Many companies and business development executives talk about the importance of a “win-win” philosophy in their relationships and negotiations. They want to be successful and their partners to be successful in a true synergy. But, what is their road map for getting to a win-win? Too often, there isn’t a real methodology behind the talk. Win-win is in danger before the race even starts.
Here’s an approach that can be applied to many different types of business arrangements to try to achieve that holy grail of win-win. It has worked for me over many years of negotiating hundreds of deals.
1. Spend extra time on the economics up front. Since win-win is supposed to mean that each company makes more money with the partner than it would without, what modeling has been done to ensure that this becomes reality? In practice, it is tempting to jump into papering a transaction before serious financial analysis has truly run its course. Yet, a dedication to getting the numbers right will typically pay dividends.
2. Respect, rather than take advantage of, your partner’s largest concerns. This is harder than it sounds. Every negotiation will involve a certain amount of chess and horse-trading. But, if your partner reveals a walk away position or two that will be standard in its industry, respecting that position will instantly deepen the relationship.
3. When it comes to the legalese, be prepared to settle on true neutrality. The typical contract will favor the side of a deal that prepared it. There isn’t necessarily anything wrong with that, as long as both sides understand what true neutrality means and, assuming the leverage is roughly equal, are willing to settle on it. It means reciprocal representations, indemnifications and confidentiality provisions. When two companies are located in different states, it often means choosing a third state’s law to govern the contract.
4. Understand the details. Is the devil really in the details? Since execution is about details, the answer is almost always yes. Sure, contracts get amended all the time, but the wrong starting point could kill the relationship before it has time to blossom. Lawyers should understand the business purpose and the business people should understand the legalese. Everyone needs to read the contract.
5. Strive for a long-term contract. As much as corporate America talks about long-term thinking and strategy, there are many forces that make this challenging. Quarterly earnings calls for public companies emphasize 90 days of performance. Revenue recognition rules can essentially encourage short-term deals. It’s difficult to establish win-win in a short time frame. Aim for a five-year term. Expect, plan for and demand success. Commitment facilitates win-win.