The Golden Rule of Business

Frequently in business meetings, I ask people what the golden rule of business is. They look at me quizzically. 

Of course, the standard golden rule is:

Do unto others as you would have them do unto you.Leviticus 19:18

But the golden rule of business is …

When you are in a business relationship with another party, if one side pays, then they tend to make the rules. This adage comes up repeatedly in a variety of professional situations.

For example, a vendor may propose that we use their standard agreement with their customers. This may be acceptable, but the customer may have their own supplier agreement. Which one wins out? Generally, the one paying gets to choose.

Most contracts include one or more liability sections. If one party is the one paying, they generally get to stipulate their protections. My experience is that the best the non-paying party can hope for is for symmetrical protections where possible, meaning the payer extends similar protections to the non-paying party.

There is usually a section in most agreements specifying the Governing Law or Venue, which is typically a state. The person with the gold will generally prefer to specify their home state. If both parties are equal, the general approach is that the governing law and/or venue will be in the location of the defending party. This means for one of the parties to pursue an action they have to take on the burden and risk of the other state.

Payment terms is another tricky issue. Often, large companies push the payment to 60 to 90 days, and procurement teams generally have goals to stretch out the payments as long as possible. At a startup, cash flow is critical, and although the startup does not have the gold, trying to get a sympathetic response and get payment in 45, 30, or even 15 days can sometimes be achieved.

I notice that large companies that are stressed for money due to their circumstances tend to have no pity. Large organizations that are growing quickly and have good margins tend to show sympathy when working with smaller businesses. 

In most business relationships, it comes down to the person with the gold – the one paying the money. The employer, buyer, and customer often have more power in the relationship, and one must adjust accordingly.