Coopetition is one of those business concepts that seems a little absurd at first glance.
“Partner with a competitor? Why—so I can lose my business?”
That’s an understandable first reaction. But hear me out:
coopetition can work to your advantage. It can…
- boost your business
- lower your costs
- increase your organizational resources
- expand your network
- make your customers’ or clients’ lives easier.
It can even be kinda, sorta… fun. Really.
Whether you’ve been considering partnering with a competitor or are new to the idea (in which case you probably look like this), here’s everything you need to know about coopetition.
Coopetition definition and examples
First of all: What, exactly, is coopetition?
Coopetition refers to any collaboration between two or more similar business entities—typically competitors or seeming competitors. What makes coopetition different from conventional cooperation is the fact that the organizations working together are selling products or services to the same audience.
The term coopetition is a mashup (or portmanteau, if you’re feeling French) of competition and cooperation. It originated in the work of Barry Nalebuff, a professor at Yale School of Management, and Adam M. Brandenburger, a professor at NYU Stern School of Business. The two observed the trend in the 1990s, and noticed it was especially prominent among tech companies. Two businesses—often a hardware company and software company—would team up to create a product that appealed to consumers and expanded the market share of both companies. After studying multiple examples, Nalebuff and Brandenburger wrote a book entitled Co-opetition in 1996. The book details these types of partnerships between businesses in a variety of sectors, from car manufacturers to software and hardware designers.
You don’t need to look far for examples of coopetition in action. In fact, you might be holding one in your hand right now. For years, Samsung has manufactured screens for Apple’s iPhones.
Then there’s Ford and Toyota, which worked together on the hybrid Atlas Ford F-150. And the well-known YouTube channels that have teamed up to promote fundraisers for St. Jude Hospital, the children’s cancer research hospital. Or, how about the many coffee shops and pharmacies located inside supermarkets? Examples of coopetition are everywhere.
The benefits of coopetition for your business
As Samsung, Apple, Ford, Toyota, and many other companies know,
one of the most effective ways to grow a business is by partnering with another business.
And yet many business owners never consider the idea. Others assume partnering isn’t worth the time, risk, or effort. Instead, these business owners try to do everything themselves and regard their companies as the only worthwhile options on the market. They write off their competitors’ offerings as poor quality, inferior, overly expensive (or deceptively cheap) substitutions of the real thing. This is the assumption behind most competition: “We’re the best—and if people knew we were the best, we’d own 100% of our market.”
I’m about to lay down some truth, right here, right now, so fair warning…
Your business might not be the best option for everyone in your market. In fact, there’s probably no such thing as “the best”—different people choose different providers for different reasons. Substantive reasons. Valid reasons.
What’s more, this kind of all-out competitive mindset tends to keep small businesses small. They focus on competing with other small companies—frequently over price, because it’s the easiest thing to change—creating a race to the bottom that hurts everyone.
I’m not suggesting competition is a bad thing. All I’m saying is that instead of competing with Joe down the street, what if you teamed up with Joe to outperform Martha in another city? Or what if you, Joe, and Martha worked together to take down Giganto-Corp Global? Coopetition makes it possible.
By partnering, similar businesses can achieve numerous mutual benefits for themselves and their customers, clients, and communities. We see it in practice every day:
- Small health food stores order goods together. This allows them to benefit from bulk pricing, which keeps their prices comparable to large chains.
- Book stores pool their funds to bring in guest authors or artists they couldn’t afford otherwise, with one location hosting the event and another taking on advertising, for instance.
- Competing businesses of all kinds co-sponsor fundraisers, sports teams, and other initiatives to make differences in the communities they serve.
Strategic alliances with competitors also help you to broaden your market. Maybe you’ll have more local customers for your brick-and-mortar business, or you’ll be able to expand into ecommerce. If you do business primarily online, you could gain the resources to bring your product or service to customers throughout the US, as well as abroad. Bonjour, new customers (again, if you’re feeling French)!
Is coopetition a smart move for your business? 5 questions to ask
Note that the keyword here is “strategic.” Just as ruthless competition isn’t always the best move, neither is ruthless hugging it out. Let’s explore a few considerations to think about before you coopete.
1. “What can we do that no one else can?”
As you consider what sort of partnership might work for your business, think carefully about what makes your business unique. As a lawyer or doctor, this would be your area of expertise in law or medicine. A real estate agent might specialize in a particular type of transaction or certain neighborhoods. If you run a tech business, what do you do that no one else does? Whatever your answer to this question, this is the area of your business that you protect and don’t invite competitors into.
2. “What don’t we do so well?”
The next question to consider is where you feel you struggle as a business. Maybe you need a better network of referrals when issues crop up that aren’t in your area of specialty. Perhaps there’s a service you’ve wanted to offer but don’t have the capacity for it as your business is currently constituted. What kind of expertise do you need to bring the project to fruition? Do you know of another company that has the skills you need? It’s much more efficient to team up with another expert than to try to learn from the ground up.
3. “What’s practical?”
Consider practical factors such as location and time commitment. Are face-to-face meetings with the other business(es) feasible? Are you in the same time zone? Do you all speak the same language—figuratively and literally? How will the location of your partner company affect your ability to communicate and collaborate effectively?
4. “How will this make our customers’ or clients’ lives easier?”
The more sense a collaboration makes for the people you serve, the better idea it is for your business and collaborator(s). Maybe a website tool that one business’s customers love using is too expensive for that business, but by sharing the cost with a competitor, the businesses can ensure customers can keep using it—and new customers can access it, too. Or maybe you can gain valuable word-of-mouth by helping would-be clients you can’t serve connect with a local professional who has capacity for them.
5. “What’s in our shared DNA?”
Finally, think about your company’s values. If you value empowering employees, for example, look for a partner company that does the same. If you want to become a more equitable and inclusive organization, look for potential partners who have achieved that goal. In any case, be sure to work with people you trust, can rely on, and enjoy working with.
Ingredients for successful coopetition between two companies:
- Shared values and goals
- Business and cultural alignment
- Sustainable time and energy commitment
- Mutual ability to meet deliverables
- Customer crossover
- Product reciprocity
- Enthusiasm to create together
Next steps for diving into coopetition
Coopetition takes all forms. It can last weeks, months, or years. It can involve two, three, four, five partners or more. And it can be breezy and simple or the kind of arrangement so legally byzantine your attorney would need to consult their attorney.
Some coopetitors (we really need better words here) negotiate complex agreements and launch joint ventures together. Others enter into verbal contracts—little more than a handshake and an “okay, let’s do this.”
I won’t tell you what’s best for you because your business is unique. Also, I’m not your attorney—and definitely not your attorney’s attorney. But I don’t want to leave you without a few practical next steps.
Before approaching another business with a partnership idea, put together a clear proposal. Be forthright and transparent about what you want to collaborate on. List what you bring to the project and what you need from the other party. Having clearly defined roles and agreed-upon methods of communication are keys to success. Be clear about how you’ll exchange information and what kinds of information will remain private in each company.
You could also define how long the partnership is expected to last. A study published in the journal Sustainability looked at 210 high-tech companies in Portland, Oregon. It found that the most successful coopetition arrangements lasted three to five years. Take into account how long it will take to develop, test, and market your joint product or service. Depending on your business, you might want to consider a longer-term relationship. Examples could include setting up a medical practice of several different specialists to better serve patients. A real estate agent could have a referral agreement with a contractor.
Depending on the size of your business, you might have to convince partners and employees that this whole coopetition idea is a good one. Take the time to make sure you have everyone on board. These partnerships hinge on trust and transparency. Make sure all of your people are clear on the scope of the project, who’s responsible for what, and how various parties will communicate.
Last, challenge your own assumptions. Remember that coopetition can be good for your customers or clients, your employees, and yourself. A careful coopetition partnership allows you to pool resources and expand your business while guarding against some of the risk. This in turn protects you, to some extent, from the unexpected.
In our ever-changing business landscape, it’s imperative for business owners to think big and think strategically. By changing your mindset from “zero-sum” or “winner-take-all” to a plus-sum mindset, you broaden your horizons and embrace your role as a leader in your market.