When Your Start-Up Should Walk Away from a Deal


When Your Start-Up Should Walk Away from a Deal

By Liz Elting

Harvard Business Review - June 28, 2013

In the early years of a company's life cycle, an entrepreneur's ambition can be a double-edged sword. The drive to align quickly with marquee customers to establish credibility can sometimes cloud your judgment. At my company, TransPerfect, we have mostly been served well by our mantra of 20 years: "Listen to the clients and respond to their needs." But we have also learned that the desire to please a potential client at all costs can actually be a setback if you fail to fully evaluate all potential outcomes.

In our formative years, one of the vital lessons I had to learn was how to recognize when an opportunity was not a good fit for us. Signing the wrong deal can cost you time and money — two things entrepreneurs can't afford to lose. How can an entrepreneur eager to build their firm recognize when a deal is a bad idea? Here are some lessons I've learned to keep in mind.

1. When there's no escape clause in the contract. When we were a smaller company, a major retailer approached us with the promise of $15 million in business from a huge translation project. At first, our team viewed it as a way to put our company on the map, and we wanted to show how committed we were to winning the business. We formulated a plan to scale quickly, adding new personnel and even a new office location to cover all the work that would be coming in. Not long after incorporating all of these changes, the retailer pulled the plug on the entire project due to economic reasons. We realized that the contract we signed hadn't included any volume guarantee or kill fee, and as a result, we were not able to recover the lost revenue or the expenses involved with the staffing actions. That experience was a cold dose of reality, not only because of the revenue at stake, but also because it brought to light our own naiveté as an eager startup. But looking back, I can say that we learned a valuable lesson about preparation, caution and responsibility, and as a result, our company is stronger.

2. When you don't have the resources to complete the job to your standards. A major news publication approached us with the project of Spanish language translation for its largest magazine title. The speed needed to turn around a completely translated project on the publication's timetable would have required us to commit a full-time team of linguists to the project. After some serious analysis, we realized that taking the business on those terms would have meant compromising our high-quality translation standards. We thanked the publication for considering us and wished its team the best.

3. When it involves a bidding war. Years ago, a law firm asked us to translate a large international project. We wanted to work with the company because it was a major firm, so we offered our best price for the scope of work. However, the firm informed us that it had received a much lower bid from a competitor. We had carefully examined the level of work required and found it hard to believe that another company could handle it for such a small budget. As much as it pained us, we expressed our concern about the quality of work produced for such a low fee and wished the firm luck. The firm ended up returning to us a week later with a horror story: the less-expensive competitor had botched the job. At that point, we began the project on our terms. Since then, the firm has become a regular client, and we've been conducting increasingly larger volumes of translation on a regular basis.

4. When taking the deal might compromise your reputation. Compromising for the sake of a potential client's happiness is one thing — but yielding your principles to the point that your quality of work is impacted is quite another. For example, if a potential client wanted us to provide translation and localization for an international ad campaign using only machine translation without a team of language experts, we would have no choice but to walk away from the opportunity. Our experience tells us that the technology of machine translation just hasn't progressed to the point where we can deliver a finished product that the end client would find acceptable. It might be tempting for a start-up to accept a large, lucrative project if they only consider the dollar amount and the boost that would give the business — but that is a short-sighted decision. If you expect your company to have staying power beyond this one deal, remember that your professional reputation is worth protecting.

For a young, hungry business, the idea of walking away from a deal is anathema, especially when the budget involved is significant. However, especially in a company's early days, its leaders need to build more than the bank account. The choices your organization makes about how and with whom to do business will set the foundation for the company's future — its reputation, its quality of work, and its ultimate success.

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