If you have a product to sell, chances are you have one major customer with whom you have partnered–a company with a national (or international) sales presence–and you think you will be able to ride that relationship to the big time. Inc. Magazine has an online article about how your Big Partner thinks about you (read the article at http://www.inc.com/kelly-fitzsimmons/strategic-partnerships-view-from-other-side.html). While the article gives some good advice, I can tell you there are a few key pieces missing, things I learned from my days as a software company owner and from my knowledge of the law. Here are those missing pieces.
1. Protect your intellectual property
It’s a fact of life: unprotected property can be taken. You are likely to be telling your Big Partner a whole lot about the inner workings of your product, the lifeblood of your company. It only makes sense that you should have clear title to your property, in the form of government sanctioned registrations such as patents, trademarks and copyrights, if possible. If you don’t value your property enough to protect it, your Big Partner will find that out and they might just view the property as more valuable to them than their relationship with you is. It’s not that your Big Partner is evil, it’s just business.
2. Corollary to #1: Patent first, then disclose
America used to be a first-to-invent country, that is, if you could document that you made your invention before anyone else, then you had priority in getting a patent on it. With the America Invents Act, that is no longer the case. Instead, a premium is placed on being first to file the patent application. It’s supposed to encourage inventors to file early and get products to market sooner. Whether or not it has that effect, it certainly has the effect of chilling your conversations about the inner workings of your product with anyone, including your Big Partner, before you file that application.
3. Trade Secrets Must Be Hush-Hush
More than likely, you will share with your Big Partner highly sensitive information like client and prospect lists, beta test results, and customer support processes and results. You can and probably should do that, but you should treat that information with the respect it deserves, which is to say, it is your property. You need a nondisclosure agreement with your Big Partner and you need to label your property as being yours when you share it.
4. Formalize Your Relationship With A Written Contract
Many, many small business owners hate written contracts. They seem to think that putting their working relationship in writing somehow demeans the relationship, as if having a writing violates the “my word is my bond” machismo. In fact, nothing could be farther from the truth. The writing simply records your “word” so you can be held to it in the way you expect. The writing also manages expectations and allocates risk. “Putting it in writing” makes all parties think about the details of the relationship before getting into it. If you are serious about your business relationships, you will always demand to have written contracts.
5. Nothing Lasts Forever
Every relationship sours, and sometimes they just need to be ended. A key element of that contract I mentioned in #4 is the termination clause. Think very hard about this before you enter the relationship with Big Partner. Are you testing the waters, and so want to make the contract for a short term, with options to renew? Are there any conditions that would force you to want to exit the deal early, such as if Bigger Partner comes along, or Buyout King emerges? What if Big Partner is slow to pay–and Big Partner is often slow to pay, because he figures you need him more than he needs you. Talk to experienced business people about how their Big Partner relationships ended and plan for as many different situations as you can. It is best to negotiate the divorce while you and Big Partner are in the courting stage. You also might find out Big Partner has his own set of circumstances where he would rather terminate, circumstances you hadn’t considered, and perhaps ones that will make you say, “Huh?”
These considerations are just a few of many things to think about when you start any business relationship. But they are especially important when you and Potential Big Partner start talking, because Big Partner probably has a lot more experience than you do, and he could take advantage of you. After all, it’s just business.
Please read, use, and comment on what you find here, but remember this: Random advice, even the advice you find at Argent Place, cannot supplant the personal legal advice you receive from your own legal counsel. If you agree that Personal Legal Counsel from someone with experience at running a business could help you create more wealth, please contact Argent Place Advisors to have an exploratory conversation.
© 2012 Argent Place Advisors, LLC