Wednesday, 11 April 2012

Delicate negotiations - telling your Business Partner you want more

Is it business, or is it personal? The truth is when you partner with somebody to start a business no matter how you start it will invariably become a bit of both.

If you ask for a bigger share, your partner will often see that as coming out of his or her own pocket.
The trouble is this. You are approached by somebody who says to you 'I have a great idea'. I have it defined, have established all the relevant relationships, and I can sell it, the only piece missing is YOU, I need you to build a prototype that I can sell, for that I’ll give you a share in the business and a exec role when it kicks off.

You say, yes that sounds great, you build the prototype but of course realise that the big customers won’t agree to anything before there is a proven case, you therefore build a production system to pilot with some smaller companies. You realise they have different requirements, you need more functionality to support them and that growing organically will take a lot longer to generate a substantial income.

One day you wake up and say to yourself 'wait a minute, I have delivered far beyond our original agreement, and I am now working for free'. As an investor you think, the founder hasn’t delivered her plan, and this must be funding round two, you want more for the additional risk. As a friend you know that anything extra that you ask for will dilute the founders shareholding and that they will be very upset, as an individual you are finding yourself between a rock and a hard place, because you know you are critical to the success, the founder assures you again that she is 'extremely hopeful to land a big deal soon' but you can’t pay your rent with a wish or a promise.

Delicate indeed. What do you do? I truly don’t have the magic formula. I think it is very important to be clear about what you are doing and for what in return. Failure to do that (and we all fail because nobody starts a business thinking it will be unsuccessful) I think you will just have to check your moral compass regularly. Make sure that you are not being taken advantage of and also that you are not exploiting your own position. It can only work in the longer term if you are both thinking you are getting a fair deal. The really hard part is that you might not be able to find a compromise in which case you should cut your losses (or winnings) and walk. The feeling of injustice is like a cancer that will only get worse. Be prepared to compromise but only agree to a deal you are truly happy with. That’s what I think anyway. I’m certainly not an expert but I’m right at the centre of it on a number of initiatives, so any word of advice is definitely appreciated.

3 comments:

  1. No, I can't see a magic formula either.
    What about a contract clause for re evaluation at set periods - to be determined by the nature of the project.
    You still get the potential bad feeling, but at least the re evaluation is neutral - initiated by the contract clause.

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    1. Yes if I had only listened to your advice. The problem is that you are too optimistic at the beginning of a project like that and therefore often (in my case always) fail to agree proper contract terms.

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  2. Think you have the problem nailed. Unfortunately, as problems go, this one does not have a standard solution. "Partners" need to be clear about their own motivations, risk appetite, what if scenario hndling, etc. BEFORE signing on the dotted line as far as possible. But, eaier said than done....

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