The power of persuasion

This week, it was announced that Go Compare was being bought out by Esure for a staggering £95m. Go Compare’s Founder, Hayley Parsons, started the business at her kitchen table just 8 years ago and now stands to net £44m in the takeover, and if this has left you, as a fledgling entrepreneur, wondering: ‘how on earth do you do a deal like that?’ then today’s blog is for you. Whether you’re dealing in eye-watering figures like this, or you’re just starting out, the principles of successful negotiation are the same and the importance of a robust contract underpins everything.

In a hands-on workshop, our Catalyst Centre tenants were guided through how to develop commercial negotiating skills and the related subject of setting contractual terms and by legal expert, Douglas Cooper.

When it comes to negotiating, you’re either going to love it or hate it! But even if it’s not your strong point, taking the time to consider what you want out of any deal and setting this out in writing will avoid misunderstandings and an escalation of problems further down the line.

Douglas advises never starting to work for a customer or agreeing to purchase from a supplier unless the basis on which everyone is proceeding is clear and in writing, so never be panicked into cutting corners at this early stage in a new business relationship. Approach all negotiations by presenting yourself as seeking a fair and reasonable outcome for both parties and, even if things don’t go your way, never lose your temper and avoid personalising any issue under discussion.  A good tactic is to use your ‘early stage company’ status to your advantage: when negotiating a point that would leave you at risk, ask the other party to put themselves in your place – would they agree to what they are asking you to?

Once you’ve agreed broad terms, always deal explicitly on a ‘subject to contract’ basis until you are ready to commit, confirm developments during negotiation in writing (using the term ‘subject to contract’) and set out trading terms in a formal contract when ready, ideally using your terms as those governing the contract under your choice of governing law. You’ll need your own trading terms for both sales and purchases and work to mirror your exposures to your customer with those owed to you by your suppliers.

If you are the Seller, watch out for trade risk areas by being crystal clear about precisely what product or service you are supplying and, importantly, what you’re not, as well as your obligation to supply and your customer’s obligation to take delivery. Try also to qualify your contractual obligations by, wherever possible, not offering absolute commitments but instead, ‘reasonable endeavours’. Ensure too, that there is an effective ‘force majeure’ provision in your contract to protect you from unforeseen events that are beyond your control. Limit what you are liable for, for how much and for how long (be careful not to be unreasonable on this) and ensure that you are protected with adequate product liability and indemnity insurances.

Assuming you now have a contract in place to supply your goods or service, the next step is to ensure that you get paid! Douglas recommended trying to negotiate holding on to the goods until you are paid. At the very least, get good deposits upfront with a commitment to realistic stage payments thereafter, specifying when and how you are to be paid. Reserve the rights to suspend work if payment is not made accordingly and also to charge interest on late payments.

Remember that it’s as important to protect your intellectual property as much as it is your cashflow. Douglas suggested including in your contracts a confidentiality obligation to prevent disclosure of commercially sensitive information; restrictions on use of your copyright or confidential information or know how (except if specifically agreed in writing) and request formal acknowledgement of your intellectual property rights in key business assets that are created.

So what happens if you end up in disagreement with your customer or supplier? Although the potential for a dispute can be reduced by ensuring a positive negotiation up front and a carefully crafted contract, from time to time, a disagreement will occur. By including an obligation in your contract to resolve the issue through talking at senior level, hopefully any escalation to mediation, arbitration or litigation can be avoided. However, if no agreement is possible, consider whether to take matters to mediation before anything else happens and/or to restrict subsequent dispute resolution to arbitration instead of litigation.  There’s no easy answer to this one and, of course, it’s best to speak to an experienced litigation lawyer about the best course of action for your particular business.

Ultimately, it’s all about putting this advice into practice since no two negotiations will be the same. The key thing is that you are happy with the outcome and that it supports your longer term business plans.