Business Advice - Meeting with Big Company

**MC82** · 05-29-2007 12:27 PM

Hi all

This is my first post on this board and was wondering if someone has gone through a similar situation and how you handled it.

Few years back me and a group of my friends developed an online startup. It's been successfull to the point where we've gotten some publicity about it even though right now we're not dedicating as much time as we'd like to since we all have day jobs.

Recently we've been in talks with a major player within our niche and they seem very well intersted in our service/product. We've had several back and forth calls and emails regarding how we could work together. As of now, it seems that they would like to do a test run with our product on their site.

Obviously this is very exciting news for us, but there are many questions we have. We're not clear on their goal/objective since it seems as they are trying to figure out how we could merge the two service/products (even though there's a need for it). Even more so we're not clear on the timeframe of this test (something to ask them). On top of it all, there's a concern about disclosing our ideas to a potential competitor who disclosed to us that they were working on something similar but not as advanced product/service. They mentioned they're interested in experimenting our product within theirs. Obviously our first assumption is have them sign an NDA but since we are in the same niche, i a. don't want to scare them off and b. don't believe they will.

We'd be essentially aggregating information about users so at the end, we would retain the user information base on our server. Obviously we don't intend to run the service by uploading our software into their webserver, we'd rather link it directly from their site to ours.

Has anyone gone through a similar situation? Or heard about something such of this? Obviously i'm not asking for legal advice, even though that probably would be the best route to take. Thanks again in advance.

Michael

**paul2145r** · 05-29-2007 12:46 PM

Welcome to YE! Let me know if you can dicuss specifics- I'd be glad to provide some advice!

**MC82** · 05-29-2007 12:58 PM

Thanks Paul!

i'm bounded by my own NDA so i can't give out more specifics than i did unfortunately. I'm just curious to see what type of questions to ask and/or what people have done in similar situations. For instance, in test runs, i believe it's standard to have some sort of contract between the parties outlining goals/timing/etc. Would you say that to be accurate?

Michael

**jasaunders** · 05-29-2007 01:15 PM

Most mergers don't have "test runs" and I'm not quite sure what you mean by this. It is hard to tell what you are talking about, but I understand you can't give out more information. Is the other party modifying your product in any way, or are they just selling it as their own? Is this a product or a service?

You should have serious concerns about disclosing proprietary information to a competitor and you should have a contract between the two companies stating what rights they have in using your product/service and conditions of the "test run." If they refuse to enter into any form of an agreement, then you should not let them test your product/service.

If you have specific questions, I would be more than happy to help answer them for you, but without more specific information, its hard to point you in the right direction (I'm not even sure exactly what you are asking).

**MC82** · 05-29-2007 01:45 PM

Totally understandable- i apologize for the vagueness of the post, essentially we're still a bit confused on exactly what they're looking to accomplish.

In a very basic sense, we have a open forum type service. The idea is that we would have to modify our service to fit around theirs. Ideally merging the two ideas together using our technology.

The company we're dealing with itself is rather conservative and their concern is that their clients might be turned off by the fact of having an open forum-scared that users of the site might start criticizing their products. So they're looking to run a test to see a. whether their clients embrace the new idea/technology and b. whether or not our service is sticky enough to essentially increase pageviews/time spent on their site.

So that's the reason to run a test-but as far as i can understand it, the benefit is leaning mostly one sided. Essentially they use us as a guinea pig to test a new technology. If it works they either have two options: best case scenario is they acquire/merge the companies together and we'd now have the benefit of obtaining the opportunity to excel/grow our company; worst case would be that they use us as a guniea pig and either a. continue to develop the idea inhouse and b. if it doesn't work, well they gave it a shot-no risk on their end.

My concern is disclosing any ideas without some sort of written agreement between us. I guess my question would be, is it standard to have a contractual agreement between the two companies regarding this type of situation? Apologize for my ignorance of the subject matter i just don't have much business side experience. I'm assuming they would like to hear out ideas on how would we work together and supposedly deal with contracts post meeting...is that standard? For instance, would it be foolish to discuss how we propose to implement our technology in their service/products and then after some collaboration, build a contract based on what was talked about? Or should there be a contract made pre-discussion? Since we're unsure on what their terms are, let alone goals, i see it as a bit difficult to build a contract without their say in it somehow.

Originally Posted by jasaunders

Most mergers don't have "test runs" and I'm not quite sure what you mean by this. It is hard to tell what you are talking about, but I understand you can't give out more information. Is the other party modifying your product in any way, or are they just selling it as their own? Is this a product or a service?

You should have serious concerns about disclosing proprietary information to a competitor and you should have a contract between the two companies stating what rights they have in using your product/service and conditions of the "test run." If they refuse to enter into any form of an agreement, then you should not let them test your product/service.

If you have specific questions, I would be more than happy to help answer them for you, but without more specific information, its hard to point you in the right direction (I'm not even sure exactly what you are asking).

**jasaunders** · 05-29-2007 05:32 PM

You definately need an agreement between the two companies, no doubt about it. You will need to know the specific terms of the agreement obviously before you can draft it, so you will need to talk with them about how it will work and negotiate a good solution for both companies. You should not have to give them any confidential information in order to work out an agreement.

Your situation is unique and risky as you explained. The purpose of working with or merging with a competitor is because you believe it could benefit the company. It is a risk, that is what business is. You take a chance, you buyout the company, merge the products/services you want, and hope for the best (not literally). What you are proposing it very risky for your business and I would hope you would be getting some type of immediate financial or other benefit from letting another company utilize your proprietary service. Giving it to them as a "test drive" in hopes that they will want to merge, is not typically a very smart idea.

**dosrotties** · 05-29-2007 06:04 PM

Tell them to write a business plan of what everything entails so you can get your question answered and see their thoughts.

**MC82** · 05-29-2007 06:29 PM

Thanks for the responses-i don't believe they'll create any sort of business plan-i believe they want ideas from my team on how we would work together. They're looking to experiment using our technology but unless there's some sort of contract, i don't see why we should not only customize the software for their needs, but allow them to test run our technology with no incentive on our part other than the feel good feeling of possible buyout.

I think the best thing is to discuss their goals/timeframe during our next conference and we can vaguely discuss our position on how we could work together therefore creating some sort of agreement on how we should proceed and what happens after the test. Agree?

**jasaunders** · 05-29-2007 08:02 PM

There is a difference between working together and letting someone test run your product. Personally, I can't think of a good reason why I would ever let a competitor test my proprietary software for any reason. It seems you have to figure out what you are trying to accomplish here. Don't get overly excited. I don't see how this benefits you at all. What you should be talking about with this company is licensing your software to them.

**nudge** · 05-29-2007 11:00 PM

If you have a reasonably straight forward NDA that serves to protect both parties, then I would be wary of a company that has contacted you to take a look at YOUR stuff and isnt prepared to sign somthing first.

That said, I have found that alot of companies dont like signing NDA's as they fear an element of your product is somthing they are already working on. I can kind of understand this as they need to avoid the risk of someone sueing them down the track for something both parties developed independantly.

Best of luck

Jake@NudgeMarketing