A small company's secret: Pick big partners

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Small company, big profit

How do lean businesses outperform rivals with fatter payrolls? A look at four entrepreneurs who cracked the code.

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Partner picking 101

To boost the odds of forging a profitable strategic partnership, Mike Docherty, CEO of Venture2, a business brokerage that helps partner small and large firms, recommends taking these steps:

1. Shop around: Assess at least three potential partners before entering into detailed discussions.

2. Do a test run: Collaborate on a short-term project before committing for the long haul.

3. Be frank: Discuss your firm's goals, limits, and concerns, and listen to what potential partners have to say about theirs.

4. Designate a point person: Each partner should choose one staffer to be its main liaison throughout the partnership.

5. Create an exit plan: Set separation terms - addressing intellectual-property ownership - for the end of the partnership or if things don't pan out.

When less means more

Gallery: Outsized profits from tiny firms

Find your niche

Choose the right clients

Form strategic partnerships

Outsource (nearly) everything

When a large staff can work

(Fortune Small Business) -- The big guys do it all the time. Dell (DELL, Fortune 500) computers come packaged with Intel processors, and McDonald's (MCD, Fortune 500) serves Newman's Own salad dressing. For small businesses, strategic alliances can boost sales to new heights without supersizing staffs.

Advantage Pressure Pro, a 17-year-old company based in Harrisonville, Mo., had just five employees when owner Phillip Zaroor started to approach other automotive firms about pairing his tire-pressure-monitoring systems with their products. That was in 2006. Last year Zaroor's sales rose to $5 million, from $3 million the previous year. Headcount? Still five.

Advantage Pressure Pro had always partnered with larger firms. GE (GE, Fortune 500) makes the sensor chips that go into Zaroor's systems. Michigan-based Lectronix handles Advantage's assembling. But when Zaroor, 59, noticed that many customers sought a solution that combined fleet management, driver logs, and truck weighing with tire-pressure monitoring, he decided to pursue partnerships with a range of small technology providers.

He eventually signed up more than 30 affiliates, such as Square Rigger, a fleet-maintenance-software vendor in Silverdale, Wash., and Transmobile, a Florida-based tech company that sells asset-tracking applications.

"Small firms need collaborative relationships to compete," says Transmobile's CEO, Sherry Carani.

Zaroor agrees. "You don't buy a door without the knob," he says. "Our partners are the doors, and we're that feature that adds value." Advantage and Transmobile now offer packages that incorporate each other's products.

Zaroor prefers to keep his firm small and close-knit - three of his five employees are relatives. That size allows him direct contact with all staffers and keeps him in the loop when it comes to office buzz. Meanwhile, Zaroor's partnerships let him reach new markets without adding employees. "Instead of hiring our own sales force, our partners integrate our technology into their own product lines," he says. The result: thousands of points of sale and high margins.

Though Zaroor isn't overburdened by hiring and management issues, he chooses his partners with great care. Entrepreneurs commonly fear that larger partners will swipe their ideas.

Instead of giving in to paranoia, Zaroor invests heavily in his patents and vets his affiliates rigorously. He focuses on noncompetitive companies with business goals similar to his own.

"You can't stick your head in the sand," says Zaroor. But with some due diligence, you can use partnerships to drive big profits.