What does Exclusivity mean?
“An exclusivity agreement in the context of a business acquisition stipulates that the seller cannot pursue an offer from another potential buyer for a period of time subsequent to the signing of the letter of intent (LOI).” – divestopedia.com
Small businesses that have created an innovative business model or product have many tough decisions that need to be made. At some point in their uprise, they can be faced with the decision of entering into an exclusivity deal with a major player in their industry. Sometimes this can be the quickest and easiest way to expand but other times this can be detrimental to the growth and potential of the business.
The Pros
Large orders of business quickly
An exclusivity agreement is usually brought up when the potential buyer sees a huge return on investment if they were to sell the product. A way for the buyer to capitalize on this the best way possible is to restrict any other company from doing the same, therefore they will offer to place a large order in return for exclusivity.
Security
Not only is there security for the buyer, but also for the seller (small business). An exclusivity agreement usually states that the buyer is restricted from promoting, buying, or selling similar products from any other vendor or provider.
Advertising Dollars
The need to spend large amounts on advertising decreases since the buyer usually takes that over. Plus, the exposure of the buyer’s platform alone is a large factor in the belief of the success of the product on both the buyer and seller side.
The Cons
Missed Opportunities
There is one HUGE downfall for the seller when entering an exclusivity agreement. If a major opportunity comes along during the agreement term, the small business will, unfortunately, have to turn it down along with the benefits and compensation.
If you do decide to move forward with entering an exclusivity deal, negotiate until you feel it’s a fair deal.
Don’t feel like entering an exclusivity deal is right for you? Let Green Arrow Marketing and Media help you grow through advertising (we won’t force exclusivity!). We specialize in small business start-ups and have a track record of bringing them success. Call us or visit our website for more information.
