Breaking Up is Hard to Do - Part III

So what about when you've come to the point where you feel you need to invoke the exit clause and end the alliance?

It's certainly not a good feeling. I've been there. I was VP of Business Development for a startup. One of the co-founders had entered into an agreement with another company that seemed good on paper, but was just not making business sense for us. We were expending a lot of precious technical resources on the project with absolutely no hope of a return.

The CEO asked me to "fix it". Great. The first thing I did was read the contract and pray that there was a well written exit clause. Luckily, our corporate counsel, who I eventually developed a great partnership with for future alliance work, had written a very good contract with an exit clause that provided me with the right level of flexibility.

The second step for me was to organize my thoughts and think about the matter from the business partner's perspective. I knew he was not going to be happy. Were there any mitigating circumstances? Was there a way to leave the door open to working together down the road in a more mutually beneficial endeavor? Was I on solid ground in invoking the exit clause? How could I articulate our position in a dispassionate way and in so doing remove the sting?

The third step? After reviewing my thinking and game-plan with our corporate counsel , I wrote a succinct letter to our business partner's CEO, informing him of our desire and intent to terminate the agreement (required per the contract). I followed up with a phone call asking for a face to face meeting with him.

When I met him in the lobby and walked him into a conference room, I'm not going to lie, I was nervous. He was clearly not happy. But I have to say, at the end of the meeting, we shook hands and he said "I'm not happy with the outcome, but I understand your position and I respect how you've handled this". Whew! Thankfully, we were able to exit out of an unprofitable partnership while still preserving our relationship with the partner (and our reputation in the partner community!).

Next time you're negotiating a new partnership agreement, imagine the conversation you'd want to have with the partner in the event things don't work out and you found yourself in that conference room. Thinking about that conversation should help you plan for a positive exit

Find your "Avis" - They'll Try Harder!

When choosing a partner, the conventional wisdom holds that you should pick the #1 player, the proverbial 800 lb gorilla - the Hertz of the industry. But in my experience, sometimes the guy who is #2 (or even #3 or #4) is often hungrier and therefore more willing to take risks and put more on the table - in short - more like Avis and willing to try harder.

Have you ever tried courting the market leader? How long did it take to get them to return your phone call? Ugh. Since they're #1, they are getting a lot of phone calls. They are probably the media darling and getting lots of press as well, and that combined with years of success sometimes breeds a certain amount of arrogance. I know I always have to "gird my loins" when making those calls, and the pressure is really on to have an exceptionally strong partnering proposal and compelling case. And even then, you might not get their attention.

When there's a #1 player that I really do want to win over, sometimes what's worked better for me is to go after the #2 or #3 player in the market. They are typically much easier to approach and they're hungry (they want to be #1!). They are usually more willing to take risks and try new approaches to gain marketshare over the larger players. So, as a result, they sometimes are more fertile ground for exploratory partnership discussions. Additionally, if you win them over and the two of you can build some success together over a period of time, you will be in a stronger negotiating position once (or if) you approach the #1 player.

Food for thought..

Breaking Up is Hard to Do - Part II

So what should you think about including in the exit clause? You'll probably want to ask yourself a few questions...

• What circumstances should trigger either party invoking the exit clause? What would need to happen for your company to want out?
• What kind of notice should each party be required to give?
• What about Intellectual Property (IP) - what happens to any jointly developed assets?
• How will customer support be handled in the event of a breakup of the alliance? (typically covered in a "wind down" clause).
• Should there be any penalties for termination (or contract breaches)?

Think about the worse case scenario and what you would want to see happen, especially as it relates to any joint customers or prospects. Having this discussion during the initial contract negotiations is sure to save you potential headaches in the event that things don't work out the way everyone planned...