Archive for August 18, 2014

Q: Side Payment Requested In Negotiation

Written by Sean Murphy. Posted in Rules of Thumb, skmurphy

Q: We have been in customer discovery for a few months and have a situation in a negotiation that I am not sure how to deal with. A decision maker at a potential customer says he believes that our product can help but it’s not addressing a burning problem. The wrinkle that I have not encountered before: he says he would like to pursue this idea on his own so he wants us to compensate him for the ideas he is bringing. Any advice on how to look at the situation or how best to handle it?

Some Questions to Consider:

  • Who owns the ideas that he gave you?
  • Has he disclosed them to his company?
  • Are they his ideas or the company’s property?
  • Have you signed a non-disclosure either with him personally or with the company?
  • Did he give you the ideas freely or did he ask to be paid before he disclosed them?
  • Are there patents involved or does he plan to patent them?

If he is asking for a personal payment made to him, and not to the company, but it’s something you plan to sell to his company then you are walking into an ethical minefield. If he plans to pursue them himself it’s probably better to let him go on his way and talk to other folks who are not conflicted.

Act As If Everything You Do Will Become Public

As a rule of thumb it’s best to act as if everything that you do will become fully know to all of the parties involved or affected by your actions.  This side payment request does not sound like it would pass that test the way that you have described it.

If his company is not aware of the fact that he has ideas for improving internal processes or workflows and he is trying to sell them to you there are some potential conflicts there.

Normal Negotiation Flow For New Technology

Normally what would happen is that they would disclose to your their needs, specific ideas for functionality and perhaps implementation options, constraints that your solution  has to observe, and other relevant factors. You would either develop a custom product that is their property (work for hire) or you would develop a product you could sell to them and to others. The product might be sold at a discount to them to reflect their contribution, they might ask that you not sell it to named competitors for a a period of time (6,12,24 months).  In the first case you would be developing a custom implementation, in the second case you would be developing a solution that they would like to become an industry standard–perhaps after enjoying a temporary period of advantage over competitors–and they want to spread the cost of development across many players in the industry.

You Normally Don’t Make Side Payments

You don’t normally make side payments to individuals. One exception might be that the other party wants to leave his current job at your prospect company and come to work directly for you. But you want to be very careful about making payments to employees of firms or government agencies that you are trying to do business with. The employer may view it as a bribe or kickback. This is also true for offers of stock or stock options in your firm and payments to relatives or entities controlled by the employee but not part of the prospect company.

Related Blog Posts

  • Honesty In Negotiations
    I always assume that at some point in the future the folks I am negotiating will know the full truth of the situation and that very few secrets remain that way for long.
  • Building a Business Requires Building Trust
    Working with bootstrappers sometimes puts us on teams that are in desperate circumstances. Where they are able to translate time pressure and resource starvation into a bias for action from a change in perspective they often succeed–or at least move beyond the current crisis: success, like the horizon, is an imaginary line you can approach but never seen to cross. But where they use it as an excuse to take shortcuts that abuse prospects trust we sometimes have to part company.
  • The Lucky and the Wise
    It can be hard to assess whose advice to take about your business. One reason for cultivating at least a kitchen cabinet of informal advisors if not a more formal advisory board is that a diversity of perspectives can normally provide more insights into opportunities, risks, and options for managing them. Advice from a lucky entrepreneur tends to be very specific and suggest a “copy exactly” model, a wise entrepreneur will offer principles and several alternatives with one or two approaches recommended as most likely to succeed or least risky.
  • Treat Social Capital With The Same Care as Cash
    Trust Doesn’t Scale, It’s Knit by Aligning Actions With Prior Commitments

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