COLLABORATION IN THE LOWER MIDDLE MARKET:

THE XPX EXPERIENCE 

 Our first principle at XPX is to “work collaboratively.” We talk about it as if it’s obvious, but it is a fundamental challenge that we all face in our work.

During this webinar with our members, we discussed different types of collaboration, best practices for building a collaborative network, and ways to overcome the associated challenges. We will share our members’ comments with you and you’ll learn:

What is collaboration?

There is an excellent definition of collaboration from the BusinessDictionary:

General: Cooperative arrangement in which two or more parties (which may or may not have any previous relationship) work jointly towards a common goal.

Knowledge management (KM): Effective method of transferring ‘know how’ among individuals, therefore critical to creating and sustaining a competitive advantage.

Negotiations: Conflict resolution strategy that uses both assertiveness and cooperation to seek solutions advantageous to all parties. It succeeds usually where the participants’ goals are compatible, and the interaction among them is important in attaining those goals.

Where do we focus our collaboration?

At XPX, we believe that there is a critical need to support the growth of healthy, vibrant ecosystems in the lower middle market of local economies. Doing this is impossible without collaboration.

The data on corporate survival rates from the US Bureau of Labor Statistics between 1994-2015 shows that consistently, 50% of business don’t make it past five years, and only 20% of businesses make it by 20 years.

The companies in the LMM are past that five-year start-up stage and have joined the 50% of businesses that have made it, but that’s not a guarantee that they will succeed long-term. There are many challenges associated with becoming a long-lasting, sustainable business with transferrable value. As they are scaling and growing, they often lack internal resources to support that growth. That’s where we come in.

These lower middle market companies tend to make heavy use of external advisors to fill the gaps and get the expertise they need. But for it to be successful, everyone on the team needs to collaborate and pull in the right direction.

Why is Collaboration Important?

At XPX, we believe that the secondary effects of supporting the LMM businesses are invaluable. The ripples that go out from a thriving local business drive sustainable and reliable sources of local employment. Many of our clients are essential contributors to their communities. Maintaining their businesses and making them viable over many years and different generations of owners is critical to helping maintain the local economy.

The regional XPX chapters facilitate deep networks of advisors to help the LMM businesses and business owners realize the value of the work that they’ve put in. XPX members collaborate by sharing resources, pursuing similar principles, building relationships and then bring it all to their clients with a high level of professionalism.

Who are the players in LMM collaboration? 

This graph shows the 12 professions in the XPX ecosystem, and the top three areas of expertise within these professions. Our members tend to have seven to ten areas of expertise each, so you can see how quickly it develops into a diverse network and why collaboration becomes a critical element of helping them succeed.

Business advisers are generally talking to someone in the C-Suite, but they are not all necessarily to each other. At XPX, we foster relationships between advisors and encourage them to have informal communication to ensure that everyone is on the same page and doing what’s best for the company. Such collaboration can also save the company money.

How do we collaborate?

While looking into different methods of collaboration, we came across a thought-provoking article from the Hype Innovation blog, titled “The Four Main Types of Business Collaboration,” written by Oana-Maria Pop. The article talks about four types of collaboration and how collaboration has evolved over the years.

Strategic Alliances – the original form of collaboration; when two or more business formally agree to collaborate on a temporary basis to achieve their strategic goals.

Portfolios – to extend the benefits and the duration of strategic alliances, companies began to build portfolios that allowed them to centrally manage multiple alliances and create cross-fertilization of knowledge. The pharmaceutical industry popularized the portfolio collaboration.

Networks – portfolios and alliances evolved into a more complex system of networks that connect companies with similar R&D goals. Networks increase the ability of all parties to collaborate and contribute to the common goal, including the customer, while reducing competition within the network. There is less focus on managing individual collaborations and more focus on the company’s position in the network, eventually leading to competition between the networks. Networks still have a central authority, though some of the parties can communicate with each other directly, unlike in the portfolio system.

Ecosystems – the most advanced form of collaboration, ecosystems are generally self-contained and self-adjusting systems. They are built on strong interdependency, integration, shared and complementary skills and objectives. All parties can communicate with each other, including the customer, and there is no need to go through a central manager, as there is no formal authority in the ecosystem: “innovation is no longer in service of the focal firm. Innovation is now a jointly orchestrated activity.”

The article concludes that ecosystems are becoming the go-to practice for collaboration as they lead to the most effective problem-solving. While the ecosystem structure is what we strive for at XPX as well, it’s important to note that most collaboration systems in the lower middle market companies are not being created de novo.

Every business that we consult for already has an existing structure in place that has worked on some level. It’s rare to come in and throw everybody out and start anew. But the system will inevitably have gaps and that’s where we come in as advisors.