The Acid Test Clause (2017)

https://www.stimmel-law.com/en/articles/story-2-acid-test-clause

by VHRanger • 2 years ago

147 48 2 years ago

VHRanger5• 2 years ago

The interesting idea here is that you can have a great contract, but if it's impossible to enforce, it's useless to you.

In this case the enforcement issue is that the other party can drag out the fight long enough to make the contract worthless.

The "war stories" section from this website are a great read.

dannyw• 2 years ago

Link to war stories: https://www.stimmel-law.com/en/articles/category/lessons-com...

rokhayakebe• 2 years ago

We need a Yelp for B2B

munchbunny• 2 years ago

It will run into the problem that the B2B world is small for any given operator, making transactions a repeated reputational game. Named reviewers will not criticize because it only hurts them for future partnerships, and anonymous reviews are hard to substantiate. There's also enough money in this stuff for defamation lawsuits to enter the picture.

I'm not sure what a good solution could be, just that I've seen enough examples of trying to research a potential partner where you get one story from a loose acquaintance and a totally opposite view if you are lucky enough to have a good friend willing to give you the real story.

alephnerd• 2 years ago

G2 or Gartner - which itself shows the issues with reviews.

Any metric will eventually be optimized for at the expense of product ownership.

MrDarcy• 2 years ago

The Better Business Bureau is a pretty good fit for this.

https://www.bbb.org/us/fl/miami/profile/real-estate/bungalow...

Take a look at Bungalow Living. I had to file a claim against them and won. Their BBB profile is pretty accurate though it could be more so if it were an F.

codexb• 2 years ago

Anyone who's been through divorce knows this as well

VHRanger5• 2 years ago

There's a war story on this too!

https://www.stimmel-law.com/en/articles/story-10-buying-peac...

philk10• 2 years ago

Reminds me of the Orange Juice test from Jerry Weinberg - https://www.intercom.com/blog/the-orange-juice-test/ - asking if a conference hotel can deal with 700 people who have to have freshly squeezed juice at 7am

VHRanger5• 2 years ago

Or the brown M&Ms test from Van Halen:

https://www.snopes.com/fact-check/brown-out/

pclmulqdq4• 2 years ago

A friend of mine once had to pull all of the brown M&Ms out of a bowl for a band. I can't say that they thought it was worth it, but we also followed all of the other rules in that contract when booking that band. We hired a different band the next year because that was a real nuisance.

candiddevmike• 2 years ago

I'm looking for something insightful here but struggling. This seems like it will lead to horrible (and expensive) outcomes.

SilasX2• 2 years ago

tldr: It's a test for whether the consultant will take the request seriously and give a legit estimate (which will be a huge number). You can fail it in a number of ways:

1) Reject it outright as impossible. (shows unwillingness to consider difficult projects or refusal to let the buyer make the call about what is too much)

2) Assure the buyer you can handle it with no specifics. (shows willingness to overpromise)

3) Give a too-low estimate. (Shows technical incompetence and overoptimism.)

HlessClaudesman• 2 years ago

Stretching a picture to fit in 2024, on an article about heuristics for dismissal.

CSMastermind• 2 years ago

The key idea here is to propose a task you know to be extremely difficult but possible and then measure the candidate’s reaction. If they are defeatist (“That can’t be done!“) or deluded (“I’d code that in a weekend“), then that’s what you’d be hiring.

Oh man, I'm saving this because this has been my experience working with folks on the business side who seem to always optimize for the second group (the deluded gives a low quote, then the project drags on forever, spiraling out of control because they didn't think through the difficulty).

earnesti• 2 years ago

If billed by hour, that's great.

cm20123• 2 years ago

So the Orange Juice test is just finding out if clients are willing to say they'll charge you more for special requests? I can see that being practical sometimes.

mikepurvis2• 2 years ago

It's about understanding if a person is capable of grappling with hard problems, if they can quickly pareto down to the 20% of the part of it that's going to be tricky (big conference -> breakfast -> early morning -> fresh squeezed). Anyone can quote a big top-line number for the whole shebang, but that just tells you they haven't thought it through and any "real" hard problems that materialize are going to be met with last minute, slapped together solutions.

As a mid-career software person, one of the most important things I've recognized is that my trust for my colleagues hinges on them knowing their limits and knowing when and how to escalate hard problems. I don't want to hear about small problems— those they can solve themselves. But they need to know which problems should become a quick slack message, a whiteboard chat, a revisiting of the design doc, or even questioning the fundamentals of the whole project. A person who slaps on duct tape when they should have engaged a war room discussion is someone who ends up needing almost constant supervision.

abrookewood• 2 years ago

Quoting: "The key idea here is to propose a task you know to be extremely difficult but possible, and then measure the candidate’s reaction. If they are defeatist (“That can’t be done!“) or deluded (“I’d code that in a weekend“) then that’s what you’d be hiring.". In this case, the request is 700 large glasses of freshly squeezed orange juice at 7am.

dirtybirdnj• 2 years ago

This article was fascinating and insightful, I find this dynamic resonates with me as a developer. Instead of VCs fighting over funding, it's me trying to explain why something is not simple or why disparate pieces do not magically integrate without any human intervention.

the idea that you can trick developers into doing things they don't understand is offensive. we aren't just cogs, but tell that to some C level terrorist who lays off half his workforce before jetting off to vacation(s). he got a bonus for blaming this quarters failures of the business on the peons who did the work and in 6 months he'll fire the next batch when they fail to achieve his poorly articulated vision. Forbes will do a piece on his visionary technical management prowess.

I have ZERO respect for this grey area negotiation /management behavior. As someone on the spectrum the social challenges of understanding good faith / bad faith make life and business in general almost impossible.

If you cannot trust the people around you life is hard and terrifying. if you have people you are employing that you are not being honest with them: they hate you, and I hate you too.

VHRanger5• 2 years ago

Here's a heuristic on trust that will make you happy, straight from game theory: use the tit-for-tat method [1].

You assume a person is honest at first, and try to amicably cooperate. Then, if they break the trust, you assume they're simply a snake looking to maximize their personal gain at the expense of others.

The method works best when you can learn the lesson at first for cheap. If you cooperate a few times to get stiffed for a massive amount later, you'd be losing.

This is really what the acid test story is about - the lawyer is trying to find a cheap way to reliably test the VC for good faith

[1] https://en.wikipedia.org/wiki/Tit_for_tat#Game_theory

throwway1203852• 2 years ago

The method works best when you can learn the lesson at first for cheap. If you cooperate a few times to get stiffed for a massive amount later, you'd be losing.

This is also known as the "long con" because you fully gain someone's trust before stripping their life down to the plumbing and leaving.

toss12• 2 years ago

>But it’s not just the contract that is useful for business-the very process of getting a contract can teach you a great deal about the person who you are thinking about joining in a business venture. Indeed, if done correctly, before you sign on the dotted line, the negotiation itself will tell you what is likely to happen.

THIS.

And a corollary I have found very useful is to examine any contract presented to you for how the terms are presented. If the terms are even-handed and mutual obligations, then fine.

But I often see heavily one-sided terms, with weasel-out clauses for them, and hard lines and penalties for us. In these cases, my rule is to simply withdraw from the negotiations, or do so after only one failure to try to negotiate fiar and equitable terms.

The lesson learned is that if they are trying to set you up in the contract with your hands tied behind your back, they WILL take advantage of you in any way they can. The one chance to fix it is in case they've just got an attny who 'thinks he's doing his job by being a bulldog' and they aren't paying attention to how it looks; if they fix everything immediately, I'll give them a pass, but it usually goes poorly, which is very revealing. Every time I've broken my rule, I've regretted it.

VHRanger5• 2 years ago

I mean, it's standard to be presented a contract that heavily favors the party that wrote the first draft.

But if you review it and ask for a bunch of changes, how they respond to the change requests is interesting.

More importantly, this article makes me think about how enforceable the contract is, rather than just the terms.

toss12• 2 years ago

>standard to be presented a contract that heavily favors the party that wrote the first draft.

Yes, which is why I usually give them one chance to respond to fixes (but if there are too many, nope, not gonna leave dozens of adverse mines in there just because it's impractical to fix them all).0

Also, I've seen plenty of very even-handed contracts; I make sure all the ones I write/have written are even-handed and mutual. It is actually the standard practice for honest businessmen and top lawyers — good business builds mutually beneficial long-term relationships, not just short-term exploitative relationships.

And yes, the fact that they hand you an exploitative contract is a huge tell, and how they respond when you try to make an exploitative contract more even and mutual (and put in enforcement teeth that will benefit your side) will tell you all you need to know about not doing business with them.

No deal is worth being tied to an exploitative partner/investor/entity. It will always end up worse than you ever imagine.

airstrike• 2 years ago

I mean, it's standard to be presented a contract that heavily favors the party that wrote the first draft.

I'd argue that may be "common" but the "standard" should be to expect a contract that slightly favors the party that wrote the first draft while still sticking to what's market for the vast majority of the terms

marcosdumay2• 2 years ago

it's standard to be presented a contract that heavily favors the party that wrote the first draft.

It's standard for contract negotiators to be sleazy people that you don't want to have any contact with. Some times that's not even an indication that your counterpart is dishonest.

But still, that's quite a bad marker. Ignore it at your peril.

hristov• 2 years ago

I really disagree with the idea of loser pays systems and binding arbitration being some kind of acid tests for honesty. They both have their problems. Depending how they are set up loser pays systems can encourage harassment suits or make it even harder for the poorer party to win. Note that in a loser pays system you are potentially liable for the other sides legals fees, but you do not get to choose their lawyers or watch over their lawyers to ensure they are being cost effective. If you are fighting a much richer party, then they will choose lawyers you cannot afford and yet there will be a chance that you will have to pay for them. If you are personally liable for these costs and there is a chance that you and your family will lose everything, you will think twice about suing even if you have a strong case.

Arbitration has a lot of problems. The biggest one being bias. Arbitrators tend to favor repeat business. They tend to favor clients, lawyers or classes of clients or lawyers that bring them repeat business. There is nothing dishonest about a businessman or anyone for that matter avoiding binding arbitration.

The entire article is very preachy and simple. Those are two very important subjects and they do not have a simple answer.

If the main concern is that the vc will sue to take over the company, hen the best answer is to make clear provisions in the contract that prevent him from doing that. If you are afraid of not getting your prototype done within six month put one year in the contract. Same thing with government approvals.

Well written clear contract provisions may allow the case to be decided at the demurer stage, before discovery - this is both fast and cheap even in ordinary court.

throwway1203852• 2 years ago

The "loser pays" was a wedge issue to see if the guy would be honest about his intentions.

In a lot of these negotiations you have to use what you know about the actual party to decide what to ask for and how to behave. In this case, they knew that the VC was well known for pushing his technical partner out of the company using a lawsuit when the R&D timeline inevitably slipped, and then taking over the company. When you know that about someone you make it a wedge issue -- are you going to do that to me? And if you say that's not your intention, then why don't you feel secure giving me more protection in the contract?

If it wasn't about lawsuits but about something else like terms or board seats they would've used a different test. But they were negotiating with a person, not an abstract concept, and that's why they went the direction they did.

taneq• 2 years ago

And if you say that's not your intention, then why don't you feel secure giving me more protection in the contract?

This is the crux of it for me. If you don’t intend to enforce a clause, you won’t argue about taking it out. If you say you don’t intend to enforce it, but you refuse to take it out, you’re being dishonest and we’re done here.

Joel_Mckay• 2 years ago

In general, all negotiations start with a ridiculous wish-list offer, as any further discussions sound more reasonable by comparison. Calling people on their BS is sometimes an impulse control test, as perceived insults may not be necessarily intentional.

Talk of legal what-ifs generally make people question if a deal is already going sideways. Negotiation of terms should be a paperwork revision process, and not something dropped on some company rep.

If the key agreement terms are incompatible, just walk away... if people are interested, they may reevaluate the deal terms after the board cools off their egos for awhile.

Best of luck, =)

marcosdumay2• 2 years ago

all negotiations start with a ridiculous wish-list offer

That's what "professional negotiators" do. Normal people start with a reasonable offer, and are only open to other reasonable revisions.

prakhar897• 2 years ago

I read a few other war stories from this site and they are all top notch. Especially this one about selling your business: https://www.stimmel-law.com/en/articles/story-11-how-not-sel...

arbol• 2 years ago

What is this gibberish?

It is unusual to begin at the enforcement of contracts end of our discussions, I realize, but it is important for us to know if the document we eventually create is practical from our point of view.”

Very poorly written

PoignardAzur• 2 years ago

It is just me or is the writing style of that article a bit... off? Eg:

“Anything can be tested. That’s the nature of reality. There must be a relatively objective method available.” > Of course he had a point but I was curious to see what he thought would work. “Lie detector test? Perhaps we can torture him to get him to admit his motivations? I’m sure…”

Reading the above genuinely gives me the same vibes I get from reading bad fanfiction. It's hard to put my finger exactly on what is off, but it kept nagging me throughout the article.

cm20123• 2 years ago

Haha I also just posted with the exact same phrase "bad fanfiction". It just has that vibe.

cm20123• 2 years ago

Here's the acid test. It's basically asking them if they'll accept a clause that makes lawsuit losers pay the fees.

"What was going through my head was the real test I was planning to use now. And this test was the important one, the “acid test” and I went to it immediately. “Well, if we cannot use relatively inexpensive methods of enforcement, we can still avoid some of the problem by simply providing that the winning party in any dispute gets attorney fees from the losing party. Simple as that. It stops fights before they begin since both sides only go to court if they are convinced they will win. No insincere fights since if you lose you pay for your opponent’s attorney fees as well.”

I have to say - this whole thing reads like bad fanfiction, takes forever to get to the point, and offers advice that is pretty narrowly applicable. I regret taking the time to read it. Perhaps if I were a lawyer it would be better.

bckr• 2 years ago

I enjoyed this. Reminded me of Asimov. Three experts arguing politely.

The Acid Test Clause (2017)

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