As you build your business, you will enter into contractual agreements with companies much larger than your own. These agreements often come into play for things like website hosting, consulting services, marketing deals, and managing advertising sales. Typically the larger company will have a standard contract written by their legal department that they provide to all of their partners. Many entrepreneurs make the mistake of signing these agreements without having a clear understanding of what they are agreeing to do. The contract you are presented with will likely be skewed heavily in favor of the company that wrote it, but entrepreneurs sign these agreements thinking they will never actually come into play and end up signing bad deals as a result. Also, as the smaller party in the deal, a newer entrepreneur may think that the terms of the agreements they are offered are non-negotiable. This is usually not the case.
Contract Horror Stories
There have been several occasions where I have been offered a contract with a company to do some consulting work or an advertising deal that had untenable terms. One specific company gave me an agreement that they use with a much larger vendor that also did software projects for them. They did a copy-and-paste job with the agreement. I was going to do a relatively small software project for them, and the agreement contained terms I could not agree to as a single-person vendor. For example, the contract would have required me to legally defend the other company in the event of a lawsuit. I pointed out the various problems with that agreement and fortunately they agreed to a simple one-page contract outlining the work I would be doing for them.
On another occasion, there was a large advertising company that wanted to represent my email list to advertisers for the purpose of selling dedicated emails and newsletter sponsorships. The agreement presented to me required that they serve as the exclusive representation of my list and gave them a credit on their invoice for the value of any other commercial promotions I did with my distribution list. That meant I would not have been able to do any affiliate marketing or any list swaps to my own email list without paying them for it. This company would not budge on the terms, so I ended up talking to two of their competitors to see what they could do. I ended up with a list representation deal that had a better revenue share, higher CPMs and far less onerous contractual terms.
Take the Time to Read Legal Documents
The key to avoiding bad deals is to actually read the agreements that a company sends you. For most contracts, you probably do not need a lawyer to comb through every detail of a written agreement, but you should take the time to read through any legal paperwork that a larger company sends you and asks you to sign. If you are not sure about what some section of an agreement says, ask. If there are terms in the agreement that you cannot agree to, tell them. They may send you a revised contract that does not contain the objectionable terms. There have been several times when companies much larger than my own have changed the terms of an agreement at my request.
Be Mindful of Employment Documents
Keep track of whether or not you have signed any legal agreements with your current or former employers. Some employers require their employees to sign contracts to turn over any intellectual property the employee develops to the company while under the employment of said company. This means if you are working for a company and you find a formula that cures cancer on your own time, they own the formula. Employers often have employees sign non-compete agreements that prevent them from developing competing products or soliciting their employer’s clients for a period of two or three years after they stop working at the company. Typically you will sign these types of agreements on your first day of work and forget about them, but they can come back to haunt you after you finish working for an employer. This is particularly true if you have a lot of success and your former employer takes notice. If you plan on quitting your job or have recently quit your job to pursue your business full-time, review any agreements you have signed with your current or former employers to make sure you are not pursuing anything on your own that might result in a lawsuit. The enforceability of these types of agreements can vary a lot from state to state. If you plan on violating the terms of any agreement you signed, run it past a lawyer first.
Don’t Do Handshake Deals
Finally, if you decide to enter into some sort of business partnership with another small company, take the time to write out a simple contract. Do not do handshake deals. Have a one or two page agreement that outlines the rights, responsibilities, and payment terms for both parties. The agreement does not need to be large or complex, but you should have something in writing so that there is no question about the agreement between you and the other company.
- Read every contract presented to you before you sign on the dotted line.
- Review any legal agreements you have made with your current or former employer.
- Do not do handshake deals. Get it in writing.