You’re doing it wrong

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Not long ago, a very sophisticated client told Jordan that he didn’t want to write a contract for a new sale because “contracts kill deals.” Wrong. Stupid contracts kill deals. If a document is properly drafted, both sides will read it (quickly) and say, “Yes! That’s exactly what I want.” If that doesn’t happen, you never actually had a deal. You were just trying to swindle each other.

A good deal is built on a solid agreement, which contract law calls a meeting of the minds.  But if the parties did not intend for the same things to happen, then a true agreement never was. The worst thing you can do is wing it without a contract. Some folks call that swimming naked. It might work out in your pool at home, but not in the shark tank.

It’s not that a contract actually protects you when things go bad. Good contracts keep things from going bad in the first place. (More on this later.) In a good deal, the parties come to exacting agreement on all the terms that actually impact their go / no go decision. The rest is just noise.

The problem comes when lawyers looking to bill hours start showing off their verbal vomit skills or try to justify high fees by adding pages. Equally scary is the experienced businessman who knows just enough about contract law to be dangerous to himself and other people. Both lead to redundancy, confusion, conflicting terms, unintended consequences, and……busted deals.

So what’s a busy entrepreneur to do? You need revenue to survive, but swimming naked invites the sharks. Just follow these Bear Necessities of (contract) Life:

  1. Know thyself – what are the absolute minimum requirements you need to make a sale?  Sure there are lots of nice-to-have items that you wish you could add, but make a list of the minimum requirements you need to do a deal.
  2. Know thy business – what does it take to make you profitable?  Make a list of the risks to your business and the things that could go wrong.  Eliminate the downside as much as possible.
  3. Know thy law – before you start insisting that every possible contingency you can imagine is covered in your contract, remember that there’s an app a law for that.  One thousand years of English common law precedent has crafted an amazing system of rules to deal with the “what-ifs.”  Sit down with a business lawyer–who actually litigates contracts–and review the laws that would apply to your deal.  Then write the contract you would be happy to sign as a customer.  If the law already covers it, leave it out.  Most contracts should be 2 pages, and 90% of contracts should be less than 10 pages.
  4. Know thy customer – ask your customer if he wants you to be profitable.  If the answer is no, RUN.  Then ask your customer to name the most important term in the deal for him.  If the answer is price, and you are not in the commodities trade, RUN.  If you are still hanging around after these two questions, then you are ready to deal.

Once you have a good handle on these four rules, you can present your customer with a concise, precise contract that makes him say, “Yes.  That’s exactly what I want,”  and that’s a good deal.

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