A recurring situation that I encounter with clients is the self-created urgency and “irrational exuberance” that sometimes surrounds the early stages of their discussions with prospective business partners, investors and/or key employees, and the really bad (or at least poorly defined) deals that they enter into during this stage.
Although it’s a bit of a crude example, let’s face it, getting to know a prospective business partner, investor or key employee is a little bit like dating; and entering into a binding legal or financial relationship with them is a little like getting married. Marriages that are entered into hastily rarely work out, and the same can be said for hasty business relationships.
I’ve written other posts about knowing the other party and making sure they’re a good fit. But that’s only part of what I’m talking about here. Once you’ve determined that they’re “the one,” it’s equally important to determine and define – the one for what? And then, enter into written agreements with them that spell this out.
Take a new key employee for example. The employment agreement is really a combination of marriage contract, life planning, and prenup all rolled into one. And the company attorney, in some ways, serves the role of protective parent or sibling making sure you’ve carefully thought out what you’re getting into. You may be “head over heels in love” at this point – so, when you find yourself offering, or when you hear your attorney questioning, terms such as exclusivity, a perpetual term, fully vested non-dilutable stock ownership, no non-compete, etc., etc., take a step back and consider what impact those terms will have on the company currently and in the future (if the relationship succeeds amazingly or fails miserably) – and then craft your relationship and the underlying agreements accordingly. You will be glad you did in the end.