Strategic alliances are often rewarding decisions, where both parties do better together than they would have apart.
But sometimes they can get messy.
The fierce battle in which eBay and Craigslist are embroiled at the moment is one such example. Both sides feel that they have been wronged by the other, and they are now at an impasse until a judge decides who is more at fault.
Fortunately for the rest of us, there are some lessons to be learned here. In a piece for BusinessWeek, finance author Tom Taulli details five considerations small businesses should take away from the deterioration of eBay and Craigslist’s strategic alliance.
A few of Taulli’s key points:
- Lay out the responsibilities of each party in detail: “Key questions for both companies to hash out together include: Who will work on the various parts? What are the timelines? How are the capital contributions allocated? What is the profit split?”
- Have a legal exit plan in place: “It could be in the form of a buyout clause… According to its legal brief, Craigslist said there was a ‘gentleman’s agreement; for a buyout arrangement. But such unwritten agreements are usually not enforceable, especially when they are between two sophisticated parties.”
- Be careful of tough terms: “Even though eBay was a minority shareholder, it still managed to get lots of leverage. In the shareholder agreement, the company negotiated protections such as veto rights over the issuance of new shares; the ability to block certain transactions; a right to inspect the books; and a right of first refusal on the sale of the founders’ shares… Keep in mind that companies with more leverage than yours can exact tough terms—and once you agree to them, it’s nearly impossible to get rid of them.”
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