Negotiating royalties is an art, but experience and scale are very important for the negotiating position. You can learn more about some of our beginner mistakes right here.
Royalty agreements with good partners are absolutely essential to our business today.
But we have certainly made fools of ourselves a few times along the way, where we've made some bad deals.
When we share them here, it is in the hope that others can use what we learned the hard way. Even though the agreements were not optimal, both SmartMover and Opløft have been very valuable cases for us. But getting the right agreement in place is an art where experience, size, and negotiation position mean a great deal.
SmartMover: Beginner's Blunders
We were fresh out of university and very excited about getting our first reference project when SmartMover came up.
The amount allocated for development over 2 years was, frankly, incredibly low. In return, we got the opportunity to negotiate our first royalty agreement – so we jumped on it. And made some completely trivial blunders.
The stone wagon was developed in a partnership, and the profits were to be shared equally – without it being particularly well described what that would mean in practice. When it has to be interpreted a year later, and you're sitting as the younger sibling in the negotiation room, ”equally” can be twisted in many ways.
We actually got a decent royalty rate, but the way we could be bought out was completely wrongly put together. The amount was simply too low because we calculated based on a wrong assumption: If the product could run for 5 years, we thought that would be incredible. We simply didn't have the imagination to believe that it could still be a product with significant market shares 20 years later. But it could.
The product has changed hands since then, and we've parted with the product (too cheaply). We're still proud of the project – but not of our negotiation skills at the time.
Upsurge: A Skewed Negotiating Position
A couple of years down the line, we had a grasp of the basics, but were again challenged in the negotiations about Opløft. And here, the result of the negotiations was much the same: the royalty period was too short. It was too easy to buy us out of the agreement.
However, the reasons for the poor contract were different this time.
Where SmartMover was about experience, with Opløft we were pushed by circumstances: the product had been crowdfunded on Kickstarter but needed a partner, otherwise it would go down the drain.
We had found a large and experienced partner on the market – and that created an imbalance in the negotiation, where we were already up against it. So it wasn't really because they bulldozed us – but in a more favourable negotiation situation, we would clearly have pushed our position more.
Upclimber: The good example
It hasn't been long since we found a new collaboration partner for Upclimber in Starke Arvid, and the contract work here has been exemplary.
We have been fairly equal companies. We have needed each other, and we have had a good understanding that it had to be a good deal for both parties. So it became that.
While some of the early mistakes can be attributed to us being young and naive, that is of course not the whole explanation. Part of the truth also lies in the fact that it is easier to be patient and stand by your demands when you are in a stable enough position to afford it.