Nice to Meet You – Let’s Get Married

Only fools rush in.  We’ve all heard that expression many times and probably think we’re far too wise and experienced to be such a fool.  However, you’d be amazed at how often businesses and individuals rush headlong into business relationships or contracts only to find out they should have used more discretion, patience and judgment.  Remember, before you date someone, you usually want to know at least a little bit about them; before you go steady, you want to know a little more; and before you get married, you really want to know them well.

Consider applying some of these dating lessons and clichés to your business and legal relationships and contracts, and you may find you have fewer emotional breakups or (more importantly) fewer bad marriages that end in messy divorces:

  • Ask around (a/k/a, do your due diligence) – learn all you can about a person or company before you engage them, become partners or enter into a long term binding contract.
  • Trust your instincts (a/k/a, if it doesn’t feel right, don’t do it) – unless there’s some compelling reason you have to work with a specific person or company or you have to jump into a deal with both feet, if you’re getting a bad vibe, don’t proceed.
  • Go slowly (a/k/a, – start small) – whenever possible, start with a smaller project or a short term relationship and see how it goes. There’s usually time and there will almost always be more opportunities to work together if the first one goes      well.
  • Build in an escape hatch (a/k/a, don’t put all of your eggs in one basket) – even if you’re ready to hire someone or enter into a contract, make sure you have the ability to terminate or get out of the relationship.
  • See other people (a/k/a, avoid exclusivity) – exclusive relationships are serious commitments and have high risk (and potentially, high reward); take your time.
  • There are more fish in the sea (a/k/a, know when to say when) – ending a bad relationship is always hard – whether personal or business – but when your gut tells you it’s not right, then it probably isn’t. Cut your losses and end the relationship (in the right way, of course).

The bottom line is, business and legal relationships resemble personal relationships – with the same types of risks and rewards.  Look before you leap.

Changing Relationships Call for New Agreements

Have you ever had wills drafted or met with your financial advisor or insurance agent, and at the end of the meeting, he or she said, “Now we need to revisit this every couple of year to make sure things haven’t changed.”?  That same approach should be followed in your other legal and business relationships.

Relationships and circumstances can change for a variety of reasons.  The law changes.  One party is faced with financial or other business hardships.  One party transforms from a start-up business that is just happy to have a contract to an industry powerhouse.  An employee right out of school becomes a partner in the business.  Territorial capabilities or needs change.  Etc.  When these changes happen, it is critically important that the parties’ contract(s) be reviewed, and where appropriate, revised.  Otherwise, that ever-important “meeting of the minds” that we attorneys talk about may no longer exist – and that’s a recipe for trouble.

As I’ve said before, in negotiating and drafting agreements, we should attempt to anticipate the various ways that the parties’ relationship may change over time, and where possible, include provisions that allow the contract to evolve as well.  However, it’s rarely possible to anticipate all of the changes that may occur.  For that reason, I recommend a periodic revisit of your contracts.  The old saying, “If it’s not broken, don’t fix it,” is absolutely true; but your contracts may be broken now simply because they don’t fit your evolving business relationship.  Don’t let that be the case – remember the other saying, “An ounce of prevention is worth a pound of cure.”  Review your contracts and relationships periodically as part of your preventive maintenance.

The Best Business Relationships Take Time, Thought and Planning

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.