Coaches try to encourage their players to reach for a higher level of competitive play by shouting, "Who wants it more?" The meaning of this exhortation is clear: in head to head competition between two players of similar ability, the player with greater desire often prevails. In deal negotiation between a smaller company and a larger one, there is rarely a truly level playing field. The larger company typically has greater resources and more alternatives. The smaller company is often uncertain as to how many other viable suitors it will have for its offering (in my world, this usually involves some type of product or intellectual property). This can cause them to have a stronger desire to strike a deal, which can lead to bad deal making.
When a smaller company is more eager to come to terms than a larger one, this can cause the former to allow itself to be exploited because they were more hungry for any deal than working for a good one. Here are a few tips for leaders of smaller companies as they consider deal options: Seek guaranteed minimums. When a company is not required to guarantee its performance, it has the option to not perform, and without consequence. One might ask, why would a company want to make a deal if it didn't fully intend to support the value offering it is licensing? There can be any number of reasons for this, including wanting to take the technology "off of the market". Unless the deal guarantees at least a minimum level of performance or payout, be prepared for the worst.Watch for convoluted deal terms and overly easy exit clauses. If the deal sounds confusing, it probably is and should be simplified. If the deal permits too many exit clauses, this can translate to an ambivalent commitment to making the deal work. Seek to keep these to a minimum, if possible. Be willing to walk away from a bad deal.
Deals should not be considered by a smaller company as a reward for their hard work. They simply represent opportunities for multiple parties to create and share value. This means that there can be good deals, bad deals, and anything in between. It is important to keep this in mind before entering any negotiation. Unlike in athletics, the side that wants it more doesn't typically come out on top.
Since 2005, BFS Innovations has helped its Fortune 500 clients with technology scouting, new business creation and development services. Contact Michael today at This email address is being protected from spambots. You need JavaScript enabled to view it. or at 614 937-2408 to discuss your company's needs.
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