NFIB

Rivals in Harmony
04/ 02/ 2002

by Shannon Scully

If you're like most small business owners, an independent spirit is what drove you into business for yourself in the first place. Being your own boss provides a freedom not found in the corporate world, yet it can also be isolating at times. When you're the boss, there's often no one else to turn to when things get tough. But some small business owners have found support though an unlikely source—their competitors. By banding together with other small business owners, these entrepreneurs enjoy the benefits that come with the size of a big company, while still maintaining their freedom. If you're skeptical about the idea of embracing your competitors, consider that the number of strategic alliances in the United States has grown by 25 percent each year since 1987, according to a study by Booz, Allen and Hamilton. After careful research, aligning your small business with another may just be the boost you need during tough economic times.

Your industry along with your personality will dictate the type of relationship you're most comfortable with. As the following small business owners show, some prefer joining structured and organized groups, while others find it's easier to form looser alliances.

For a group of 73 independent music stores across the country, joining together lets them continue being profitable at what most went into business for in the first place: promoting independent music labels.

"We're not like the vanilla-box stores you find in the malls," says Alayna Hill-Alderman, owner of 26-year-old Record Archive in Rochester, N.Y., and founding member of the Coalition of Independent Music Sellers (CIMS). Started in 1995, CIMS helps its members compete with the large, discount music retailers by marketing the shops as prime promotional outlets for smaller record labels and young, developing musicians. For a fee, CIMS guarantees national exposure through a coalition-wide marketing campaign, which includes in-store play and displays.

Musicians aren't the only ones who benefit. After buying into the group when they join, members of the coalition earn profits from the marketing campaigns and enjoy the advantages of a national support group.

"If I'm down 10 percent this quarter, I can pick up the phone and call someone in another city and ask if they're experiencing the same thing," says Hill-Alderman, who has 25 employees in two stores. "Because we all have such different markets, we learn a lot from each other."

CIMS has a strict membership policy limited to one member per market. A group vote is held before accepting a new label.

The idea is working, and the growth of the coalition ultimately translates to profit for its members. CIMS now represents a combined revenue of more than $120 million, a number that garners attention from the music industry, yet still allows the owners to maintain their independence.

"We're a chain without a name," Hill-Alderman says.

Take on the National Chains, Together

Kansas City, Mo., restaurateur Alex Pryor recently noticed a disturbing trend in the city's restaurant market. More and more national chain restaurants were opening in the area, threatening the smaller, locally owned dining spots.

"We couldn't compete individually," says Pryor, owner of Zin restaurant. "We didn't have the high-profile locations or the national advertising budgets that the big chains have."

Early last year, Pryor joined with 18 other local restaurant owners to form the Kansas City Independent Restaurant Alliance (KCIRA). "We want to remind people to spend their money at places owned by people living in this community, people who send their kids to school here," says Pryor. "We want them to remember that original ideas and recipes come from independent restaurants."

Using quarterly dues of $250 for each restaurant, the KCIRA launched an extensive advertising campaign that Pryor admits none of them would have been able to afford on their own. "The difference in the effectiveness of a quarter-page ad and a full-page ad in the newspaper is amazing," he says.

KCIRA also promotes its message with tabletop "tents" at each restaurant that list the association's members.

Despite being in direct competition for diners' dollars, Pryor says the advantages of aligning with the other independent restaurants far outweigh the risks. "There is plenty of market for all of the good, local restaurants," he says. "We're not killing each other, it's the national chains that are hurting us."

Find Friendly Competitors

Another unlikely alliance of competitors is the Oregon Brewers Guild, which started in 1992 to promote state-brewed beer. Brewery members vary in size, producing anywhere from a few hundred to tens of thousands of barrels a year. Much like the restaurant association, the Guild gives members access to affordable marketing.

"Oregon has the highest market share for craft beer of any state, largely because of the association's marketing efforts," says Gary Fish, owner of Deschutes Brewery in Bend, Ore., and founding member of the Guild.

The Guild publishes a brochure for distributors and restaurants that is paid for by membership dues based on a brewery's size. To maintain Oregon's reputation for producing high-quality ale, the Guild conducts a Quality Mark program that awards a seal of approval to qualifying beers. "We all benefit from the high-quality reputation of Oregon beer," says Kurt Widmer of Widmer Brothers Brewing in Portland, Ore., a larger brewery that helps the smaller ones.

The greatest advantage of membership, Guild members say, is the positive publicity generated for local breweries that often can't compete with the national brands.

"We all benefit individually from a positive message. The more positive image we portray as an industry, the better off we all are," says Fish.

Go Formal ... or Informal

Not all alliances between small businesses have to take place within formal organizations that charge dues. Many business owners have been successful by establishing informal relationships. Being flexible, and careful, is the best way to strike a balance that can benefit both parties.

Mitchell Rappel knows that to grow his full-service graphic design and marketing businesses, he needs an expanded sales force. But instead of hiring more people, the Linden, N.J.-based business owner decided to seek out relationships with local companies he viewed as a direct competitors.

One such business he now works with is Intara, a Web development firm in Parsippany, N.J. Though both companies offer similar services, each has specific areas of expertise. "They help us with the back-end functionality of client Web sites we develop," says Rappel, owner of both the 120-employee NuVision Graphics and step2media, a digital media communications firm. "We help Intara on the front end by making the sites they're working on look dynamic and attractive."

By referring clients to each other, both companies benefit from expanded capabilities and bigger sales staffs, without having to hire additional people.To simplify billing, the two companies have worked out a system to pay each other for their services, instead of sending clients separate bills.

"We've both been able to close deals because of the increased services we offer" says Rappel. "We can easily assemble a team that's able to meet every need of a client."

While these types of relationships can be beneficial, they shouldn't begin too quickly, says Rappel. Informal alliances might be more flexible than structured organizations, but they don't offer the same protections, so you must be careful.

Ensuring the other company operates under the same business principles is key. When you align yourself with someone else, they become a direct representation of your company in the client's mind. "You don't get into bed with everyone immediately. You have to use good judgement and trust your instincts," he says.

And in cases when your instincts fail, formal legal agreements can be helpful."You should always have a legal agreement that outlines exactly what each party takes from the relationship, in the event that something goes wrong," says Rappel.

Grow Through Alliances

In Jacksonville, Fla., a group of four independent public relations practitioners found they too could broaden their client bases by joining together.

Since 1999, the women, who all left PR agencies to start their own businesses, participate in a weekly conference call to discuss ideas and offer advice. "The call gives us the opportunity to bounce ideas off of each other, which is one of the most valuable aspects of working at an agency," says Winnie Wagner, owner of Wagner Public Relations.

There is no formal structure to the group, but that's how the members want it. They also aren't looking to grow. A fifth member recently moved away and they agreed not to replace her.

"Some groups get bogged down in rules and regulations," says Wagner. "Ours is very informal, and it works well because we've stayed so small."

The group has never experienced cut-throat practices, Wagner says, because they're careful to choose professional and reputable members. "We are competitors, but we're also friends," she says.

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This article originally appeared in the February/March 2002 issue of MyBUSINESS Magazine.

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