Take Time to Dance - Don't Rush to Contract
Posted: 8/28/2017 by Norma Watenpaugh
When should you write an alliance contract?
Best practice puts alliance design ahead of structuring a contract. Many teams jump into contract way too early. It is important to have a pretty good picture of the business case for the alliance, the operating model, buy-in from stakeholders and value propositions, etc before you start formalizing the contract.
There is a tendency in forming strategic alliances to dive right into the contract negotiations and as soon as it is wrapped up, celebrate, break out the champagne and announce the alliance to press and analysts. Sadly, often that’s as far the alliance goes. The hard work is in structuring the alliance, creating trust-based relationships and building the operational plan to execute.
That takes time.
We recommend alliance partners take the time to do a thorough discovery of your partner, to really understand their business and how a partnership will create value for you, your partner and your joint customers. We also encourage partners to spend considerable time in building a joint business plan or operating plan before you write the contract. Otherwise you will be rewriting that contract after you completed this plan. You will also learn a lot during the process that will clarify what value you will actually derive; what resources are going to be required, and if you able to work together effectively. Joint planning can be accomplished on an MOU (memorandum of understanding) stating that you will work together to design the alliance without committing to it until you have workable plan and a business case.
One of the key things to observe during this planning process is whether your partner is looking out for your interests. Are they seeking value creating options that increase your value in the alliance as well as their own. Alliances that operate on a value creation principle versus dividing a zero-sum pie are in the long term more successful. Partners with any sophistication in creating sustainable collaborations get that.
Lax & Sebinius authors of “3D Negotiations” define negotiations as the process of creating and claiming value for the long term. In this context, their approach to negotiations fits the alliance model well. There are other approaches that are more confrontational resulting in win/lose outcomes.
These never work well for partnerships.
In the context of that definition, negotiations begin with ‘Hello’. Many will cite that negotiations begin when the lawyers show up to write the alliance agreement. In the model we advocate, by the time you bring the legal team in, you have a pretty complete business plan but no earlier than when you have established the value proposition for the customer and both partners. It is a good idea to provide the legal team with a term sheet outlining the key business commitments of the alliance. Then they can put the legal framework around it.