Hand in Hand
Your innovative product could be just what a big company needs to boost flagging sales. They have the capital and the marketing expertise to turn your product into a winner. The secret lies in careful planning and smart negotiation."The perception these days is that there's a significant lack of capital for growth firms, so people are entering into bad deals," says Keith Styles, an attorney with Robins, Kaplan, Miller & Ciresi LLP in Washington, DC. Styles explains that although venture capital isn't flow-ing as freely, large companies still have a lot of money to invest in new products and technology. "It's still easier for a big company to buy new technology than develop it."
Styles contends David and Goliath don't have to fight. "The goal isn't to slay Goliath, but to make the giant perceive that he's won." Eventually, you may want to sell your brainchild to the giant-but not until it's gone further than you could have taken it and you've been fairly compensated. Rule No. 1, Styles says, is to make sure you control the technology. Work with your lawyer to get the patent or copyright secured. "You're not looking for them to take over your product," he explains. "You want their market expertise and their manufacturing expertise."
Then work on your proposal. Identify an industry giant that's a good fit and that's looking to expand into new areas. Research the company to target a division that would benefit from your proposal. Learn about the division's history, leadership, product lines, profitability and place within the company. You may uncover something valuable, Styles says-such as knowledge that the division hasn't had a new product in 10 years or that there's a new executive who needs a win right away. "Identify your leverage, and never let go of it," he says.
When you've persuaded someone at the industry giant to negotiate a deal, assemble a small, efficient and highly compatible negotiating team. Include your lawyer-one who's experienced at this kind of negotiation-and the scientist or engineer who developed your product. During negotiations, show that you can make quick, intelligent decisions. When the company sends a draft of a document, turn it around in 24 hours.
While you need to be open to creative deal-making, Styles adds, make sure each term of the contract furthers your goals. You might go for a mix of debt and equity-say the firm invests several million at closing, in exchange for 10 percent ownership of your business. If the company has put in enough capital and expertise that the product reaches certain bench-marks, it gains a greater share of ownership. Be sure you understand the tax implications, he adds, and "don't be afraid to walk away from the table at anytime."
Jane Easter Bahls is a writer in Rock Island, Illinois, specializing in business and legal topics.