A bad partnership can put you in a hole that takes years to escape. Here are 6 kinds of deals you should never even consider.
A bad sales deal will cost your company money and produce headaches for a few months or maybe years. A bad business development deal can do a lot worse. And since most business development folks at small companies are nurtured from within the sales force, it’s easy for an entrepreneur to wind up with a head of business development who is an absolute newbie – and doesn’t know it.
Here then, is job one: Avoid these six crummy deals.
1. Joint ventures with other small companies
Small companies don’t have the bandwidth or the resources to help each other. There are no large sales forces, brand names, development talent or marketing resources that can be leveraged by one company in the favor of the other. Small companies need partners that give them added credibility and expertise.
2. Lopsided partnerships
Steer clear of deals that ask you to give more than you receive. Sometimes this takes the form of a partner requiring you to market to your customer base or prospects before they take any action. Or you may be asked to approve a one-sided indemnity clause.
An unequal partnership isn’t a true partnership. In a balanced partnership, both companies will make an investment simultaneously and as fairly as possible. The legal terms of the deal will respect both companies as equals. If the deal feels weighted toward the other partner, come to a better arrangement or walk away.
3. Bureaucratic relationships
Some companies simply have too much red tape to be of much help to a partner. Don't do deals with companies that can't move the ball forward. If they don't have a history of successful partnerships, you don’t want to be involved.
4. Historicallydishonest partners
There are companies with well-earned reputations for purloining ideas or engaging in frequent partner litigation. Be respectful of these reputations. Understand that there is no amount of legal agreement wrangling that will protect you. Don't do deals with such companies and expect that they will suddenly behave differently.
5. Untrustworthy vs. unlikable partners
Some potential partners do not instill a sense of faith. Trust your instincts. If you aren’t sure if you can trust the partner, you’re better off walking away.
Partners you don’t trust are completely different than partners you don’t like. You can do plenty of deals with people you don't really like. Learning to like or respect someone over time is much easier than learning to trust them.
6. Exclusive relationships
Nothing’s worse than a partner who doesn’t know how to share and play nice. Non-exclusivity is important for a small company. You want to be able to structure similar deals with other leaders in the space. You might suggest keeping your business solely with a partner for 12 months, or, if the partner is unwilling, consider performance-based exclusivity. Make sure you keep your best interests at heart. You don’t want a deal that locks you in to one partner while preventing you from working with others.
While these bad deals will give you an idea of what to avoid, don’t be too cautious when it comes to making friends. Partnership deals and joint ventures can be a huge asset to a small company. They offer opportunities to leapfrog growth and attract new prospects. Weigh the risk carefully and keep negotiating until you have terms that in your favor.
DON RAINEY is a General Partner with Grotech Ventures, which invests in early stage technology companies. He was named to the Washingtonian Magazine Tech Titans List and earned the Northern Virginia Technology Council’s Lifetime Navigator award for his support of entrepreneurs. Don blogs at VC in DC at http://startups.typepad.com.