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Online Business Agreements

How To Use Strategic Alliance Agreements To Protect Yourself In Online Business Ventures

The web is unique in that small businesses can compete with huge companies on pretty much equal footing. This is primarily due to the fact small online businesses join up to pursue mutually beneficial projects at a rate never seen in the bricks and mortar world. If you are considering this strategy, it is important to understand the legal ramifications involved and the need for something known as a strategic alliance agreement.

Scenario

When discussing a legal topic, developing a hypothetical can make it easier to grasp the legal issues involved. In our hypothetical, we are going to have two parties pursuing a common traffic plus content scenario.

  1. The first party is John who is a blogger and has patiently built up a mailing list of 100,000 people.
  2. The second party is Maggie who has developed an online training website with videos, books and other items that would be of interest to John’s followers.

John and Maggie have decided to introduce Maggie’s site to John’s followers in an effort to generate business.

Contract

A strategic alliance agreement is simply a contract. The “strategic alliance” phrase doesn’t have any legal significance. It is just a name, but the contract is of incredible importance. Let’s take a look at why.

In Writing

There are quality people online who you could trust with your most valuable assets. Unfortunately, there are other people online who you wouldn’t trust with your stapler. The problem is figuring out who is who. A written contract is one way to flush out undesirables.

In our scenario above, let’s assume John has never heard of Maggie, but recognizes her content is pretty impressive. How does he know she is legitimate? He doesn’t really. In the strategic alliance agreement, each party is required to guarantee they own and have the right to use the property they are bringing to the project. This type of language tends to make unsavory characters very nervous. If Maggie has borrowed her content from another source or has something to hide, she is unlikely to be willing to sign the agreement.

The more detailed the contract, the more likely a potential undesirable partner is to cut bait and run.

Confidentiality

When two parties work together, it is inevitable both will end up revealing at least a portion of the strategies they use to grow their businesses.

In our scenario above, John will divulge at least a few of the techniques he uses for generating revenue off his list as he and Maggie create a drip marketing campaign. Maggie, in turn, will undoubtedly need to provide certain information to John regarding her views on landing pages, minimizing abandonment rates and maximizing member retention times. How do John and Maggie make sure the information isn’t used against them by each other or a third party?

The agreement should include non-disclosure and non-compete clauses. These clauses prevent the parties from using said information for a period of time and, once the time is up, from using the secrets in competition with each other.

Duties

It is also critical to detail the duties of each party in the strategic alliance agreement. In the vast majority of cases, there will be numerous conversations over the phone, by IM and email before two parties decide to move forward with a project. This can lead to confusion as to who is supposed to do what, in what time frame and how the costs associated with the task will be handled.

In our scenario above, John and Maggie may have discussed John contributing fresh content to the training program website.

By doing so, the goal would be to improve the number of people on John’s list who will sign up for the training program. While this seems simple enough, how much content must John provide and how often? What happens to it when the relationship ends? Does John get it back or does it stay on the site to Maggie’s benefit? Detailing the duties of each party at the outset of a project is incredibly important

By putting everything down in writing, each party knows what is expected of them. If there is confusion or a misunderstanding, it can be dealt with before time, money and effort is spent on the project.

Disputes

Have you ever formed a business entity where there are two owners and each has a 50 percent say in how the business is run? This is common with small businesses and a terrible approach.

The problem is how do you make a decision when one owner wants to do one thing and the other owner does not? They each have an equal vote, which means a stalemate. One party either has to give in or a judge must decide. Both scenarios lead to hard feelings to say the least.

The same situation exists in a strategic alliance. If you and the other party each have an equal vote, you must decide up front who can cast the deciding vote when you cannot agree on an issue. If a solution isn’t agreed upon and reduced to writing, the project can end up frozen while a 60-year old judge who can’t set up their own email tries to figure out a solution.

The End

Strategic alliances end. Sometimes the ending is amicable. Sometimes not. To avoid problems, it helps to create clauses in the agreement detailing under what conditions a party can end the agreement, how the property [graphics, ads, etc.] generated during the project will be divided and how any ongoing financial issues such as reoccurring revenues or chargebacks will be split.

Again, the time to decide these issues is at the beginning of the project, not the end.

In Closing

The concept of a strategic alliance should not intimidate you.

Have you ever signed up for an affiliate agreement?

If the answer is yes, then you are already a party to one. Strategic alliances are a great way to create win-win situations for businesses online no matter their size. The goal is to make sure the win-win scenario does not become a lose-lose one. Using a strategic alliance agreement is one method for keeping this from happening.

Richard Chapo is an internet business lawyer providing legal services to bloggers and online businesses. A fan of the road less traveled, he's spent time living in such popular tourist destinations as...Siberia.

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{ 3 comments… add one }

  • Lei Broch March 26, 2013, 9:10 am

    Thank you for enlightening online business owners like me on the significance of having agreements or contracts in protecting our business.

  • Tayyab March 14, 2013, 8:51 am

    Awesome work bro there is always something new to learn on this blog <3

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