I get the sense most people do not like to negotiate. Maybe it’s the uncertainty of it all. Maybe it’s the discomfort of having to ask for something. I look at negotiations a little differently. The way I see it, you begin negotiating the minute you submit your idea to a company for licensing consideration. You’re trying to convince the company to give you what you want, aren’t you? The more a potential licensee likes what they see, the more leverage you have. There isn’t a moment you aren’t negotiating.
After years of negotiating contracts on behalf of my students as well as my own, I know just how important having the right attitude really is. And while this advice is specifically tailored to licensing agreements, my area of expertise, there are a lot of takeaways for contract negotiations in general.
1. Be patient. Without fail, finalizing an agreement is going to take longer than you expect or want. Remind yourself of this!
2. Be enthusiastic. Kick things off on the right foot by telling the company, “I’m excited to be working with you.” Don’t be afraid to reiterate your enthusiasm. Believe you can get it done. It sounds trite, but truly, the power of positive thinking is real. Go a step further and actually state your excitement to the other party.
3. Be calm. Make a sincere effort to hold on to your sense of humor. Will there be stressful moments? Yes. Expect them. Don’t let them derail you. Remember, the other party is not your enemy, but your future partner. You really cannot afford to lose sight of that. At times this will be challenging.
4. Be inquisitive. The opportune time to ask a potential licensee about itself is just after the company has reached out to you wanting more information. At this point, your relationship is just beginning. It’s natural to want to get to know the company better. Every relationship is furthered that way. So make the most of it. How many stores is the company in? Stick to broad questions. They’ll be willing to share. Later on, when you’re hashing out the details, the company will not want to relinquish this information so easily.
5. Be goal-oriented. Most companies will drag their feet. One way to get them off the rock is to ask pointblank, “Are you interested?” In fact you may need to ask. You’re a professional. If they aren’t interested, you’ll move on. It’s that simple. If they’re interested, move towards the creation of a term sheet by asking more questions. For example, do you want an exclusive? For how long would you like the terms to last? What territories do you want it to cover? What’s an appropriate royalty rate? These are easy questions.
6. Be savvy. Wait to bring up difficult questions until later on. In the beginning of negotiations, you’re still feeling each other out. You’re dating. So get a flow going. Enjoy it. You want a second date, don’t you? Potential points of conflict include the issue of minimum guarantees, improvements clauses, and intellectual property ownership, to name a few. Wait until a term sheet has been agreed upon and an actual agreement is on the table to start poking around touchier issues.
Eventually, both parties will have invested a lot of time and energy. Pulling out is harder. Now you’ve got time on your side. Hopefully, and in many cases, your potential licensee will have started to show your concept to customers. If your product tests well, now you have even more leverage. So, again, breathe. Negotiations might feel like they’re dragging on and on, but you can benefit from that.
Contract negotiations are all about hashing out what could go wrong, which can feel alarming. By no means will embracing all of these qualities all the time be easy. But try to keep the bigger picture in mind. If you really want to become partners, it’s worth it.
Originally published on Inc.com February 19th 2016.
