1

When I say “LIKE A BOSS” I’m not talking about this boss on the left, clearly. I’m also not

talking about this boss on the right, because what little I know about Steve Jobs is that he

was apparently not an unemotional, calm, rational negotiator, interested in finding out the

other party’s needs. He’s probably not the personality type you want negotiating contracts,

because you don’t want ego, ambition, or creative expression to be the driving factors in

negotiating and drafting a contract. Rather, it is a bit like doing your taxes: you want

something that will please an auditor when they read it.

If we do want an example of who to emulate in negotiating contracts, it’s probably Warren

Buffett. He says some very boring, and very sensible, things about the electrical utility

businesses that Berkshire Hathaway owns, and how they need to invest for the long term,

and to stay on the good side of regulators and the public purse (their customers). He’s

arguing for long-term contracts that are sensible, good business, and that stand the test of

time.

2

First, let me tell you a little bit about myself: I’m not a lawyer. I am however an amateur

student of Spanish. But seriously, it’s relevant that I am not a lawyer because I can offer

advice that’s 98% good for certain situations, but there are many things that still benefit

from a real card-carrying lawyer giving approval or disapproval on.

So this talk is NOT subtitled “how to save a bunch of money by avoiding using lawyers and

negotiating your all of contracts all by yourself”. But neither should we take the opposite

extreme position: that you must never get involved in any aspect of negotiating or even

drafting your contract, and a lawyer must dot every I and cross every T. If you’re

comfortable with it you can responsibly do some of the work yourself, or at least I make a

living by doing so! [I call myself sometimes a “pretend lawyer”, which for some reason my

lawyer friends get really nervous about]

Or, at minimum, if after this talk, some of the legalese is less of a mystery and you feel less

completely locked out of the whole experience of reviewing and negotiating a contract,

then I will not have completely wasted your time.

3

Here are some good ingredients for negotiation – not just contract negotiation. And by the

way, I firmly believe negotiation is not sales. There are some folks down the street for

whom I think negotiation is more equated with sales, but the more complex a service or a

deal is, the less appropriate I think it is to use old-school-sales-type thinking like closing.

Anybody seen the Glengarry Glen Ross scene where Alec Baldwin yells at his staff about

sales? “ABC.” “A – always. B – be. C- closing. Always Be Closing.” It’s a caricature of high-

pressure tactics.

What IS the point of a contract? Do think about the future readers and users of your

contract. This could be auditors, making sure you have compliant contracts with vendors

and suppliers (e.g. privacy); or it could be your future employees or operational staff,

having to manage the contract; or it could be a judge or mediator hearing your dispute over

the contract.

Put another way, a contract is a way of trying to avoid litigation or ease disputes by clearly

setting out what’s agreed in a variety of scenarios. I often use it as a test of whether to

bother negotiating something in a contract to think “would anybody bother to litigate over

this”?

Lack of emotion and transparency. A lot of people think that doing business means playing

4

hardball, concealing things, hiding your bottom line, etc. Again going back to Warren Buffett,

it’s actually surprising how often you can gain in a negotiation by being unusually

transparent. That doesn’t mean 100% transparency of course! But try erring on the side of

disclosing more than usual and being more transparent than usual in your next negotiation

and see how it works. Of course, if it backfires – I’m not a lawyer! Don’t sue me!

Individual people: One of the big productivity killers in my view is the teleconference. To

smaller companies I would say don’t try to emulate big corporations by holding more

teleconferences as you grow. Good deals get done between individuals.

This “joint statement” should stand the test of time. And how will things like contract

currency stand the test of time? A USD contract could cost far more in CAD – developing-

world currencies are even more dramatic. How about term of the agreement – if there are

milestones far in the future, have you set company reminders for those events or expirations,

in a calendar which will still be accessed and used e.g. 5 or 10 years out? Assume that

everybody will forget, and don’t build in actions required by your side many years hence (it’s

OK to have provisions for the other party they’re likely to forget – it puts them on the back

foot!).

4

I’m going to talk a lot about business-to-business contracts for goods and services, such as

you might sign with a supplier or vendor, or subcontractor, not only because this is the bulk

of my experience – Ha ha – but because it’s likely to be the majority of yours as well and of

the money you spend. But of course many of you are interested in agreements that are

investor agreements, say with an angel investor in your start-up; or licensing or sale

agreements whereby you’re selling a portion of your company or intellectual property. So

I’ll also try to talk about those company-transformation agreements as well as those for

goods and services.

The issues are still frequently the same however for all of these: clarity is needed, as well as

plenty of discussion before and during (in person and by phone, ideally only by email to

confirm what was said).

One particularly contentious area is angel investors who are subsequently diluted or

crammed down by later rounds of VC financing. But that type of scenario is a bit beyond

the scope of this talk because that issue involves a totally new contract which may

effectively abrogate the rights early investors thought they had. Those interested in

addressing such scenarios should look at the SAFE (Simple Agreement for Future Equity)

agreements developed by Y Combinator (SAFEs are an alternative to convertible notes):

https://www.ycombinator.com/documents/

5

http://shockwaveinnovations.com/2013/12/21/reviewing-the-new-safe-investment-

instrument/

http://abovethelaw.com/2015/01/innovation-more-than-another-app-how-wilson-lawyer-

turned-yc-partner-carolynn-levy-is-revolutionizing-startup-investing/

5

That said, let’s talk a bit more about investor agreements of the type entrepreneurs are

likely to negotiate with angel investors, because otherwise, you’ll all be complaining that

my talk wasn’t relevant. And I’d rather you came away with a more legitimate criticism of

the talk, like that it was really boring.

Normally one shouldn’t make analogies like inflexible rights breaking under the pressure of

future agreements, because rights aren’t sticks, and there’s that whole sensible Richard

Feynman argument he makes that you shouldn’t use analogies or models from physics for

abstract systems. He talks about how inappropriate it is to use the hydraulic analogy in

psychology, such as “pressure building up in your head”. But anyway – any more on that

topic and the boredom level in this room will be over 111%!

6

Where/when/why do you need a lawyer? The short answer, which will please my lawyer

friends here, is that indeed you do need a lawyer. But you may be able to get away with

using a lawyer just in the initial and final stages, or in certain elements, just as you would

use a structural engineer to confirm a design of a load-bearing wall as well as inspect your

final work.

Here I’ve just listed some of the more troublesome elements in contracts that demand

attention.

International contracts need to take heed of applicable law and jurisdiction but also the

currencies involves, how to address inflation, and the basic practicalities of who has to

travel where in the event of a dispute. Imagine the litigation or mediation actually taking

place physically, and put practical language in accordingly.

Indemnification and limitations of liability need special attention because they determine

your exposure to risk. Third-party rights infringements, which you can easily be exposed to

in software development for example, require indemnification from the other party if

you’re to avoid getting dragged into them.

Similarly many vendors will try to cap their liability at the value of payments made for work

7

performed, but if they are insistent on this, I like to make sure that elsewhere they warrant,

for example, adequate insurance in types and amounts appropriate to the work they do. And

one needs to have a serious think about the individual situation and where indemnification is

likely to be desired. I had a case just yesterday where a vendor wanted to cap all liability

including indemnification at 1× fees paid, and when I protested a bit they proposed 3× fees.

Better than nothing, was my thought but this really does get quite arbitrary at times and

sometimes you will be trapped by what I consider to be the lowest form of negotiation,

which is “meeting in the middle”. You see that on Pawn Stars all the time and it’s really

tiresome. And, the title of this talk is not How To Negotiate Your Contract Like a Pawn Star –

maybe if I was scheduled 6 hours later today that would be appropriate but not at 9AM,

please.

And last and certainly least, pseudo-contracts. I REALLY REALLY dislike these; in fact I have a

borderline hatred of them, but if that sounds a bit irrational I am sure my lawyer friends will

back me up that they’re just a mess.

7

Let’s talk for two slides about Balance of Power because in many cases entrepreneurs are

going to be negotiating contracts with much larger companies; even your suppliers are

likely to have you out-lawyered, and worse: possibly even out-business-card-thicknessed.

Again, this talk isn’t about me making a self-serving argument that you don’t need lawyers.

The principle quoted here will generally apply and you [probably?] can’t rely on the defence

that you couldn’t afford a lawyer, or were railroaded by the other party. Don’t view this as

one step up from mobile-phone agreements, where some judges have been sympathetic to

consumers – many have not. And this is a business-to-business contract, we assume, not a

business to consumer.

Confidentiality and secrecy: usually overblown and overkill. Don’t be intimidated by large

companies throwing their weight around with secrecy requirements: the British Medical

Journal was not when they asked my former employer Roche about Tamiflu evidence. And I

was surprised to even read in that correspondence that Roche offended other parties with

insisting on secrecy, because I didn’t use those clauses in my own agreements I negotiated

for Roche!

8

Applicable law and jurisdiction. I love this one because contracts are so boring but with this

one you get to armchair travel the world! Ooh – New York, New York, how exotic! Or I’m

seeing a lot lately, Québec. That one scares the hell out of me and basically ask the lawyers

here what to do about that.

The second point is easier said than done, but it is an approach that can work well if the

other side have separate legal and commercial/business teams. If the legal part of the

assembly line won’t budge on their endless terms and conditions, try appealing to the

business contact for a common-sense way to get the deal done “without all these pesky

lawyers ruining the mood”

If there is one person on the other side who seems friendlier, make one-on-one phone calls

to that individual to try to build the relationship with them and they may act as

ambassador for you. Warning: they may also view it as inappropriate.

The last point is easier said than done as well. But this is one of the things about

negotiation – you try stuff all the time, and they won’t work a lot of the time no matter

how good you are. You should be good at this if you’re an entrepreneur – failing and trying

again!

9

The quotes above is from Focus magazine, and perhaps the details here are contentious,

but if even some of them are true, it’s a cautionary tale about contracts. Where to begin:

it’s too long, at 394 pages. At $93M some might argue that requires a longer contract, but

this is nonsense: I’ve negotiated shorter contracts for larger amounts of money for clinical

trials, and clinical trials are arguably far more complex and intangible than bridges.

Another theme that arises here is that of secrecy. Now, secrecy as noted before in private

business dealings is one thing, and usually silly and counterproductive there, but of course

it’s far more offensive when it comes to spending public money.

Another lesson from Helps and Isitt here is don’t be afraid to delay things. Large contracts

acquire a sort of totemic significance among many people involved, with lots of huffing and

puffing about deadlines. My experience is that rushing to meet deadlines on contract

signature rarely improves the quality of the contract or the deliverables once work starts.

10

It was naïve for anyone to think this contract would not have scope creep and cost

overruns.

11

Now one should never read one’s slides, but this is where you make a dramatic exception

and read your last slide verbatim to make it sink in, or just because you’re tired and want to

get it over with.

…

Every situation is different; but most every contract looks the same: figure

that one out!

Nobody really understands indemnification – or, I guess that’s why there’s

law school

…

Thank you very much!

12

13