Robert Ochtel’s Blog

An Experienced Approach to Venture Funding

Contract Negotiations Require Three Things to be Successful

Start-up companies often look to partner with third party companies to help them create become a successful company and at the same time create a presence in the market.  Whether it is a strategic technology partnership, a sales channel development relationship, or a key customer, all of these potential engagements will require contract negotiations to ultimately secure the relationship. As such, it is often at the contract discussion point of the relationship when one party tries to negotiate an advantage over the second party, and is where these same potential relationships often break down.  This jockeying for the upper hand does not work in any contract negotiations and often results in one or both parties walking away from the contract negotiations. In the end, both parties lose, since neither party will then have the ability to use their unique technologies, products, or services to bring value to the relationship and create a unique position that brings ultimate economic benefit to the parties involved.  This resultant breakdown in contract negotiations can often be avoided if both parties are honest, respectful and negotiate in “good faith” during their contract discussions.  The following addresses the importance of these three important tenants of successful contract negotiations.   

Honesty is the Best Policy

As in any personal or professional relationship, honesty is the best policy. If either party is not honest, then the other party cannot “trust” the first party and hence there is no solid basis for developing a strong relationship.  This is especially true for start-up companies.  Often entrepreneurs, in an effort to close an important strategic deal for their start-up company, present themselves, their company or their technology, product or service offering in a manner that does not always represent their true status of their underlying technology, development progress or competitive advantage in the market.  This intentional misrepresentation can cause problems down the road and may end up killing any contract negotiations.  In addition, if the other party finds out that your start-up company has not been honest regarding its representation, then all bets are off and often any contract negotiations will incur irreparable damage.  As such, one party will walk away, because their confidence in their potential partnership has been undermined.  So, as a start-up company it is best to be totally honest during contract negotiations, as the risk associated with the misrepresentation of you, your  company and its technology, products or service offering will often result in severed contract negotiations and a failed relationship.

All Successful Relationships Require Respect

All successful relationships require respect. This is especially true regarding the relationship between start-up companies and their potential partners. If this respect does not exist on the behalf of both parties, then there is no real reason to enter into a relationship. One party may respect the other company’s technology prowess and the other company may respect the other company’s marketing genius. In the end, both parties have to believe that they are engaging with a company that they respect and ultimately brings a technology, product, or service offering to the table that results in a strong competitive advantage in the market.  This mutual level of respect is required and is the true essence of a successful relationship. So, as a start-up company engaging in a number of potential relationships, you need to be sure that you engage with companies that earn your respect and bring significant value to your potential relationship.  

Always Negotiation in “Good Faith”

Negotiation is an art.  It also can ultimately be the downfall in contract discussions.  From the beginning of contract negotiations, both parties must enter in to all associated discussions in “good faith”.  This means that both parties must be negotiating to develop a mutually beneficial relationship, in which in the end both parties will ultimately benefit as a result of the relationship.  This necessity to negotiate in good faith will bring both parties to the table weighing not only the benefits of entering into such a relationship, but the downside of not securing a relationship. These “good faith” negotiations should not be clouded by jockeying for an advantage, misrepresenting the truth, or unfair legal contracts. No, negotiating in “good faith” is exactly what it means – negotiating with a potential partner such that both parties will ultimately benefit from the final relationship.  By negotiating in good faith, you will gain the respect of your partners and ultimately end up with a stronger contract and relationship.

Contact negotiations can be a long and arduous task.  All start-up companies that seek to enter in to a mutually beneficial relationship with a third party will need to enter in to contract negotiations with this same third party.  To help the process along, run smoothly, and in the end ultimately be successful, during negotiations, both parties need to be honest, respectful and negotiate in “good faith”.  By taking this approach to all of your contract negotiations you will ultimately end up with a much stronger relationship and a contract that is mutually beneficial to both parties.

This information was taken from Robert’s new book: “Business Planning, Business Plans and Venture Funding – A Definitive Reference Guide for Start-up Companies”.  Available at www.amazon.com.  For more information on the book go to www.carlsbadpublishing.com.

Advertisements

May 24, 2010 - Posted by | Venture Capital | , , , , , ,

No comments yet.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: