Negotiating a contract to supply a large company is often as exciting as it is daunting. The outcome of these negotiations can greatly impact your growth, profitability, success, and reputation. Unfortunately, we’ve seen too many contracts where the smaller company or startup has accepted the larger company’s terms – resulting in less-than-optimal outcomes for the startup. In this write-up, we’re outlining some tips and tricks to help you better navigate the negotiation process.
Tips to Negotiate Better Contracts When the Customer Company is Bigger Than You
Do Not Agree to Their Terms ‘At All Costs’.
Landing a large customer is extremely exciting – and it’s common for emotions to run quite high from the moment a large lead walks through the door to the signing of the contract. However, it’s important not to let the excitement of getting a big customer cloud your judgment during the negotiations.
You need to carefully consider how their terms will affect your operations, your costs, staff morale, and your ability to serve your other customers. Signing a large customer won’t be a long-term gain for your company if the terms of your agreement pose an existential threat.
Know Your Offering and Where You’re Headed.
Large companies have unique needs and they’re likely considering your product or service to fill a gap, solve a challenge, or meet another need. It’s also likely that the customer will want the product or services you offer to be customized to them in one way or another.
This isn’t necessarily bad or good – but it is something to be aware of and ready for.
To prepare, you should have a thorough understanding of what you offer and the direction your company is headed in the future.
If the customer requests customization that brings you closer to your desired future state, then this is a win-win for you both.
If the customer requests changes that move you further away from your desired future state, you will need to strongly reflect and strategize before saying yes. For example, a customer may ask you to customize a standard product in a way that makes it harder to scale and operationalize the product later. Knowing where you’re headed would allow you to better foresee and navigate the risks and challenges here.
Focus on Your Value During Your Negotiations.
We’ve seen many examples of startups assuming potential customers know certain things about the startup’s operations and that they’re negotiating a position ‘just because they can’. This isn’t always the case.
It’s important to remember that the potential customer does not know your business as well as you do during the negotiation process. Do not be afraid to speak up and educate the customer about what you do offer and what you can’t accept and why.
This can be especially powerful when negotiating payment terms. Large companies often want to negotiate long terms for payment (90 day+ terms). It can be powerful and compelling to explain why you need the payment sooner – including details about how that payment will help to make your product/service even better.
Look At the Contract as a Business Tool.
It’s common for companies to consider their contracts to be a legal formality. The reality is that contracts are an important business tool that should carefully outline how each party will fulfil their commitments to the other.
A good contract documents the relationship from beginning to end – including what happens if either party does not fulfil their promises. This is especially important when you’re making an agreement with a company much larger than yours since they ultimately have more resources at their disposal if things do go awry.
We’re going to go into more detail about contract provisions to focus on during negotiations with larger companies in an upcoming article. But if you’d like to discuss a contract with our commercial attorneys in the meantime, reach out. We’d love to help.
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