1.
Cutting Yourself Too Good of a Deal
If you are dealing with a long term relationship, it's dangerous to
cut yourself too good of a deal. Even short-lived partnerings are
likely to last several years. You are negotiating a relationship,
not a transaction.
It is difficult
to win if your partner is left feeling taken advantage of. Your partner
will be tempted to evade their obligations. You want to avoid being
handcuffed to a partner looking to even a score.
Focus on jointly
making money from customers instead of trying to make money from your
partner. It is too easy to harvest grief and bickering if you misdirect
your efforts in an attempt to do otherwise.
2.
Lack of an Exit Strategy
Plan your exit.
Whoever best plans for the end of a partnership will benefit most
from it. Those who don't plan well are almost certain to lose from
it. Only with careful attention to detail will you succeed in protecting
your interests when they inevitably conflict with those of your partner.
Expect conflicts
of interest. In most conventional business dealings, the parties have
conflicting near-term interests such as arriving at a mutually acceptable
price, but have compatible long-term interests. Most corporate partnerings
relate in the opposite way. In the beginning, each partner fulfills
compelling needs of the other. After a period of time they become
less dependent on each other and their long-term interests begin to
diverge.
Stay ready for
your next opportunity. By their nature, sooner or later Corporate
Partnerships come to an end. The most important consideration when
starting one is how you will exit from it. Always plan for what you
will be left with when it comes to end.
Stay autonomous.
If forced into dependency, make it your top priority to remove yourself
from it as soon as possible. If you don't, you are putting your fate
in the hands of others. They will look after their interests, not
yours. Sooner or later, your interests will diverge. When that happens,
your dependence will be turned to your disadvantage.
3. Failure to
Use Deal Sheets
A deal sheet
is a non-binding outline that walks you step by step though a transaction.
It serves as
a set of detailed specifications that controls the content of the
contract.
It allows business
executives to maintain control over the details of the agreement without
being overwhelmed by legal drafting.
It portrays the
entire deal in the context of the specific issues. All key legal and
business issues are reduced to a minimum number of words.
One of the most
valuable functions of a Deal Sheet is its use in controlling the lawyer
representing the other side. It permits you and your lawyer to design
the agreement before the other side's lawyer is able to exert much
control. It permits you to quickly test different deal structures
by making changes to a simple Deal Sheet - without having to revamp
a lengthy and detailed contract. The bottom line? Quicker cycle time
between negotiation sessions. A side benefit is reduced legal fees.
4.
Misuse of Lawyers
The function
served by lawyers is to look after the many little details that can
turn around and surprise you. Long-term relationships have far more
of these details than do single-shot transactions.
From early on,
keep your lawyers well-briefed - while maintaining full personal control
of the negotiations. Your lawyer can help you determine early on what
you need and want. Then, you can position yourself from the beginning
to ask for contract concessions. If you ask for things early enough,
it can make the difference between getting them - or not.
The lawyers most
important to keep under control are those representing the other side.
These are the lawyers most likely to interfere with your goals.
The most effective
way to deal with opposing lawyers is to circumvent them - delay the
participation of their lawyers until you have completed structuring
the deal.
Their lawyers
can't interfere with you if they are not there. Encourage the other
side to delay using their lawyers until the business issues are negotiated.
Once they are brought in, try to limit their involvement to legal
issues. Deal sheet are excellent tools for doing this.
Do your best to
develop strong personal relationships with the business people on
the other side. You will then be in a position to enlist their aid
and influence if their lawyers get out of control.
5.
Failure to Plan and Then Keep Your Eye on the Ball
Think through
your plan before you start. Determine where you want to go, how you
will get there, and when you will get there. Do this planning before
you look at specific partners.
Don't lose sight
of your goals. Corporate partnering should not be engaged in for its
own sake. Don't mistake a stable partnership with success.
Corporate Partnering
should be means to an end. Once you determine your objective, stay
focused on it.
6. Negotiating
From an Ivory Tower
Too many people
try to do everything themselves - in isolation. You have to communicate
with your people.
Don't forget
to involve and consult with your line managers and technicians. They
see and know things that you do not and cannot. If you proceed without
their perspective, you will make more mistakes than you need to.
7.
Misplaced Haste
It is far easier
to get into trouble than to get out of it.
Attempted shortcuts
are more likely to cause delays, or bad deals. Don't gloss over the
details. They are the keys to your success.
What may look
like a modest transaction becomes substantial when multiplied over
a period of years. Your true investment of time and money is much
larger than it may first appear.
If you fail to
get it right at the start, it may cost you a great deal of time and
money to correct it later - if you are permitted to correct it.
8. Ignoring Details
It is too easy
to become enamored with personalities, the big picture, and the excitement
of building a corporate partnering relationship. It is common to ignore
attending to details. This is one of the biggest mistakes people can
make.
Details will
have a disproportionate impact on the benefit you get from a long-term
partnership. You must adjust your perspective. For example, how price
adjustments are made may be far more important than the initial price
itself.
Over time, many
things will change - the market, the competition, your direct or indirect
costs, or how your partner feels about the partnership or a prospective
alliance with a competitor. Sooner or later, you will part ways. The
impact of these changes are controlled by the host of details that
will appear inconsequential at first. They aren't.
Leave yourself
inadvertently exposed and, sooner or later, your error will be turned
to your disadvantage. It may be done politely, with grace and consideration,
but sooner or later it will happen.
9. Trapping Yourself
into Awkward Positions
Making commitments
or creating expectations while thinking on your feet can lead you
into trouble. Most people will make commitments or create expectations
while thinking on their feet - often out of a good faith desire to
please their counterpart. Other people are driven to do it out of
ego. They want to be seen as decision makers. Avoid falling into this
trap and you will benefit in your negotiations. In fluid real-time
negotiations, you won't always grasp the full implications of what
you are agreeing to immediately.
Don't admit to
being a decision maker, even if you are one. You can never benefit
from being labeled a decision maker. Even if you have authority, you
don't have to admit it. You can then defer to a higher authority who
must approve what you commit to. For the very same reason that you
don't want decision makers on your side of the negotiating table,
you do want decision makers on the other side of the table.
Don't be drawn
into making statements that can be played back to you later in negotiations.
Watch out especially for giving opinions or predictions on the terms
of the deal. You may later find your interests in conflict with what
you said.
10. Impairing
Your Ability to "Get Up and Walk"
Stay uncommitted
until the deal closes. Keep your alternatives open, alive, and in
play. In the course of negotiating a transaction, people often become
so committed to it that they are unable to back out - even if they
should. The commitment may be economic, emotional, or organizational,
or all of the above. As long as you have alternatives, you have the
ability to get up and walk. When you lose this ability during negotiations,
you position yourself to lose.
Avoid putting
yourself in a position of dependency on a single source of anything.
If you put yourself in that situation, you are putting your fate in
the hands of others. They will look after their interests, not yours.
As long as you maintain alternatives, you have the ability to get
up and walk. When you lose this ability you position yourself to lose.
11. Ignoring
the Foreclosure of Other Opportunities
Whenever you
participate in a partnering, you forgo other opportunities. You cannot
always predict what they might be. For instance, it is not unusual
for there to be personal animosity between CEOs or traditional rivalry
and hostility between organizations. You may not be able to partner
with both organizations.
Once you commit
resources to a project, you have less capacity to take advantage of
new partnering opportunities that appear later - even if the new opportunity
is better than the first. You can do only so many things at once.
12.
Wrong Deal, Wrong Partner, Wrong Reasons
Doing the
Wrong Deal,
Ceding control
of your core strategic value. A corporate partnering should leave
you continuing to provide that contribution to the value chain that
distinguishes you from your competitors. It is dangerous to cede
control over core portions of your business. To identify what is
core to your business, look for what you contribute to the chain
of value that distinguishes you from others.
Exercise care
in purchasing equity in your partner. In most situations you shouldn't
or wouldn't purchase equity, you're trying to accomplish the economic
goals of equity ownership. When you purchase equity you are paying
for the capitalized value of your partner's future profits - profits
that may never materialize. There are few partnerings where you
can't accomplish long-term bonding less expensively with alternative
methods. Two instances where you should consider investing in a
partner are (a) you may want to eventually purchase the entire company
and the initial investment is just a first step in that direction,
and (b) the subject matter of the partnership is too ill defined
to be fully captured in an agreement.
Exercise care
in selling equity to your partner. When you sell equity in a privately
held company, you are entering into a long-term partnership on the
most intimate levels. It is not a transaction to engage in lightly.
The shareholder relationship will affect who will be willing to
invest in your company and on what terms. It will foreclose financing
options and will place limits on the operation of your company.
Lack of synergy
between partners. Make sure there is true synergy between you and
your partner. The strengths and weaknesses of the partners should
complement each other. You may have an excess of business opportunities
and a shortage of resources to exploit the opportunities. If that
is the case, you need a partner that will supply additional resources
- not additional business opportunities. It may be that people are
your scarcest commodity. If that is so, select partnerships that
won't require you to use a lot of people. If you have only a single
business opportunity, it is unlikely to be in your interest to share
it with a partner. If you have a scarcity of experienced engineers,
it makes little sense to enter into a partnership where your partner
is depending on you to provide all the engineers.
A disadvantageous
deal. You are giving up part of your economic future to your partner.
Make sure that your partner is creating more value in the venture
than your partner is taking out.
With The Wrong
Partner,
Incompatible
corporate cultures. I would be careful about joining with a partner
if you have incompatible corporate cultures. Neither of you are
likely to change the other, and you may each waste time and money
trying to adapt to the other. Incompatibility becomes less important
if you can conduct your business with your partner at an arm's length.
It becomes more important to the extent that your partnering will
require close collaboration between your staffs.
Your partner's
primary goal is to learn from you. Avoid partners whose primary
goal is to learn from you. Their learning will absorb your resources.
As they learn from you, your contributions become devalued. Your
partner can transform into a potential competitor.
Partnering
with potential competitors. Be wary of partners who are likely competitors.
The more asymmetry between your organizations, the less likely they
will become direct competitors. For instance, a small start-up company
and a large international corporation that form a partnering are
unlikely competitors. Even if they develop similar products, the
two companies will likely approach the market in entirely different
ways. Two companies of the same size, in the same industry, with
the same marketplace vision, are far more likely to end up competing
against each other.
Partners with
suspect motivations. Will your partner care as much about the product
or technology as you? Does your joint venture have internal competition
within your partner's own organization? Your partner may have other
products or technologies competing for its attention and resources.
Are you a political football within the other organization?
For The Wrong
Reasons.
Defensive partnerings.
If you are entering into a partnership for defensive purposes, you
are not entering it for the right reasons. You probably have internal
problems that will not be fixed by corporate partnering. This may
be exploited by a more aggressive partner. Your motivations for
entering a partnership should be to take your current resources
and do more with them than you can alone.
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