premier consumer electronics and computer technology firms. The development of this technology was expensive and several competitors had to get together and decide that they would all be selling their products based on blu-ray technology; hence they needed to collaborate to make blu-ray technology more mainstream. The group joined hands to bring the technology to the mass market but still competes on the basis of their various blu-ray based gadgets in the consumer market.

Acquisition of particular resources and activities

If there are certain things that you don’t have in-house and which would require a heavy investment of time, money or both, a key partner who already has these processes and the infrastructure developed would come in extremely handy.

Business models can be extensive maps of the myriad activities that a business needs to perform or the endless resources required to perform these activities successfully. However, it is rare for a new company to have the resources or capabilities in place to fulfill the mandate set down by the business model. Hence, many new companies are beginning their journeys by forming partnerships that give them access to the required resources or processes that they require, but are unable to own yet. Hence, many mobile operators partner with IT companies to develop the operating system their handsets require rather than bearing the heavy investment such an endeavor would require if done in-house. This also gives the IT company a steady source of revenue as well as the advantage of publicity if the mobile manufacturer’s brand is well recognized. Bicycle companies do not manufacture their bicycle accessories. Instead, they get into selective partnerships with bicycle parts manufacturers who customize the parts like the color or size of the bicycle seat according to the preferences of the manufacturer.

Heineken is one of the most popular producers and suppliers of beers in the world, and it is especially well-known in the Netherlands, where they have created very strong relationships with bar owners. In fact, Heineken frequently invests in new bars by providing not only equipment for free but also investing in the décor of the bar. In return, the bar provides Heineken beer exclusively. Hence, Heineken gets a repeat customer for their beer while the bar owner can minimize the cost of setting up the business. Conversely, however, the bar owner is limited to selling just Heineken, which means that if Heineken increases the prices of its beers, the bar owner has no choice but to abide by the new prices.

KEY PARTNERS AND VALUE PROPOSITIONS

For fast moving consumer goods, availability is key to the success of the company and a major value proposition. For supermarkets and retail chains, distribution partners are key if you want to provide your fast moving consumer goods to the market. Your advantage is that your products will be available to everyone, but the supermarket will drive down your price and resultantly your margins significantly.

Technologies are advancing at a very high rate that increases their risk factor is well. However, if the technology forms a significant value proposition for your business, then you can take on a partner to share the risk and cost associated with the technology in question.

Focus on where you are creating value but consider that the rest can be outsourced if needed. The activities that are adding value to your value proposition must be outsourced very carefully because they are the ones that are key partnerships for your business.

Starbucks has established several key partnerships worldwide such as with coffee growers worldwide to grow eco and farmer friendly coffee beans. This key partnership is a typical buyer-supplier relationship, motivated by a need to acquire key resources. Another key partnership is with specialized coffee machine makers who make specialized coffee makers for Starbucks. Again this helps Starbucks mitigate cost because it does not have to invest in infrastructure, R&D, and manpower to create these coffee machines in-house. Instead, it is much more cost effective to partner with an organization that already holds expertise in this area and has the infrastructure in place already to cater to Starbucks’ needs. Conversely, Starbucks provides them with a steady buyer for their product as well as the added boost that the Starbucks brand holds for the coffee machine manufacturer.

A Comparative Analysis of Facebook’s and Google’s Partner Networks

Though Facebook has a number of partners in its network, it isn’t entirely dependent on any of these partners. Most of Facebook’s partners provide valuable content for its users so Facebook partners with content providers such as Netflix, Washington Post, Hulu, etc. to provide movies, articles, music and other forms of content to its subscriber base.

Conversely , Google has Google Network members who are content companies that partner with Google to provide content on for its search engine. It provides Advertisers access to these content companies web pages through the Google AdSense program and in return shares revenues from the said program with the relevant companies, leading to a mutually beneficial partnership. Additionally Google also partners with Distribution companies to attract traffic to its websites. However, these are a group of Distributors and Google does not leave itself dependent on any one distributor.

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Strategic Partnerships: Business Model Canvas Explained

Strategic partnerships are a critical component of many business models. They allow companies to leverage each other's strengths, access new markets, share risks, and create synergies. The Business Model Canvas, a strategic management tool developed by Alexander Osterwalder and Yves Pigneur, provides a visual framework for designing, analyzing, and evolving business models . One of its key building blocks is 'Key Partnerships', which focuses on the network of suppliers and partners that make the business model work.

This glossary article will delve into the concept of strategic partnerships within the context of the Business Model Canvas. It will explore the purpose and types of strategic partnerships, the benefits and risks associated with them, and how they can be effectively managed to drive revenue growth and innovation.

Understanding Strategic Partnerships

Strategic partnerships are long-term, formal alliances between two or more businesses with the aim of achieving common goals. They are typically formed when companies realize that they can achieve more together than they can individually . Strategic partnerships can take various forms, such as joint ventures, licensing agreements, and co-branding initiatives, depending on the specific objectives and resources of the partners involved.

Within the Business Model Canvas, strategic partnerships are considered 'Key Partnerships'. They are essential to the functioning of the business model, providing access to resources, activities, or customer segments that the company cannot reach on its own. Strategic partnerships can be a source of competitive advantage , enabling companies to differentiate their offerings, reduce costs, and accelerate growth.

Types of Strategic Partnerships

Strategic partnerships can be categorized into four main types: strategic alliances, joint ventures, equity partnerships, and affiliate partnerships. Strategic alliances are agreements between companies to cooperate for a specific purpose, such as product development or market penetration. They are often based on contracts and do not involve equity investment.

Joint ventures are partnerships where two or more companies create a new entity to pursue a common goal. Each partner contributes assets, shares risks, and has a right to control the venture. Equity partnerships involve one company acquiring a minority stake in another to gain strategic benefits, such as access to new technologies or markets. Affiliate partnerships are agreements where one company promotes another's products in return for a commission.

Role of Strategic Partnerships in the Business Model Canvas

In the Business Model Canvas, 'Key Partnerships' is one of the nine building blocks. It refers to the network of suppliers and partners that contribute to the business model's functioning. Strategic partnerships can play several roles in the business model. They can help a company optimize its operations, reduce risks , acquire resources, and access new customer segments.

For example, a company might form a strategic partnership with a supplier to secure a reliable source of key materials, reducing supply chain risks. Or it might partner with a technology firm to gain access to innovative technologies that it can incorporate into its products. Strategic partnerships can also enable a company to reach new customer segments by leveraging a partner's established distribution channels or brand reputation.

Benefits of Strategic Partnerships

Strategic partnerships can offer numerous benefits to businesses. They can enable companies to leverage each other's strengths, share risks and resources, access new markets, and create synergies. By combining their resources and capabilities, partners can achieve outcomes that would be difficult or costly to achieve on their own.

For example, a strategic partnership can enable a company to access new technologies or expertise that it lacks, accelerating its innovation efforts. It can also help a company to enter new markets by leveraging a partner's local knowledge and relationships. Moreover, strategic partnerships can create cost efficiencies by enabling partners to share fixed costs, such as research and development or production facilities.

Access to Resources and Capabilities

One of the main benefits of strategic partnerships is the access to resources and capabilities that they provide. This can include tangible resources, such as capital, technology, or infrastructure, as well as intangible resources, such as knowledge, expertise, or relationships. By partnering with another company, a business can leverage these resources to enhance its own capabilities, improve its products or services, and gain a competitive edge.

For example, a tech startup might form a strategic partnership with a larger company to gain access to its advanced technology or R&D capabilities. This can help the startup to accelerate its product development efforts, reduce its time to market, and stay ahead of its competitors.

Market Access and Expansion

Strategic partnerships can also provide companies with access to new markets or customer segments. By partnering with a company that has an established presence in a target market, a business can leverage its partner's local knowledge, relationships, and distribution channels to penetrate the market more effectively and efficiently .

For instance, a U.S. company looking to expand into China might form a strategic partnership with a Chinese company. The Chinese partner can help the U.S. company to navigate the local business environment, comply with local regulations, and reach Chinese customers, reducing the risks and costs associated with international expansion.

Risks and Challenges of Strategic Partnerships

While strategic partnerships can offer significant benefits, they also come with risks and challenges. These can include conflicts of interest, cultural clashes , lack of trust, and difficulties in coordination and communication. Therefore, it's crucial for companies to carefully assess potential partners and manage their partnerships effectively to mitigate these risks.

Conflicts of interest can arise when partners have different objectives, priorities, or strategies. For example, one partner might prioritize short-term profits, while the other is focused on long-term growth. Cultural clashes can occur when partners have different corporate cultures, values, or ways of doing business. This can lead to misunderstandings, tensions, and inefficiencies.

Managing Conflicts of Interest

Conflicts of interest in strategic partnerships can be managed through clear communication, alignment of objectives, and mutual respect. Partners should clearly articulate their objectives, expectations, and strategies at the outset of the partnership and ensure that they are aligned. They should also establish mechanisms for resolving disputes and making decisions, such as regular meetings or a joint steering committee.

It's also important for partners to respect each other's interests and perspectives, even when they differ. This can help to build trust, foster collaboration, and prevent conflicts from escalating. If conflicts do arise, partners should address them promptly and constructively, focusing on the underlying issues rather than personal differences.

Overcoming Cultural Clashes

Cultural clashes in strategic partnerships can be overcome through mutual understanding, respect, and adaptation. Partners should make an effort to understand each other's corporate cultures, values, and ways of doing business. They should respect these differences and seek to find common ground. They should also be willing to adapt their own practices and behaviors when necessary to accommodate their partner's culture.

For example, a Western company partnering with a Japanese company might need to adapt to the Japanese culture's emphasis on consensus decision-making, long-term relationships, and indirect communication. This might involve investing more time in building relationships, seeking input from all levels of the organization, and learning to interpret non-verbal cues.

Driving Revenue Growth and Innovation through Strategic Partnerships

Strategic partnerships can be a powerful driver of revenue growth and innovation . By combining their resources, capabilities, and market access, partners can create new products, enter new markets, and generate new revenue streams. They can also learn from each other, sparking new ideas and accelerating their innovation efforts.

For example, a strategic partnership between a tech company and a healthcare provider could lead to the development of innovative digital health solutions, opening up new revenue opportunities for both partners. The tech company could leverage the healthcare provider's medical expertise and patient data, while the healthcare provider could benefit from the tech company's technological capabilities and innovation culture.

Creating New Products and Services

Strategic partnerships can enable companies to create new products or services that they would not be able to develop on their own. By combining their complementary resources and capabilities, partners can generate new ideas, accelerate their R&D efforts, and bring innovative products to market more quickly.

For instance, a partnership between a car manufacturer and a tech company could lead to the development of autonomous vehicles. The car manufacturer could provide its automotive expertise and production capabilities, while the tech company could contribute its AI technology and software development skills. This could result in a new product that meets customer needs more effectively and generates new revenue streams for both partners.

Entering New Markets

Strategic partnerships can also help companies to enter new markets and reach new customer segments. By leveraging a partner's local knowledge, relationships, and distribution channels, a company can penetrate a new market more effectively and efficiently, generating additional revenue.

For example, a U.S. e-commerce company might form a strategic partnership with a Chinese retail company to enter the Chinese market. The Chinese partner could help the U.S. company to understand local consumer preferences, comply with local regulations, and reach Chinese consumers through its retail stores. This could enable the U.S. company to tap into the massive Chinese e-commerce market and generate significant new revenue.

Managing Strategic Partnerships for Success

Managing strategic partnerships effectively is crucial for their success. This involves selecting the right partner, establishing clear objectives and expectations, building trust and communication, and monitoring and adjusting the partnership as needed. It also requires a commitment to mutual benefit, collaboration, and learning.

Selecting the right partner is the first step in forming a successful strategic partnership. This involves assessing potential partners' resources, capabilities, strategic fit, and cultural compatibility. Establishing clear objectives and expectations at the outset of the partnership can help to ensure alignment and prevent misunderstandings. Building trust and communication is essential for fostering collaboration and resolving conflicts.

Partner Selection

Choosing the right partner is crucial for the success of a strategic partnership. Companies should look for partners that have complementary resources and capabilities, a strategic fit with their own business, and a compatible corporate culture. They should also consider the potential partner's reputation, financial stability, and commitment to the partnership.

Due diligence is important in the partner selection process. This involves conducting a thorough assessment of the potential partner's business, including its financial performance, strategic direction, competitive position, and management team. It also involves understanding the potential partner's corporate culture and values, and assessing how well they align with your own.

Building Trust and Communication

Building trust and communication is key to managing strategic partnerships effectively. Trust is the foundation of any successful partnership. It enables partners to share information, collaborate effectively, and resolve conflicts constructively. Communication is the vehicle for building trust. It involves sharing information openly, listening to each other's perspectives, and addressing issues promptly and constructively.

Building trust and communication requires time and effort. It involves regular interactions, shared experiences, and demonstration of reliability and integrity. It also requires transparency, openness, and respect for each other's interests and perspectives. Regular meetings, joint projects, and social events can help to build trust and communication between partners.

Monitoring and Adjustment

Monitoring and adjustment are important aspects of managing strategic partnerships. Partners should regularly monitor the partnership's performance, assess its progress towards its objectives, and adjust its strategies and actions as needed. This involves collecting and analyzing relevant data, seeking feedback from stakeholders, and conducting regular reviews of the partnership.

Adjustment might involve changing the partnership's objectives, strategies, or structures, or improving its processes or communication. It might also involve addressing issues or conflicts that have arisen, or adapting to changes in the external environment. The ability to adapt and learn is crucial for the success of strategic partnerships in a dynamic and uncertain business environment.

Strategic partnerships are a key component of many business models, providing access to resources, capabilities, and markets that companies cannot reach on their own. They can drive revenue growth and innovation, but also come with risks and challenges. Therefore, they need to be managed effectively, with a focus on partner selection, trust building, communication, and adjustment.

The Business Model Canvas provides a useful framework for understanding and managing strategic partnerships. It highlights their role as 'Key Partnerships' in the business model and provides a visual tool for designing, analyzing, and evolving these partnerships. By leveraging this tool, companies can enhance their strategic partnerships and drive their business success.

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Taxes What is | What is

What Is a Business Partnership?

Published June 27, 2023

Published Jun 27, 2023

Tim Yoder, Ph.D., CPA

REVIEWED BY: Tim Yoder, Ph.D., CPA

Lea Uradu, J.D.

WRITTEN BY: Lea Uradu, J.D.

This article is part of a larger series on Starting a Business .

  • 1 Advantages & Disadvantages
  • 2 General vs Limited Partnerships
  • 3 How Business Partnerships Are Taxed
  • 4 Types of Businesses Fit For Partners + Examples
  • 5 How To Start a Partnership
  • 6 How To End a Partnership
  • 8 Bottom Line

A partnership is a business structure where two or more individuals or entities come together to conduct a business venture. Each partner contributes money, property, skills, or labor to the business and shares profits and losses. Most partnerships have an agreement that states every partner’s rights and responsibilities, how much ownership each has, and how profits and losses are split. If you start a partnership and want to end it, then you can exit the arrangement by dissolving the partnership.

Key Takeaways

  • Partnerships involve two or more individuals, corporations, or other entities coming together to form a business.
  • General partnerships have only general partners, whereas a limited partnership (LP) has at least one limited partner and one general partner.
  • Limited partners are like investors. They are only liable for partnership debts to the extent of their investment and are not allowed to participate in the management of the partnership.
  • Partnerships must file an annual tax return on IRS Form 1065. Information from Form 1065 is summarized and allocated to each partner on Schedule K-1, which is then used by the partner to report the income on their tax return.
  • Partners share in the profits and losses of the business in whatever way they agree upon—not necessarily based on ownership percentage.

Advantages & Disadvantages of the Partnership Business Structure

Choosing the right business type for your company is an important decision. You can learn more about the different entities in our guides on:

  • What Is an S Corporation?
  • What Is a C Corporation?
  • What Is a Sole Proprietorship?

General Partnerships vs Limited Partnerships

A general partnership is a partnership where all partners are general partners, whereas a limited partnership has at least one limited partner and one general partner. General partners control a business and are financially responsible for everything that goes on in it, while a limited partner is not.

How Partnerships Are Taxed

The great thing about a partnership is that it is not taxed as a separate entity, but rather the profits and losses of the partnership are passed through to the individual partners, who report them on their individual tax returns. Specifically, a partnership must file an information return—Form 1065, U.S. Return of Partnership Income—to report their income, deductions, gains, losses and then allocate those items to each partner. Partners are first allocated income for any guaranteed payments . The remaining income and expenses are then allocated among partners in any manner specified in the partnership agreement.

Our Form 1065 step-by-step guide will walk you through the process. We also included a free downloadable checklist to help you monitor your progress.

Examples of Partnerships

As a business model, partnerships work well for industries where all owners perform work for the company to produce a product or to serve customers. To provide some context, let’s look at some businesses that are organized as partnerships:

  • Gucci and Adidas (consumer textile companies)
  • Spotify and Uber (technology companies)
  • Wachtell, Lipton, and Rosen & Katz (law firm)
  • PPBMares LLP (accounting firm)

How To Start a Partnership

Step 1: decide on the type of partnership..

Choose between a general partnership and an LP based on how much each partner is willing to risk and how much they want to be involved in running the business.

Step 2: Choose a name for your business.

Check if the name is taken, then register it with your state agency. Typically, when doing a search for a business organization, most states allow you to use the “Name” search query on their state’s business website, such as Maryland Business Exchange.

When you type in the name of the business and click “search,” the database will show you any names that are connected to the name you typed in. If the query does not result in your business name, you are free to use it for your business.

Step 3: Create a partnership agreement.

Write a partnership agreement that spells out each partner’s roles and duties, their percentage of ownership, how profits and losses will be split, and how disagreements will be handled. If you need help creating a partnership agreement, you can use our free partnership agreement template .

Partnership agreements are not required by the IRS—simply start conducting business while splitting profits, and you’re a partnership. However, taking on a partner is a serious matter, and we highly recommend always having a written partnership agreement.

Step 4: Obtain the necessary licenses and permits.

Depending on the nature of your business, you may need to obtain licenses and permits from federal, state, and local authorities. Select your state in the drop-down menu below to see more information.

Alabama Department of Revenue

Department of Commerce Community and Economic Development

Arizona Department of Revenue

California Department of Tax and Fee Administration

Colorado Secretary of State

State of Connecticut

Delaware Division of Corporations

Florida Department of Revenue

Georgia Department of Revenue

Department of Commerce and Consumer Affairs

Idaho Secretary of State

Illinois Department of Revenue

Indiana Department of Revenue

Iowa Department of Revenue

Kansas Department of Revenue

Kentucky Secretary of State and Department of Revenue

Louisiana Secretary of State

Maine Revenue Services

Maryland Department of Assessment in Taxation

Massachusetts Secretary of the CommonWealth

Michigan Department of Treasury

Minnesota Secretary Of State

Mississippi Secretary of State

Montana Secretary of State

State of Nebraska

Nevada Secretary of State

State of New Jersey

New Mexico Secretary of State

New York State Department of State

North Carolina Secretary of State

North Dakota State Government

Ohio Secretary of State

Oklahoma Secretary of State

Oregon Secretary of State

Commonwealth of Pennsylvania

Rhode Island Secretary of State

State of South Carolina

South Dakota Secretary of State

Tennessee Secretary of State

Texas Secretary of State

State of Utah

Vermont Secretary of State

State of Virginia

Washington Department of Revenue

State of West Virginia

Wisconsin Department of Revenue

Wyoming Secretary of State

Step 5: Register for taxes.

Obtain an employer identification number (EIN) from the IRS and register for state and local taxes. You can learn more about this by reading our guide on how to get an EIN .

Step 6: Open a business bank account.

Open a separate bank account for your partnership business to keep your personal and business finances separate. You can learn more about this through our guide on how to separate business and personal finances .

Also, our article on how to open a business bank account will guide you through the account opening process. It even includes a free downloadable checklist of documents banks typically require.

How To End a Partnership

Before entering a partnership, it’s important you understand how to end or dissolve a partnership. Partnerships are usually made with the idea that they will last at least until the death of one of the partners. However, one partner may decide to go their own way and leave the partnership.

How To Disassociate From the Partnership

If you want to break up with a partner, there are a few things you can do:

Step 1: Notify your partner:  You should notify your partner of your intention to dissociate. This should be done in writing and should include the reason for dissociation.

Step 2: Sort out the details: You and your partner should work out the details of the dissociation, including the division of assets and liabilities. This can be done through negotiation or mediation.

Step 3: File the necessary paperwork: Once you have worked out the details of the dissociation, you will need to file the necessary paperwork with the state. This may include filing a certificate of dissolution or a statement of dissociation.

If a partner chooses to dissociate, that does not mean that the partnership is dissolved. Dissolution is an entirely separate process, discussed below.

How To Dissolve a Partnership

Partnership dissolution can be a difficult process for any business. Dissolving a partnership involves more than just ending the agreement between the partners. It requires taking care of legal, financial, and tax matters. Let’s look at a few steps you should take if you want to dissolve your partnership.

Step 1: Notify customers:  You should notify all your customers that the partnership has dissolved so that they can locate a new service or product provider and wind up any business with you.

Step 2: Notify creditors: You should notify any creditors that you may have and pay any outstanding financial obligations.

Step 3: Draft a dissolution agreement: If you and your partner have decided to dissolve your partnership, you should discuss the terms of your dissolution and draft a dissolution agreement. The finalized agreement should nullify the terms of the original partnership agreement.

Step 4: File the dissolution agreement with the appropriate state agency: Once drafted, the dissolution agreement should be filed with your department of assessment and taxation, secretary of the state’s office or department of revenue, whichever is appropriate in your state.

Step 5: File the final tax return for the partnership. You must file IRS Form 1065 , United States Return of Partnership Income, for the year it stops doing business, and you must check the “final return” box, which is near the top of the front page of the return below the information about the company. You should do the same thing on Schedule K-1 , Partner’s Share of Income, Deductions, Credits, and more.

Tax Effect of a Partnership Dissolution

The dissolution of a partnership is usually not a taxable event but can involve incredibly complicated accounting if noncash assets are transferred to the partners in the dissolution. Essentially, the partner’s basis in the partnership interest is transferred into the basis of any noncash assets received. Thus, rather than recognizing any gain or loss on the liquidating transfer, the basis in noncash assets are adjusted.

We recommend that even the most confident do-it-yourself (DIY) tax preparer seek the help of a seasoned tax professional if they receive any noncash assets from the liquidation of a partnership.

Frequently Asked Questions (FAQs)

What should i include in a partnership agreement.

Some of the most important things that should be in a partnership deal are the partnership’s name and purpose, what each partner will bring to the table, how profits and losses will be split among the partners, how decisions will be made within the partnership, who will manage and run it, how disagreements will be settled, and how the partnership will end.

What happens if one of the partners dies?

When one partner dies, the partnership can either end or continue if there is an heir to inherit the deceased partner’s share of the partnership.

Can a partnership have employees?

Yes, a partnership can hire employees and pay the employees’ wages. However, partners cannot be paid wages through payroll.

Bottom Line

A partnership is a business arrangement between two or more people who agree to share income and losses. This business arrangement gives you flexibility, access to more cash, and a chance to make more money.

About the Author

Lea Uradu, J.D.

Find Lea On LinkedIn

Lea Uradu, J.D.

Lea Uradu is a writer for the accounting team at Fit Small Business. She has served as a Senior Associate, Senior Tax Law Researcher, Tax Change Analyst, and an Expatriate Tax Advisor. She has also been a contributor with Millionacres, a subdivision of the Motley, the Motley Fool, Bankrate and Investopedia’s Financial Review Board.

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What Makes Innovation Partnerships Succeed

  • Paola Cecchi-Dimeglio,
  • Taha Masood,
  • Andy Ouderkirk

business model for partnership

Collaborations often start with high hopes — then break down. Here’s how to actually make them work.

Increasingly, companies today are aggressively pursuing breakthrough innovations. But to succeed in a significant, cost-efficient, and timely way they need to partner with other companies who have their own special interests and concerns, which turns out to be very hard. Partnerships are especially important in the tech sector, which moves fast with innovation as its fuel. In this article, the authors report on the efforts that Meta has made in establishing successful innovation partnerships with other companies, and they share guidance for leaders who wish to do the same.

Breakthrough innovation introduces novel paradigms and platforms, and it creates new product families and economic opportunities. But it’s never a solo act. Even the largest companies need partners.

business model for partnership

  • PC Paola Cecchi-Dimeglio is the chair of the Executive Leadership Research Initiative for Women and Minority Attorneys, at Harvard Law School, and a senior research fellow with a joint appointment at Harvard Law School and the Harvard Kennedy School. She is the author of the forthcoming Diversity Dividend (MIT Press, 2023) and the founder of the decision-making consulting firm People Culture Drive Consulting Group. She can be reached at [email protected].
  • TM Taha Masood is a director of Reality Labs Research Partnerships at Meta, where he leads the establishment of strategic business partnerships in research and development.  
  • AO Andy Ouderkirk is a research director at Meta, focusing on new optical materials. He has more than 410 issued patents, is a member of the National Academy of Engineering, was awarded the American Chemical Society Award for creative invention, and has been named the R&D Magazine Innovator of the year.

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Key Partners Building Block of the Business Model Canvas

Published: 19 July, 2023

Social Share:

Stefan F.Dieffenbacher

Business Models

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Table of Contents

Introduction to Key Partners Building Block in BMC

In an interconnected world, leveraging relationships with ecosystem partners has become increasingly important because it allows you to focus on your relative strengths. Think about the four different types of partnerships, including strategic alliances between non-competitors, coopetition (strategic partnerships between competitors), joint ventures to develop new businesses, and buyer-supplier relationships to assure reliable supplies.

Key Partners are essential relationships that a company has with other entities, like suppliers, manufacturers, or advisors. These partnerships provide vital support, helping the business model to function effectively in areas where it would be inefficient to handle everything on its own. Introducing our Extended Business Model Canvas – a powerful tool that takes your business planning to the next level. This innovative framework goes beyond the traditional canvas by incorporating crucial elements such as Key Partners, Business Drivers, customers, the team, and the Unfair Advantage. Unlock the full potential of your business and download the model now to take the first step towards achieving your goals and thriving in today’s dynamic market landscape.

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Key partners in business model canvas.

Key Partners in Business Model Canvas

Key Partners is one of the building blocks of the Business Model Canvas and plays a crucial role in the success of a business. Once you understand your Value Chains, Key Resources , and Key Partners , it should be relatively easy to identify the key cost drivers and potential Opportunity Spaces for innovation. For any Business Model, managing costs is critical, but some Business Models are designed entirely around low-cost structures, such as “no-frills” airlines. What role do costs play in your Business Model? Are you seeking to simply optimize them, or could they play a more differentiating role?

Key Partners Examples

Apple company:.

  • Type of Partnership: Buyer-Supplier Relationship
  • Description: Apple relies on OEMs like Foxconn, which employs over 200,000 workers in Shenzen, China, to manufacture its products.
  • Type of Partnership: Strategic Alliances
  • Description: When Apple opened the iTunes Store, it formed strategic alliances with app developers and record companies to offer a wide range of apps and music to its customers.

Airbnb Company:

  • Description: Airbnb collaborates with insurance providers, investors, and payment processors to ensure smooth transactions and provide insurance coverage for hosts and guests.
  • Type of Partnership: Joint Ventures
  • Description: Airbnb engaged in a joint venture with Tesla Motors to install charging stations at select hosts’ homes along the West Coast, promoting eco-friendly travel options for guests.
  • Description: Airbnb forms strategic alliances with companies to sponsor events, expanding its brand visibility and attracting more potential hosts and guests.
  • Type of Partnership: Not specified
  • Description: Airbnb involved freelance photographers to improve the quality of property listings and increase hosts’ retention.

E-commerce Platform:

  • Key Partners: Logistics Companies, Social Media Platforms, Payment Gateways
  • Type of Partnership: Buyer-Supplier Relationship (with logistics and payment partners) and Strategic Alliances (with social media platforms)
  • Description: An e-commerce platform collaborates with logistics companies and payment gateways to handle product delivery and transactions efficiently. Additionally, it forms strategic alliances with social media platforms to boost brand exposure and attract customers through advertising and promotions.

Ride-Sharing Service:

  • Key Partners: Car Manufacturers for Fleet Partnerships, Mobile App Development Companies, Insurance Providers
  • Type of Partnership: Buyer-Supplier Relationship (with car manufacturers and insurance providers) and Strategic Alliances (with app development companies)
  • Description: A ride-sharing service forms fleet partnerships with car manufacturers to expand its vehicle fleet. It collaborates with mobile app development companies to enhance its app’s features and user experience. Additionally, it collaborates with insurance providers to offer insurance coverage for drivers and passengers.

Health-Tech Startup:

  • Key Partners: Medical Equipment Suppliers, Healthcare Institutions for Research Collaborations, Mobile Health App Developers
  • Type of Partnership: Buyer-Supplier Relationship (with medical equipment suppliers) and Strategic Alliances (with healthcare institutions and app developers)
  • Description: A health-tech startup collaborates with medical equipment suppliers to source necessary devices for its healthcare solutions. It forms strategic alliances with healthcare institutions to conduct research and trials. Additionally, it partners with mobile health app developers to integrate health tracking features into its platform.

Key Partners’ main types

Key partnerships can be classified in four ways, with each arrangement having its own advantages and disadvantages.

Importantly, no matter the flavor of partnership, these agreements result in the creation of key partners for both business entities and therefore must be managed, cultivated, and regularly reviewed for their place in each company’s business model.

1. Strategic Alliances Partnerships:

  • In strategic alliances, both companies agree to undertake a project that is mutually beneficial while remaining independent. This type of partnership is helpful in a competitive environment, as both companies share liability exposure. Examples include franchising, licensing, and affiliate marketing.

2. Coopetition Partnerships:

  • Description: Coopetition partnerships involve rival companies forming a strategic partnership to achieve mutual benefits. This collaboration can lead to positive outcomes for both entities. An example is the cooperation between Pfizer and BioNTech to develop and distribute a COVID-19 vaccine.

3. Joint-Ventures Relationships:

  • In joint ventures, two independent companies agree to work together on a specific project and share particular resources. This type of partnership is focused on a single joint project, distinguishing it from other partnerships. Joint ventures may cause conflicts between entities, and some experts advise caution with this type of key partnership.

4. Buyer-Supplier Relationships:

  • Description: Buyer-supplier relationships involve commercial agreements for the purchase and supply of goods or services. These relationships are essential for businesses to deliver on their value proposition effectively. Buyers and suppliers are among the most critical key partners for a business. Maintaining productive buyer-supplier relationships is crucial for a company’s success, no matter which end of your company works is one of a business’s most important key activities.

Why do we Need Strategic Partnerships?

In a competitive environment characterized by the need for the reduction of risk and uncertainty, strategic partnerships offer the opportunity to build relationships and reduce costs. They reduce risk by diffusing exposure to changing business environments across the two companies.

Many times, strategic partnerships form a powerful building block of a business model by making key resources available at a manageable cost. Partners perform valuable services that would otherwise distract from our main value propositions.

The right partners perform important functions and help us complete our key activities and our customers’ Jobs to Be Done.

Customer Jobs to be Done Building Block of the Value Proposition Canvas

How do you Choose Your Key Partners?

Key partners are an important section of the business model canvas and business models as a whole. You should consider cultivating your key partnerships as one of your business’s key activities , which we’ve discussed elsewhere on the Digital Leadership website.

There can be no set rules for choosing your key partners. So much will depend on the specifics of your value proposition, their value proposition, and the overall business model of both companies. We thought about the factors behind successful key partnerships , however, and we think we’ve identified some common characteristics to keep in mind when choosing a key partner. Unlock the full potential of your business partnerships with The Unite Value Proposition Canvas Model, a comprehensive framework designed to help you identify and leverage successful key partnerships. By aligning your value proposition with that of your potential partners and understanding the overall business models of both companies, you can make informed decisions to create mutually beneficial relationships. You can download it now.

Value Proposition Canvas

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How to choose the right partnership model to grow both businesses

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Entering into a partnership is an attractive way to grow your business and increase its reach beyond what would have been possible by going alone.

For business partnerships to work, both parties must be equally committed, and they must share compatible cultures and goals. Choosing the right type of partnership can be tricky and depends on what both parties want to achieve from the relationship.

Choosing the right model depends on any number of factors from financial obligations to personal preferences. The model that works in each instance will depend on factors like how each party wants to manage decision-making, how much capital each party will contribute, and whether the parties are likely to want to exit the agreement.

There are four basic partnership models:

  • Equal. An equal, general partnership is where every partner, regardless of how many there are, is equally responsible for the business, including its operations, its profits, and its debt.
  • Limited. Where one partner invests less than another, the result is an unequal partnership, or one where that partner has only limited obligations. This is usually calculated according to the amount they’ve invested. It can be a low-risk way for one party to explore what it’s like to work with the other.
  • Silent. Sometimes, an investor is willing to provide capital and receive dividends without having any say in how the business is run. This is often referred to as a silent partner.
  • Equity. In this model, each party retains some equity or ownership of the business and its earnings. The equity doesn’t have to be equal, since each partner’s equity is calculated based on their contribution to the business. This contribution can be in the form of capital or services, which is often known as sweat equity.

Before signing any type of partnership agreement, both parties need to do exhaustive due diligence to learn as much as possible about their prospective partners before inking the deal. This prevents uncomfortable or expensive situations in which the partnership needs to be dissolved.

Based on 30 years of partnering, AUB Group has identified five key traits for a successful partnership:

  • shared vision, goals, and expectations
  • trust between all parties
  • a similar or complimentary culture
  • complementary strengths that let each party support the other
  • adaptability and flexibility to embrace the inevitable changes in business.

We chose an owner-driven partnership model because that’s what works best for our partners and their customers. This equity-based partnership model means both parties have “skin in the game” with 50-50 ownership and responsibilities. We focus on driving growth through a proactive partnership – owners retain control over daily operations while they leverage the collective resources of the Group, including access to infrastructure and operational assistance, technology support, marketing, human resources, and other back-office services. The economies of scale offered by this arrangement let AUB Group’s partners access discounts and preferential deals with insurers.

Mark Searles, CEO and Managing Director, AUB Group

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Partnering to shape the future–IT’s new imperative

When IT acts as a partner to the business, rather than as a technology consultant or supplier of IT services, the benefits are striking. According to the newest McKinsey Global Survey on business technology, IT organizations that play a partner role—that is, actively collaborating with the rest of the business to shape an overall business strategy that effectively leverages technology—tend to perform better on a number of dimensions, including the delivery of core services and the creation of a healthy organizational culture. 1 1. The online survey was in the field from October 13 to October 23, 2015, and garnered responses from 709 executives. Of these respondents, 422 have a technology focus, and the remaining 287 are C-level executives representing other functional specialties. The respondents represent the full range of regions, industries, company sizes, and tenures. To adjust for differences in response rates, the data are weighted by the contribution of each respondent’s nation to global GDP. But while most respondents, from both the business side and the IT function, believe the IT organization should be a partner to the business, few say IT plays that role today.

The results also suggest that the pressure on IT to perform will only increase with the growth of third-party services (such as cloud offerings and infrastructure as a service) and of digitization. With digital initiatives, too, the companies where IT plays a partner role are further along in both implementation and achieving business impact. The results suggest that the best opportunities for improving IT’s performance overall lie in strengthening the model the IT organization is structured, run, and managed around, and in defining more clearly IT’s role and priorities. Nearly all executives say acquiring talent is a challenge and a possible longer-term barrier to improving IT, which could require preemptive moves on the part of many companies.

Why partnership matters

We asked all executives about the role the IT function plays at their organizations—specifically, whether IT works as a partner to the business, a consultant on technology matters, or a supplier of IT services. Few say the IT function is currently a partner. But both in IT and in the business function, about three times as many executives believe IT should be a business partner at their organizations (Exhibit 1). The results show that when IT partners with the business, the benefits are far-reaching—and striking. We looked at 14 specific dimensions of IT’s performance and found that partnership has an impact on its effectiveness in each one—even for relatively standard (or less business-facing) IT processes, such as providing end-user services, managing IT infrastructure, and maintaining applications. Thirty-five percent of executives at companies where IT is a partner, for example, say the IT function works very or completely effectively with the business to develop new capabilities; only 14 percent say the same at companies where IT is a consultant or supplier.

In a few areas, the benefits of partnership are exceptional (Exhibit 2). For instance, at organizations where IT is a partner, respondents are more than three times likelier than all others to say that the IT function is very or completely effective at implementing bottom-up innovation and at creating a healthy IT culture. Similarly, in many other dimensions—from bringing new ideas to the business to delivering projects on time and digitizing business processes—the partner respondents are at least twice as likely as others to report that IT is effective.

That said, the results also indicate continued misalignment between IT and business executives on IT’s priorities, with little improvement over time. For the fourth survey in a row, the results indicate sizable gaps in how business and IT respondents view priorities for the IT function. In the newest survey, for example, 44 percent of those in IT say that cutting costs is one of their organizations’ current priorities for the function—behind only improving the effectiveness of business processes and tied with improving the cost efficiency of business processes (Exhibit 3). Business executives ranked cost cutting last, with only 16 percent citing it as one of their companies’ priorities for IT.

Pressure on IT and the partner advantage

IT organizations are under increasing pressure to deliver better performance—as the partners already do—partly because of the growing availability and capabilities of third-party services such as cloud computing, infrastructure as a service, and software as a service. About one-third of business executives see third-party providers as a significant or complete substitute for the IT function’s services.

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Another source of pressure is the expansion of digital programs. Nearly all respondents (91 percent) say their companies are already pursuing a digital agenda, suggesting that the partnership between business and IT will become only more important over time—especially with so many organizations in the early days of their digital efforts. At companies where IT plays the role of a consultant or supplier, a mere 14 per cent of executives say their companies have implemented digital initiatives across the business. Just one-third say the IT function and the business collaborate on these initiatives, while half report that IT either is completely uninvolved in digital or supports it only as a supplier of technology services.

By contrast, digital initiatives have already begun to thrive at organizations where IT operates as a partner with the business. Compared with their peers, respondents at these companies are roughly twice as likely to report that digital initiatives are being implemented across the organization, that the business impact from the initiatives has been significant, and that the IT function shares accountability for digital initiatives rather than simply playing a supporting role (Exhibit 4).

Redefining IT’s role

The results suggest that executives recognize the potential benefits of an IT–business partnership. So what is keeping organizations from establishing IT as an active partner? When we asked technology executives about the root cause of the function’s shortcomings, they most often identify weaknesses in IT’s operating model (how the function is structured, run, and managed overall), followed by a lack of clarity about IT’s priorities and role (Exhibit 5). These elements were cited far more often than the others we asked about: suboptimal technology, undisciplined IT delivery, and talent. This emphasis on the operating model and IT’s organizational role is not surprising, given how instrumental these two elements are in aligning the organization on IT’s priorities, developing a stronger IT culture, and establishing and operationalizing IT’s role as partner.

While talent doesn’t top the list as a root cause of IT’s problems, it continues to surface as a major obstacle to the function’s effectiveness, regardless of whether or not it works as a partner with the business. Almost all respondents (93 percent) say attracting IT talent is a challenge for their organizations, which in the longer term could pose a bigger barrier to improving IT.

Respondents say their most pressing needs for IT talent are in analytics and in joint business and IT expertise—areas they cited most often in the past two surveys—along with the cloud, mobile development, and cybersecurity (Exhibit 6). While four out of five of these areas are technical in nature, joint business and IT expertise could have an impact on future operating-model improvements and alignment between the business and IT sides on technology issues.

Looking ahead

At the highest level, align on IT’s role. Given all the pressures of implementing digital strategies and the advent of new delivery models, redefining the role of IT is rapidly gaining importance as a management issue. To move to a partnership model, a company’s senior leaders must first align on IT’s role (and what it means for the overall operating model). IT organizations and their business counterparts must then rethink the business–IT engagement model and processes, as well as decide how they can work together to implement large technology initiatives that support the business. In this new model, there are also talent implications for IT to address, specifically in the area of joint business and technology expertise.

Change hearts and mind-sets. Implementing a partnership model also requires a shift in mind-set from the leadership team down to the front line. True partners can proactively help the business to think about enabling technology and delivering IT services that truly fit the needs of both the business and customers. To reap the full benefits of partnership, stakeholders across the board must adopt a partner mind-set toward the services (and value) that IT provides rather than thinking of their IT colleagues as consultants or suppliers.

The contributors to the development and analysis of this survey include Naufal Khan and Jason Reynolds, principals in McKinsey’s Chicago office, and Christoph Schrey, an associate principal in the Chicago office.

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Partnership Design

Insider's perspective on the impact of business model partnerships, the partnership canvas.

It’s been more than a year since we introduced the Partnership Proposition Canvas as a prototype tool for modelling key business model partnerships. Since its introduction, we’ve been testing the tool and refining it. In this post we share the latest version, which has proven to be simple in use, and more effective in getting the conversation of business model innovation through partnerships going. Allow us to introduce the Partnership Canvas: an essential tool for designing, negotiating, and adapting partnerships. This tool works as an add-on to the business model canvas .

What, another canvas?! The reason we’ve developed the partnership canvas is that many organisations struggle with their partnerships. One of the main causes is that there is no structured approach available yet to help design strategies for partnerships. Naturally, the partnership discussion itself between organisations is often veiled in mist. As Henry Chesbrough, the figurehead of open innovation, wrote:

“few companies in our experience take the time to articulate their own business model. Fewer have any clear idea about the business models of their external relationships.”

That is not a good basis for creating a collaboration. People leave too many assumptions about their partnerships unaddressed, and that backfires the moment they go live.

What is a partnership? The first hurdle in the partnership discussion is definition of the term partnership. You won’t be able to define a partnership by only mapping out the two partnering business models. That describes the result of the partnership. It doesn’t explain how the partnership works.

A partnership is more. It is an entity that sits in between the two business models that make up the partnership. This entity enables value to flow between two partnering business models. By combining value inputs from both business models in a partnership, they are able to create new forms of value that they both benefit from. (I’ve written about what can best, and best not be defined as a partnership from a business model perspective in a previous post ).

Value exchange between two business models

The partnership canvas was created to demystify the partnership entity by defining its building blocks. The tool can be used to map existing, and design new models for partnerships. The partnership canvas helps to break through the boundary of possibilities for innovating with only your own business model.

The building blocks of a partnership The first question you need to ask yourself when orienting on a partnership is what will be the purpose of the partnership. The key to defining this purpose is to question yourself on how you can contribute to a better, more complete experience for your customer. This could relate to aspects of availability, convenience, speed, price, performance, etc.

Some things don't change

Visual by Dave Gray

Based on definition of this purpose, you will be able to describe the missing element from your own business model, for which you are seeking a partner. You can use the definition of this element to screen candidate partners on a (set of )value(s) that you desire. This desired value makes for the first building block of your partnership design.

PC Presentation 1 DV

The second question is about your own contribution to the partnership. If you have identified what value you desire in a partner, then you need to develop a matching offer that connects with that value. A value offer is required, which is based on one or more elements from your own business model. An effective offer either complements or enhances the value you would desire from a partner. Only if this connection is made, do you have a basis for creating a relationship.

PC Presentation 2 VO

The third question demands clarification on how you will connect the desired and offered value. Through what collaboration activities or through what form will these values be connected? It is essential that both parties find a way to integrate the value that they are putting to the table. This transfer activity building block is the exchange by which synergy between the partnering business models is created.

PC Presentation 3 TA

With this third building block, an engine is created that enables value to flow between partners. But the partnership discussion doesn’t end there. Essentially what we’ve defined so far is a basis for connecting values. The ultimate question is whether this value engine enables you to create a new form of value that you can utilize to innovate in one of the building blocks of your business model. This question on created value makes up the fourth building block of the partnership.

PC Presentation 4 CV

Using the partnership canvas Once you have mapped your business model, and desired value from a partner, you can use the partnership canvas to see how you can connect with a partner. The value flow between the both partners is made by linking all the building blocks together through a single line of reasoning. Use post-its to describe the elements of your partnership. If multiple value elements are involved in a partnership, then you can use color coding of post-its to connecting lines of value exchange.

PC w Post its

Another important feature built into the design of the partnership canvas is that it enables communication between a business model and its partnership. The value offer, and created value both have links to the business model of one the partners, and the desired value should relate to an attribute of the other partner.

Screen Shot 2014-10-17 at 22.37.00

Lastly, but perhaps most importantly, the partnership canvas is designed in such a way that it accommodates the comparison of a partnership from both partners’ perspectives. By laying the foundation of the partnership canvas against each other, you will be able to compare whether:

  • Your desired value is what your partner is willing to offer
  • Your offer is the value that a partner desires from you
  • You have a same framing of the transfer activities, required to connect your values.

Screen Shot 2014-10-17 at 21.39.34

Conclusion The partnership canvas creates empathy between two prospective partners on the strategic importance of the partnership to each. The canvas can be used as a stand-alone tool to quickly identify a partnering opportunity. But for full strategizing value, it’s better to use it in conjunction with the business model canvas.

The partnership canvas has been tested in various workshop settings with students and entrepreneurs. It has demonstrably contributed to better partnership discussions. Parties become clear about each other’s strategic objectives. Also, they learn from each other about the various opportunities there are to partner.  It’s not a matter of making one grand master plan for an offer the partner can’t refuse, but more of finding out together what the opportunities are.

Stay tuned for more guidelines on how to use the partnership canvas on this blog. You can freely download, and use the partnership canvas  [SlideShare login required, or send me an email: [email protected] . The tool is published under a creative commons license, so it’s free, but please review back to the source. I hope to hear from your experiences!

Interested to learn more about Partnership Design?

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Further inquiries? Send an email to: [email protected]

Word of thanks I couldn’t have developed this tool without the help of some special people. First I would like to thank my colleagues and students at Wageningen University for creating opportunities to test out the canvas. Next, I would like to thank Mike Lachapelle for some really foundational feedback on the design of the canvas, and Salim Virani for some interesting pointers on shapes. Lastly, a huge thanks goes out to Ernst Houdkamp , whose visual thinking skills kept me sharp on finding improvements for the canvas, and who had the patience to stick with me through the many iterations of the tool.

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8 thoughts on “ the partnership canvas ”.

  • Pingback: The Partnership Canvas: a new tool for developing partnership business models
  • Pingback: The partnership design process (understand, design, compare, evaluate) – Nevermind the Dinosaurs

HI Bart- your link is not working to download the partnership canvas

Hi Mary, it should work if you have a slideshare account. If not, then shoot me an email

Hi I’m really keen to download but the link won’t allow can you email me at [email protected] , I’m so excited to try it out. Thank you for sharing. Lisa

  • Pingback: Partnership Map - Alan Ward

Hi Bart, the partnership canvas is a valuable tool for open business models and partnership design. Great to have it Wim

Thank you Wim! You have been key in encouraging me to continue, and improve partnership thinking, and practice.

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Explore perspectives, what is a perspective.

Perspectives are different frameworks from which to explore the knowledge around sustainable sanitation and water management. Perspectives are like filters: they compile and structure the information that relate to a given focus theme, region or context. This allows you to quickly navigate to the content of your particular interest while promoting the holistic understanding of sustainable sanitation and water management.

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Business Partnership Models

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Executive Summary

Effective business partnerships play a crucial role and offer numerous benefits for entering new markets for nature-based and advanced solutions for water reclamation and purification of drinking water, rainwater and wastewater and associated monitoring options in urban and peri-urban areas of India. They enable companies to leverage local market knowledge, networks, resources, and expertise while mitigating risks, reducing costs, and accelerating market entry (see also “ Go-To-Market Strategy ”).

Business partnerships are agreements between two or more parties to work together to achieve a common goal or objective. Partnerships can be formed between businesses, individuals, or organizations and can take on various forms depending on the goals and needs of the parties involved. When forming a partnership, it's important to clearly define the roles, responsibilities, and expectations of each partner. A partnership agreement should be drafted to outline the terms of the partnership.

Introduction

A business partnership is a formal agreement between two or more natural or legal persons to conduct business together. It allows value to flow between the business models of the partners, as illustrated in Fig. 1 below. By combining value contributions from both business models, a partnership is able to create new forms of value that benefit both partners (DOORNEWEERT 2014).

Value exchange between 2 business models

Fig. 1: Value exchange between two business models. Source: adapted from DOORNEWEERT (2014)

A partnership agreement is usually drawn up to formalise the terms of the partnership, including the roles and responsibilities of the partners, the sharing of profits and losses, and the procedure for resolving disputes. Business partnerships can offer a number of advantages, such as access to capital, shared expertise and resources, and the ability to share risks and costs. However, partnerships also bring potential disadvantages, such as the need for clear communication and trust between partners, the potential for disputes and disagreements, and the possibility of personal liability for the partnership's debts and obligations.

Business partnerships can be entered into for a variety of reasons, including:

  • Access to new markets: A business partnership can provide access to new markets or customers that a company may not have been able to reach otherwise. By partnering with another company that has an established presence in a particular market, a company can tap into that market and expand its customer base.
  • Access to new technologies or expertise: A business partnership can provide access to new technologies or expertise that a company may not have in-house. By partnering with another company that has specialized knowledge or expertise, a company can improve its products or services and gain a competitive advantage.
  • Cost savings: A business partnership can result in cost savings for a company, as it may be cheaper to share costs or resources with another company than to invest in them separately.
  • Risk sharing: A business partnership can help to reduce risk by allowing companies to share the risks associated with a particular project or venture.
  • Improved efficiency: A business partnership can improve efficiency by allowing companies to leverage each other's strengths and resources, resulting in a more streamlined and effective operation.
  • Increased innovation: A business partnership can foster innovation by bringing together different perspectives, ideas, and resources (see Innovating Business Models ).

There are several business partnership models that companies can adopt, depending on their goals and resources. Each partnership model has its own advantages and disadvantages, and companies should carefully evaluate their options before entering into a partnership. Some of the most common partnership models are:

Joint Venture:  A Joint Venture (JV) is a business partnership model in which two or more companies join forces to work together on a specific project or business venture. A common use of JVs is to partner with a local company to enter a foreign market (HARGRAVE 2023).

5 key opportunities:

  • Access to new markets: JV can provide access to new markets or customers, allowing partners to expand their businesses beyond their traditional markets.
  • Access to expertise and resources: Joint ventures can provide access to expertise and resources that one company may not have on its own and pool resources, including capital, expertise, and technology, which can lead to cost savings and increased efficiency.
  • Risk sharing: Joint ventures can reduce the risk of a new business venture or project, as partners can share the risks associated with launching a new product or entering a new market.
  • Increased innovation: Joint ventures can increase innovation, as partners can leverage each other's expertise and technology to develop new products or services.
  • Reduced competition: Joint ventures can reduce competition between partners, as they can work together to achieve a common goal.

5 key risks:

  • Lack of control: Joint ventures involve shared control between two or more companies. This can lead to disagreements and conflicts over decision-making and strategy.
  • Shared profits: Joint ventures involve sharing profits, which may not be as lucrative as going solo. One company may feel they are contributing more resources and expertise than the other and not receiving their fair share of the profits.
  • Cultural differences: Joint ventures may involve companies from different countries or cultures, which can create challenges in communication, decision-making, and business practices.
  • Brand dilution: Joint ventures can dilute a partner's brand if the other partner's brand is not well-regarded or if the partnership is perceived negatively by customers.
  • Complexity: Joint ventures can be complex to set up and manage, requiring legal and financial expertise.

Strategic Alliance:  A Strategic Alliance is a partnership between two or more companies that agree to jointly pursue a mutually beneficial project or business venture, while each partner retains its independence (KENTON 2022). A common application of a Strategic Alliance is, for example, the development of new products or the entering of new markets.

  • Access to new markets: Strategic alliances can provide access to new markets, customers, and distribution channels, which can help partners expand their business.
  • Shared resources: Partners can share resources, such as technology, expertise, and knowledge, which can reduce costs and increase efficiency.
  • Increased innovation: Strategic alliances can stimulate innovation by combining the expertise of partners, resulting in new products, services, or technologies.
  • Increased competitiveness: Strategic alliances can increase competitiveness by combining the strengths of each partner, such as technology, brand reputation, or distribution networks.
  • Flexibility: Strategic alliances can be flexible in terms of their structure and duration, allowing partners to collaborate on a specific project or strategic goal without having to merge their entire businesses.
  • Conflict of interest: Partners may have conflicting interests or goals, leading to disagreements and potential conflicts.
  • Lack of control: Partners may have limited control over the strategic alliance, as decision-making is shared.
  • Dependence: Partners may become dependent on each other, which can be a disadvantage if one partner fails or is unable to fulfill its obligations.
  • Cultural differences: Partners may have different cultures, values, and business practices, which can lead to misunderstandings and potential conflicts.
  • Intellectual property issues: Intellectual property issues can arise when partners share technology or other proprietary information, potentially leading to disputes.

Franchising:  Franchising is a business partnership model in which a company (the franchisor) licenses its business model, intellectual property, and brand to another company (the franchisee) in exchange for a fee or royalties. The franchisee operates under the franchisor's brand and business model, following a set of established guidelines and procedures (HAYES 2023).

  • Established business model: Franchising provides the franchisee with a proven business model, reducing the risks associated with starting a new business from scratch.
  • Brand recognition: Franchisees benefit from the brand recognition and reputation of the franchisor, which can help to attract customers and build loyalty.
  • Support and training: Franchisees receive support, training and, and marketing materials from the franchisor, which can help them to succeed and operate their business more efficiently and effectively.
  • Marketing and advertising: Franchisees benefit from the marketing and advertising efforts of the franchisor, which can help to attract customers and build brand awareness.
  • Access to resources: Franchisees have access to resources, including suppliers, inventory, and equipment, which can be difficult to obtain as an independent business owner.
  • Initial investment: Franchisees must pay an initial fee and ongoing royalties to the franchisor, which can be a significant financial burden.
  • Limited independence: Franchisees must adhere to the franchisor's business model, products, and services, which can limit their independence and creativity.
  • Brand reputation: The franchisee's reputation is closely tied to the franchisor's brand, and negative publicity or legal issues involving the franchisor can negatively impact the franchisee's business.
  • Restrictions on expansion: Franchisees may be limited in their ability to expand their business, as the franchisor may restrict the number of franchise locations in a given area.
  • Exit strategy: Exiting a franchise can be difficult and costly, as franchise agreements typically include restrictions on selling or transferring the business.

Licensing:  Licensing is a partnership between a licensor and a licensee. The licensor grants the licensee the right to use its intellectual property, such as trademarks, patents, and copyrights, in exchange for a fee or royalty (CFI TEAM 2022).

  • Revenue stream: Licensing can provide a steady revenue stream for the licensor, as the licensee pays fees or royalties for the use of the licensed intellectual property.
  • Brand recognition: Licensing can increase the licensor's brand recognition, as the licensee may use the licensor's trademarks or logos in association with the licensed product.
  • Access and speed to new markets: Licensing can provide access to new markets or customers, allowing licensees to quickly expand their businesses beyond their traditional markets.
  • Reduced risk: Licensees can reduce their risk by licensing a proven product or technology, which has already been tested in the market.
  • Shared expertise: Licensees may benefit from the expertise and support of the licensor, including product development, marketing, and sales.
  • Limited control: The licensor may have limited control over the licensee's use of the licensed intellectual property, which can be a disadvantage if the licensee does not meet the licensor's standards or expectations.
  • Brand dilution: The licensee's use of the licensor's trademarks or logos may dilute the brand if the licensee does not maintain the same quality or standards as the licensor.
  • Limited flexibility: Licensees may be restricted in terms of how they use or modify the licensed product or technology, which can limit their ability to innovate or adapt to changing market conditions.
  • Limited exclusivity: Licenses may not provide exclusive rights to use the licensed product or technology, which can lead to increased competition.
  • Licensing fees: Licensees must pay licensing fees to the licensor, which can be a significant financial burden.

Distribution partnership:  Distribution is a business partnership model in which a company (the manufacturer or supplier) sells its products to another company (the distributor), which then sells the products to retailers or end-users. The distributor typically takes possession of the products and assumes responsibility for marketing and selling them.

  • Access to new markets: Distribution partnerships allow manufacturers or suppliers to access new markets or customers that they may not have been able to reach otherwise.
  • Shared resources: Distribution partners can pool resources, including marketing expertise and distribution networks, which can lead to cost savings and increased efficiency.
  • Increased sales: Distribution partnerships can increase sales and revenue for both partners, as they can leverage each other's customer bases and cross-promote products or services.
  • Reduced risk: Distributors assume some of the risk associated with marketing and selling the products, which can reduce the manufacturer's or supplier's risk.
  • Greater efficiency: Distribution can increase efficiency by allowing manufacturers or suppliers to focus on product development and production while the distributor handles marketing and sales.
  • Lower margins: Distributors typically take a portion of the profits generated from the sale of the products, which can reduce the manufacturer's or supplier's profit margins.
  • Limited control: Manufacturers or suppliers may have limited control over the distribution process, which can be a disadvantage if the distributor does not meet their standards or expectations.
  • Brand dilution: Distributors may not be as invested in maintaining the manufacturer's or supplier's brand identity, which can lead to brand dilution.
  • Potential for conflicts: Conflicts can arise between partners, such as disagreements over pricing or marketing strategies.
  • Channel conflict: conflicts can arise alongside the partnership and own existing or planned distributions channels. Competing with your own partner or channel cannibalization can damage relationships and create tensions among stakeholders.

Co-manufacturing:  Co-manufacturing is a partnership between two or more manufacturers that agree to collaborate to manufacture a product. In this model, each company contributes its own expertise and resources to the manufacturing process (VAN RITE 2019).

  • Shared costs: Co-manufacturing allows partners to share the costs of manufacturing, including equipment, labour, and materials.
  • Increased efficiency: Co-manufacturing can share expertise and knowledge, enabling them to benefit from increased efficiency, as partners can leverage each other's strengths and expertise to streamline production processes.
  • Improved quality: Co-manufacturing can improve product quality, as partners can share best practices and quality control standards.
  • Increased capacity: Co-manufacturing can increase production capacity, allowing partners to meet higher demand without investing in additional manufacturing infrastructure.
  • Reduced risk: Co-manufacturing can reduce the risk of product failure, as partners can share the risks associated with launching a new product or entering a new market.
  • Dependence: Co-manufacturing requires a high level of trust and dependence on each other, which can be a disadvantage if one company fails to meet its obligations.
  • Conflict: Co-manufacturing can lead to conflicts if there are disagreements about the manufacturing process, quality control, or intellectual property rights.
  • Brand dilution: Co-manufacturing can lead to brand dilution if one company's brand identity is not maintained in the manufacturing process.
  • Communication challenges: Co-manufacturing requires effective communication and collaboration, which can be a disadvantage if there are language or cultural barriers between the companies.
  • Lack of flexibility: Co-manufacturing partnerships can be less flexible than in-house manufacturing, as partners must coordinate schedules and production processes.

Outsourcing:  Outsourcing is a business partnership model in which a company hires an external service provider to perform specific business functions or processes on its behalf (TWIN 2022). These functions can include manufacturing, IT support, customer service, or accounting, among others.

  • Cost savings: Outsourcing can result in cost savings, as partners can leverage lower labor costs and other economies of scale.
  • Access to specialized expertise: Outsourcing can provide access to specialized expertise or technology that may not be available in-house.
  • Focus on core competencies: Outsourcing allows companies to focus on their core competencies and strategic priorities, while delegating non-core functions to external service providers.
  • Scalability and flexibility: Outsourcing allows businesses to scale their operations quickly and efficiently. When facing fluctuations in demand or seasonality, outsourcing partners can adjust resources and capacity accordingly.
  • Risk mitigation: Outsourcing partnerships can help mitigate certain risks by for example offloading functions like compliance, regulatory requirements, or security to specialized partners.
  • Quality concerns: Outsourcing can raise quality concerns, as the service provider may not be as invested in maintaining the quality of the outsourced function as the company would be.
  • Communication challenges: Outsourcing can lead to communication challenges if there are language or cultural barriers between the partners or partners are located in different geographic regions or time zones.
  • Data security risks: Outsourcing can pose data security risks, as the service provider may have access to the company's sensitive information.
  • Dependence: Partners may become dependent on the outsourcing partner, which can be a disadvantage if the outsourcing partner fails or is unable to fulfill its obligations.
  • Negative impact on employees: Outsourcing can have a negative impact on employees, as it may result in job losses or reduced job security for in-house staff.

Partnership Canvas

The Partnership Canvas is a complementary tool to the Business Model Canvas  that allows mapping, designing, negotiating, adapting and visualising current and future business partnerships, as illustrated in Fig. 2 below. The Partnership Canvas creates empathy between two potential partners regarding the strategic importance of the partnership for both. The canvas can be used as a stand-alone tool but unfolds its full strategic value when used together with the Business Model Canvas (DOORNEWEERT 2014).

Partnership Canvas

Fig. 2: The four building blocks that enable visualization of current and future partnerships: desired value, value offer, transfer activities and created value. Source: DOORNEWEERT (2014)

Building blocks of a partnership and how they relate to the business models of the partners, as illustrated in Fig.3 below (adapted from DOORNEWEERT 2014):

The Desired Value building block is the first building block of the Partnership Canvas. It allows you to describe the missing element(s) of your own business model for which you are looking for a partner. The desired value you are looking for should contribute to a better, more complete experience for your customers. This could relate to aspects of availability, convenience, speed, price, performance, etc.

Once you have identified what value you desire in a partner, you need to develop a matching Value Offer based on one or more elements of your own business model and linked to the desired value. An effective offer complements or enhances the value you desire from a partner. Only when this connection is made do you have a basis for creating a relationship.

The Transfer Activities building block must provide an answer to the question of how the partners’ values are to be connected and made mutually accessible? This building block is the exchange through which synergies are created between the partners’ business models.

The fourth building block ( Created Value ), addresses the creation of new value that can be utilized to innovate in one of the building blocks of your business model.

Communication between business models

Fig. 3: Both the Value Offer and the Created Value relate to the business model of one of the partners, and the Desired Value should relate to an attribute of the other partner. Source: DOORNEWEERT (2014).

Laying the foundations of two Partnership Canvases against each other allows a comparison of whether the Desired Values and Values Offered of potential partners match and whether the partners have a same idea about the transfer activities needed to connect their values, as demonstrated in Fig. 4 below.

Comparing partnertship canvases

Fig. 4: The Partnership Canvas accommodates the comparison of a partnership from both partners’ perspectives. Source: DOORNEWEERT (2014)

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The partnership canvas, joint venture (jv), what is a franchise, and how does it work, strategic alliances, outsourcing, 8 reasons partnering with a contract manufacturer is smart business, data shows business partnerships are a good idea.

This article points out how powerful business partnerships van be in increasing revenue, creating new opportunities and fostering innovation when they are based on shared values, transparency and strong communication skills.

business model for partnership

This presentation explores the power of collaborations and how they can drive growth and success for businesses. Different partnership models are introduced and insights into the benefits of business partnerships, such as access to new markets, shared resources, larger customer base and accelerated innovation are discussed. The presentation enables a solid understanding of the strategic importance of business partnerships and the practical know-how to apply the Partnership Canvas - a complementary tool to the Business Model Canvas - to map, design, negotiate, adapt and visualise current and future business partnerships.

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What Is a Partnership?

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Partnership: Definition, How It Works, Taxation, and Types

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A partnership is a formal arrangement by two or more parties to manage and operate a business and share its profits.

There are several types of partnership arrangements. In particular, in a partnership business, all partners share liabilities and profits equally, while in others, partners may have limited liability . There also is the so-called "silent partner," in which one party is not involved in the day-to-day operations of the business.

Key Takeaways

  • A partnership is an arrangement between two or more people to oversee business operations and share its profits and liabilities.
  • In a general partnership company, all members share both profits and liabilities.
  • Professionals like doctors and lawyers often form a limited liability partnership.
  • There may be tax benefits to a partnership compared to a corporation.

Investopedia / Matthew Collins

Types of Partnerships

In a broad sense, a partnership can be any endeavor undertaken jointly by multiple parties. The parties may be governments, nonprofits enterprises, businesses, or private individuals. The goals of a partnership also vary widely.

Within the narrow sense of a for-profit venture undertaken by two or more individuals, there are three main categories of partnership: general partnership , limited partnership, and limited liability partnership.

General Partnership

In a general partnership, all parties share legal and financial liability equally. The individuals are personally responsible for the debts the partnership takes on. Profits are also shared equally. The specifics of profit sharing will almost certainly be laid out in writing in a partnership agreement.

When drafting a partnership agreement, an expulsion clause should be included, detailing what events are grounds for expelling a partner.

Limited Liability Partnership

Limited liability partnerships (LLPs) are a common structure for professionals, such as accountants, lawyers, and architects. This arrangement limits partners' personal liability so that, for example, if one partner is sued for malpractice, the assets of other partners are not at risk.

Some law and accounting firms make a further distinction between equity partners and salaried partners. The latter is more senior than associates but does not have an ownership stake. They are generally paid bonuses based on the firm's profits.

Limited Partnership

Limited partnerships are a hybrid of general partnerships and limited liability partnerships. At least one partner must be a general partner, with full personal liability for the partnership's debts. At least one other is a silent partner whose liability is limited to the amount invested. This silent partner generally does not participate in the management or day-to-day operation of the partnership.

Finally, the awkwardly-named limited liability limited partnership is a new and relatively uncommon variety. This is a limited partnership that provides a greater shield from liability for its general partners.

Taxes and Partnerships

There is no federal statute defining partnerships, but nevertheless, the Internal Revenue Code (Chapter 1, Subchapter K) includes detailed rules on their federal tax treatment.

Partnerships do not pay income tax. The tax responsibility passes through to the partners, who are not considered employees for tax purposes.

Individuals in partnerships may receive more favorable tax treatment than if they founded a corporation. That is, corporate profits are taxed, as are the dividends paid to owners or shareholders. Partnerships' profits, on the other hand, are not double-taxed in this way.

Advantages and Disadvantages of Partnerships

A successful partnership can help a business thrive by allowing partners to pool their resources and labor. Most sole proprietors do not have the time or resources to run a successful business alone, and the startup stage can be the most time-consuming.

Creating a partnership allows the partners to benefit from one another's labor, time, and expertise. Moreover, a shrewd partner can also provide additional perspectives and insights that can help the business grow.

But there is also an additional risk in joining a partnership. In addition to sharing profits, the partners may also assume responsibility for any losses or debts from the other partners. There is also a higher chance of conflict or mismanagement. When the time comes to exit, it may be harder to reach an agreement about selling the business.

Pros and Cons of Partnership

Partners can pool their labor, capital and expertise.

Partners can share tasks, allowing greater work-life balance.

More partners can bring their experience and new perspectives to the firm.

Partners may bring additional debts or liabilities.

There is a greater chance of disagreement or mismanagement.

It may become harder to sell the business.

The basic varieties of partnerships can be found throughout common law jurisdictions, such as the United States, the U.K., and the Commonwealth nations. There are, however, differences in the laws governing them in each jurisdiction.

The U.S. has no federal statute that defines the various forms of partnership. However, every state except Louisiana has adopted one form or another of the Uniform Partnership Act ; so, the laws are similar from state to state. The standard version of the act defines the partnership as a separate legal entity from its partners, which is a departure from the previous legal treatment of partnerships.

Other common law jurisdictions, including England, do not consider partnerships to be independent legal entities.

How Does a Partnership Differ From Other Forms of Business Organization?

A partnership is a way of structuring a business that involves two or more individuals (the partners). It involves a contractual agreement (the partnership agreement) between all of the partners that set the terms and conditions of their business relationship, including the distribution of ownership, responsibilities, and profits and losses. Partnerships outline and clearly define a business relationship and responsibility.

Unlike LLCs or corporations, however, partners are personally held liable for any business debts of the partnership, which means that creditors or other claimants can go after the partners' personal assets.  Because of this, individuals who wish to form a partnership should be extremely selective when choosing partners.

If Partners Don't Have Limited Liability Why Set Up a Partnership?

Partnerships have several benefits. They are often easier to set up than LLCs or corporations and do not involve a formal incorporation process through a government. This has the added benefit of not being subject to the same rules and regulations that apply to corporations and LLCs. Partnerships also tend to be more tax-friendly.

What About Limited Partnerships?

In limited partnerships (LPs), there are general partners who maintain operations of the firm and have full liability, whereas limited (silent) partners, who are often passive investors or otherwise not involved in day-to-day operations, enjoy limited liability. A limited liability partnership (LLP) is different from an LP.  In an LLP, partners are not exempt from liability for the debts of the partnership, but they may be exempt from liability for the actions of other partners. A limited liability limited partnership (LLLP) is a relatively new business form that combines aspects of LPs and LLPs.

Do Partnerships Pay Taxes?

The partnership itself does not pay business taxes. Instead, taxes are passed through to the individual partners to file on their own tax returns, often via a Schedule K .

What Types of Businesses Are Best-Suited for Partnerships?

Partnerships are often best for a group of professionals in the same line of work where each partner has an active role in running the business. These often include medical professionals, lawyers, accountants, consultants, finance & investing, and architects.

A partnership is a legal arrangement that allows two or more people to share responsibility for a business. Those partners share the ownership and profits, but they also share the work, responsibility, and potential losses. A successful partnership can give a new business more opportunities to succeed, but a poorly-thought out one can cause mismanagement and disagreements.

U.S. Small Business Administration. " Choose a Business Structure ."

Utah Department of Commerce. " Limited Liability Limited Partnerships ."

U.S. Congress. " U.S. Code, Section 26, Subtitle A, Chapter 1, Subchapter K: Partners and Partnerships ."

Uniform Law Commission. " Partnership Act ."

National Conference of Commissioners on Uniform State Laws. " Uniform Partnership Act (1997) ," Page 91.

Thompson Reuters Practical Law. " Partnership ."

Internal Revenue Service. " Tax Information for Partnerships ."

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Sustainable business practices in the digital era: a multifaceted approach.

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Salvador Ordorica is the CEO of The Spanish Group LLC , a first-class international translation service that translates over 90 languages.

Today, sustainability is more than just a buzzword; it's a strategic imperative in an interconnected world. Innovative approaches that harmonize environmental, social and economic sustainability can keep our planet and communities healthy while bolstering a thriving business.

As the CEO of The Spanish Group, I understand the transformative potential of an ethical and sustainable business philosophy in our digital age. Join me as we explore multifaceted strategies that drive sustainable success in this era. I'll share how companies can lead to a more sustainable future, from energy-efficient technologies to ethical work practices.

Environmental Sustainability

In today’s business landscape, compliance with environmental sustainability is central to being a good corporate citizen. Adding renewable energy sources such as solar, wind or hydroelectric power reduces a business’s dependence on fossil fuels and the impact of its greenhouse gas emissions.

Digitalization also plays a key role in slashing carbon footprints through its ability to optimize resource utilization, streamline operations and reduce waste. Meanwhile, ensuring that materials are responsibly sourced throughout the production process is integral to achieving environmental sustainability.

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By excelling in these areas of environmental sustainability, businesses can reduce their ecological footprint, increase their reputation by appealing to Earth-conscious consumers and play an active part in making the planet a healthier place for everyone.

Social Sustainability

Social sustainability in corporate responsibility builds inclusive, equitable societies. Ethical sourcing and labor practices ensure fair treatment, respect human rights and promote fair wages and working conditions. Diversity and inclusion initiatives foster a culture of belonging, celebrating individual differences and harnessing talent.

Community engagement and philanthropy provide evidence of a deep commitment to local communities, creating partnerships and solving social challenges. A positive work environment is created by prioritizing employee well-being and promoting work-life balance, increasing productivity, retention and overall satisfaction .

By championing these core principles of social sustainability, businesses not only contribute to the well-being of society but also build a strong brand, attract top talent and enhance their relationships with their many stakeholders.

Economic Sustainability

Economic sustainability is fundamental to the long-term success and resilience of businesses in an ever-changing market. Using innovative digital technology to identify and implement cost-saving measures boosts efficiency, productivity and competitiveness and reduces operating expenses.

Investing in sustainability as a long-term strategy delivers high returns , reduces risks and ensures business continuity in the face of evolving environmental and social landscapes. In addition, manufacturers communicate sustainability to produce consumer goods responsive to market preferences and offer competitive advantages.

Sustainability is also good for financial performance and shareholder value. This builds investor confidence and is critical to profitable operations over the long term.

Technological Innovation

Technological innovation is fundamental to driving sustainability. Digitalization and real-time monitoring, data analysis and optimal resource utilization can dramatically decrease waste and inefficiency. Technologies like the Internet of Things (IoT) are helping businesses across all verticals optimize everything from energy use to logistics. Some real-world examples of this include monitoring working conditions, tracking supply chain transparency and remote workforce monitoring.

Blockchain, a technology that brings unprecedented traceability and transparency to supply chains, is critical to help ensure a level of trust never before in sustainable sourcing and production. Additionally, artificial intelligence (AI) enables predictive analytics that can help anticipate environmental risks rather than simply react to them, optimize everything from supply chains to chemical formulations and extract intelligence from all data to remove any obstacles to intelligent growth.

Challenges And Opportunities

Here are some challenges and opportunities that might arise when practicing sustainable business.

Regulatory Compliance And Standards

Staying ahead of swiftly evolving regulations is critical to keeping the business not only compliant but also sustainable. The challenges may be complex, but the upside can be dramatic. Aligning with the most advanced standards can open up opportunities to spur innovation, not to mention gain greater competitive advantage, while others are playing catchup on the compliance front in the years ahead.

Consumer Awareness And Education

Educating consumers is just the beginning, whereas using that awareness to encourage more responsible consumption is the pot at the end of the rainbow. There are many challenges, such as consumer apathy and prior misinformation, to overcome. In my experience, I was able to overcome these challenges through things such as continuously educating consumers and providing them with transparent information about the sourcing, manufacturing and environmental footprints of our products.

The upside and potential lie not only in earning loyalty but also in meeting the growing demand for eco-responsible products, which can influence market behavior, including that of competitors, for years to come, thereby solidifying a company's brand for decades.

Collaboration And Partnerships For Sustainability

Not typically on the top of enterprises' skill sets, collaboration is vital to driving sustainability, especially on a global basis. The primary challenges here revolve around fostering collaboration beyond competitive boundaries and aligning diverse interests toward the common goal of driving sustainability.

Business leaders can foster a culture of collaboration by having open communication and dialogue among their teams, building partnerships and alliances across sectors to build on complementary strengths and offering incentives for collaboration.

Pooling those resources and collective expertise and creating the kind of economies of scale that amplify the impact on your shared goals (which is driving mutual success, one would hope) can pay off big.

Innovation In Business Models And Practices

The more innovative your organization is in sustainability, the more competitive advantage you can gain. However, once again, the challenges can get in the way—as forward-thinking as many multinational corporations have become, there's still entrenched management, resistance to major changes to any process and a lack of resources to implement these revolutionary solutions. Of course, the upside to finding them is the cost savings and even new markets that are arising for sustainable products and services.

Final Thoughts

In the digital era, sustainable business practices require a multifaceted approach. Through innovation, partnerships and regulatory compliance, organizations can pave the way for a brighter, sustainable future for the planet and all its inhabitants.

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  • International Business Machines on Tuesday unveiled several artificial intelligence announcements, including expanding partnerships and updates on watsonx, its AI and data platform.
  • IBM said it partnering with companies like Microsoft, Amazon, Meta, Adobe, Mistral, and Salesforce, which could strengthen its ties to AI leaders.
  • The company, alongside the Saudi Data and Artificial Intelligence Authority (SDAIA), officially launched the ‘ALLaM’ Arabic model through an ongoing partnership with Saudi Arabia.

International Business Machines ( IBM ) unveiled several artificial intelligence (AI) updates on Tuesday that could bolster the legacy computer maker's standing in the AI race and promote openness with the AI ecosystem.

The company reported strengthening collaborations with companies like Microsoft ( MSFT ), Amazon ( AMZN ), and Meta Platforms ( META ), and expanded offerings through its partnership with Saudi Arabia, among other announcements about its AI and data platform, watsonx.

Expanding IBM AI Ecosystem With Microsoft, Amazon, Meta, and Others

IBM expanded ecosystem access to its generative AI (genAI) and data cloud platform by allowing third-party models on the watsonx platform, through collaborations with several companies leading AI innovation.

The company announced it is partnering with Amazon Web Services (AWS) to bring AI governance to the platform and collaborating with Adobe ( ADBE ) on hybrid cloud and AI.

IBM unveiled deals with Meta and Microsoft-backed Mistral to bring Meta Llama 3 and Mistral models to watsonx.

The company also announced it is in talks with Salesforce ( CRM ) to collaborate on AI offerings and that watsonx is supported by Microsoft's cloud platform, Azure.

The expansion of third-party offerings and strengthening partnerships could make it easier for IBM to collaborate with AI leaders going forward and promote openness between AI firms.

Launches Arabic Model Through Saudi Government Partnership

IBM and the Saudi Data and Artificial Intelligence Authority (SDAIA) officially launched the "ALLaM" Arabic model on watsonx.

The Arabic model will expand the reach of the large language models and could further AI innovations within Arabic-speaking regions.

The model comes as part of the ongoing partnership between IBM and the Saudi government focused on progressing AI in the Middle East and furthering Saudi Arabia's position in the world of AI.

AI Updates Could Bolster IBM's Standing and Further AI Openness

IBM announced updates to watsonx to better meet the needs of enterprise customers on the platform and further its focus on AI openness.

The company said it would release a family of Granite models, its foundational AI model, to be open-source, allowing others to use the model and encourage AI openness.

IBM and Meta launched the AI Alliance in December 2023 to advance safe and open AI.

The company also said it enhanced its family of watsonx assistants with capabilities like coding, expanded its Nvidia ( NVDA ) GPU offerings to facilitate clients' AI workloads better, and announced upcoming data products.

Several big tech companies, including Microsoft, Alphabet ( GOOGL ), Amazon, and Meta found early success in AI monetization through enterprise customers .

IBM shares were up 2.4% to $174.11 as of 11:30 a.m. ET Tuesday. The stock is up about 6.5% since the start of 2024.

Read the original article on Investopedia .

Bing Guan / Bloomberg / Getty Images

ACT Inc. transitioning to a for-profit business focused on 'financial and social impact'

business model for partnership

ACT Inc., the Iowa City-based company widely known for its standardized college admissions test, is transitioning much of its operation to a for-profit "public benefit corporation" after more than 65 years as a non-profit.

ACT is partnering with Nexus Capital Management, a California-based private equity firm, and "unifying" with Encoura, an educational "data science and research organization" owned by ACT, according to the company's website .

The local company said the Nexus contributions will help students, educators, researchers and others.

A "public benefit corporation" is focused on a "double bottom line of financial and social impact," according to ACT.

"The need to prepare learners for success after high school for both college and work has never been higher, nor has the need to ensure that every learner has access to equitable college and career planning resources, guidance, and insights,” ACT CEO Janet Godwin said in a statement . “Partnering in this way will complement and amplify ACT’s proven platform of education and work readiness solutions to support the needs of students, educators, and employers alike."

ACT was created in 1959 in Iowa City by a University of Iowa duo. Education professor F. Lindquist and U of I registrar and director of admissions Ted McCarrel wanted to shake up the college admission testing industry by shifting focus toward academic achievements and away from strictly test-taking.

More: Behind the story of The Wilder's Iowa Gold burger, one of the best in the state

Partnership intends to enhance student preparation for college, careers

The private equity investment with Nexus will provide ACT "with the scale and capital necessary to deliver on its promise of education and workplace success," ACT Board of Directors chairman Daniel Domenech said in the statement .

A primary goal is to enhance "holistic readiness credentials and more precisely connect students and job seekers to institutions of higher education and employers." Specific details were not provided.

ACT's for-profit model and new data analysis intend to "simplify and streamline" the college application process, which they feel will "better match employers with available talent, create new opportunities for upskilling mid- and late-career professionals."

Some of the private equity money will be funneled to a yet-to-be-named non-profit organization headquartered in Iowa City that "will conduct programs, services, and research focused on education and workplace success."

Student resources will not be impacted by the private equity transition. ACT has said testing prices will remain unchanged, and all services provided by its organization and Encoura will remain operational.

"As a result of this investment, we will help more students be ready for their postsecondary paths and help more adults advance in their careers," Godwin said.

More: Mayflower Residence Hall off the market, will again house students at reduced cost

Private equity investment comes after year of downsizing

ACT's Iowa City operation has shrunk considerably in the past year.

It comes even as colleges and universities across the country have remained standardized test-optional in their admissions process, according to the National Center for Fair & Open Testing . Many students still opt to take the exams.

The organization laid off 106 employees last summer , including 40 of the 310 people employed at the Iowa City location.

Those cuts came after three straight years of operating losses in the millions. ACT was $12 million in the red in fiscal 2022 after posting more than $6 million in losses the previous year, CNN reported . The company lost $60.5 million in fiscal 2020, the Press-Citizen reported .

ACT also announced it was shifting operations off-site and selling its sizeable east Iowa City campus, a cost-saving adaptation to employee behavior. Many of ACT's Iowa City campus employees are now working from home since the pandemic, following a national trend .

Ryan Hansen covers local government and crime for the Press-Citizen. He can be reached at [email protected]  or on X, formerly known as Twitter, @ryanhansen01.

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    The model comes as part of the ongoing partnership between IBM and the Saudi government focused on progressing AI in the Middle East and furthering Saudi Arabia's position in the world of AI.

  28. Iowa City's ACT reveals for-profit model with private equity partner

    0:00. 0:45. ACT Inc., the Iowa City-based company widely known for its standardized college admissions test, is transitioning much of its operation to a for-profit "public benefit corporation ...

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