Hand in Hand If you negotiate well, joining forces with a big firm can be the smart way to get your new product to market.
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Your innovative product could be just what a big company needsto boost flagging sales. They have the capital and the marketingexpertise to turn your product into a winner. The secret lies incareful planning and smart negotiation."The perception thesedays is that there's a significant lack of capital for growthfirms, so people are entering into bad deals," says KeithStyles, an attorney with Robins, Kaplan, Miller & Ciresi LLP inWashington, DC. Styles explains that although venture capitalisn't flow-ing as freely, large companies still have a lot ofmoney to invest in new products and technology. "It'sstill easier for a big company to buy new technology than developit."
Styles contends David and Goliath don't have to fight."The goal isn't to slay Goliath, but to make the giantperceive that he's won." Eventually, you may want to sellyour brainchild to the giant-but not until it's gone furtherthan you could have taken it and you've been fairlycompensated. Rule No. 1, Styles says, is to make sure you controlthe technology. Work with your lawyer to get the patent orcopyright secured. "You're not looking for them to takeover your product," he explains. "You want their marketexpertise and their manufacturing expertise."
Then work on your proposal. Identify an industry giantthat's a good fit and that's looking to expand into newareas. Research the company to target a division that would benefitfrom your proposal. Learn about the division's history,leadership, product lines, profitability and place within thecompany. You may uncover something valuable, Styles says-such asknowledge that the division hasn't had a new product in 10years or that there's a new executive who needs a win rightaway. "Identify your leverage, and never let go of it,"he says.
When you've persuaded someone at the industry giant tonegotiate a deal, assemble a small, efficient and highly compatiblenegotiating team. Include your lawyer-one who's experienced atthis kind of negotiation-and the scientist or engineer whodeveloped your product. During negotiations, show that you can makequick, intelligent decisions. When the company sends a draft of adocument, 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 mightgo for a mix of debt and equity-say the firm invests severalmillion at closing, in exchange for 10 percent ownership of yourbusiness. If the company has put in enough capital and expertisethat the product reaches certain bench-marks, it gains a greatershare of ownership. Be sure you understand the tax implications, headds, and "don't be afraid to walk away from the table atanytime."
Jane Easter Bahls is a writer in Rock Island, Illinois,specializing in business and legal topics.
