navigating the maze of oem terms

NAVIGATING THE MAZE OF OEM

TERMSwith

Dmitry Shesterin

© 2013 Dmitry Shesterin. All Rights Reserved.

Agenda


Introduction

Before you partner

Common terms

Uncommon terms

Implementation best practices

Intro

Pragmatic:

Management Consultant

Startup Advisor for Seed & Round A

VP, Product Management

VP, Marketing

Large Capital Project Sales Manager

Academic

Executive MBA

BA, Intercultural Communications

Likes

Theory of pricing

Being a geek


Agenda


Introduction

Before you partner

Common terms

Uncommon terms


Before you partner


Assess Build / Buy / Partner options

Evaluate all potential arrangements

Get consensus on:

Parameters

Assessment spectrum

Weighting

Scoring:

Consideration rating = 80%

5 - Excellent / Highest

4 - Good

3 - Average

2 - Below Average

1 - Poor / Low

Criteria Weig

ht

Op

tio

n 1

Op

tio

n 2

Op

tio

n 3

Op

tio

n 4

Op

tio

n 5

Criteria 1 25% 5 4 2 3 2

Criteria 2 25% 4 5 5 2 2

Criteria 3 20% 5 4 3 3 2

Criteria 4 20% 4 3 3 3 3

Criteria 5 10% 4 4 4 4 2

Percentage 100% 89% 81% 67% 57% 44%

1 2 3 4 5

Consider Consider Reject Reject Reject

Rank

Recommendation

Secure alignment

• With management preferences• Board / CEO / COO / Departments

• Organizational capabilities• Abilities, experience, skills

• Availability of resources• Capex / Opex requirements

• Extra office space

• Additional regulations or certification


Agenda


Introduction

Before you partner

Common terms

Uncommon terms


Common Terms - Royalties

• Royalties• Values can be deceptive

• Net or Gross?

• Currency hedging

• Payment terms

• Net 30 / 60 /90

• Regular sales volume reports

• Invoicing frequency

• Revenue recognition


Common Terms - IP

• Who owns what:

• OEMee:• IP for all technical designs

• Even if designs are based on feedback from OEMer

• Original trademarks and branding elements

• Own customer data

• OEMer:• New trademarks

• Copyright

• Resulting offering

• Own customer data


Common Terms - Embargos

• Refrain from competition• Geographically

• Vertically

• Based on customer segmentation

• Employment• Goes both ways

• Sharing of customer data


Common Terms - Termination

• Duration of initial agreement

(from one to five years)

• Renews automatically annually thereafter

• Cancellations:• At least 6 months notice

• Consider scaled penalties

• Support to extend for one to two years

• Can be used to renegotiate other terms


Agenda


Introduction

Before you partner

Common terms

Uncommon terms


Uncommon Terms - Commitments

• Promotional spend• Fixed or variable amount over time

• Plans typically signed off on by OEMee

• Source code in escrow

• Dedicated resources• In Product Management / Marketing

• In Support based on SLA or other KPI

• Development and QA


Uncommon Terms – Nuts and Bolts

• Localization• Who pays for which languages

• Who pays for localization of what

• Technical documentation• Tends to be expensive and often underestimated

• User guides, release notes, known bugs, features

• Upgrade / update lag• Avoid being used as beta customer


Uncommon Terms – Brand & Price

• Brand attribution• In product UI

• In marketing and sales collateral

• Price floors• Establish MSRP

• Agree on escalation trigger (volume, deal type)

• Beware of becoming a loss leader

• Everything is negotiable!


Agenda


Introduction

Before you partner

Common terms

Uncommon terms


All Systems GO!

1. Learn EVERYTHING about your partner

2. Confirm stakeholders with authority

3. Draft a term sheet (integrative stage)

4. Codify terms in a contract (distributive stage)

5. Launch

6. Maintain


Best Practices to get there

• Keep regular communication consistent• Secure authority (budgets and resources if needed)

• Internal status updates for governance

• Regular check-ins with key outside stakeholders

• Put faces to emails• Development / QA to co-locate pre-launch

• Sales and marketing to cross – train @launch

• Provide a runway for sales quotas• Allow champions to emerge

• Focus will grow organically


Best Practices to stay there

• Maintain good relationships• Meet at least once a year

• Insure quarterly visits by cross functional members

• Get to know your partners personally

• Share successes, not only escalations

• Avoid changing contact persons

• Coordinate• Events to avoid pitting

• Customer couponing

• Channel partner promos and acquisitions


Happy Partnering!


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navigating the maze of oem terms

Technology