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Last Update: Monday February 17, 2020

Key Idea: Sign Contracts Only With Those Who Don't Need One

Ken Done clearly believes in doing business with the decision maker.  He would rather have the lawyers stay home. 

Key Question:

A: 

As owners of small businesses, we enter into a lot of agreements with customers, suppliers and employees. Contracts are a way of documenting these agreements. They ensure that the understanding of the parties regarding performance and compensation is the same on both sides. We use contracts to protect ourselves, to manage our business risk.

Let’s say a customer comes to you and wants to buy a significant quantity of a product you could manufacture. You have the financial and human resources to meet the customer’s need but to do so; you must spend $25,000 on a piece of equipment necessary to produce the product. You have run the numbers and the revenue from the sale would cover the cost of the equipment and generate a nice profit for the company.

So you buy the equipment and the customer cancels the order. Your nice profit just turned into a $25,000 loss. Does this kind of thing really happen? Unfortunately, all too often. We get so focused on the top and bottom lines, we are so naturally optimistic, that we forget to ask ourselves the "what ifs" and manage the contingencies of various occurrences. A contract would have saved us in our hypothetical situation.


We could have had a $25,000 penalty for early cancellation, we even could have required a performance bond in that amount, further reducing our risk. Sometimes we are afraid that we will offend a customer or supplier by requiring or even suggesting a written contract. We are concerned that the other party will think we don’t trust them, or that they will not live up to their end of the bargain. And sometimes this concern is justified, and people do react in just they way we feared.

A good alternative to a legal contract is a "memorandum of understanding." Write it yourself; documenting what you believe you have agreed to do in exchange for what you believe your customer or supplier has agreed to do. Send it off with a message like this: "I’ve written down our agreement and I want to make sure I have understood our discussions properly. Could you review the enclosed, make any modifications or corrections, sign and return to me at your convenience. Thanks!" Hard to believe someone would be offended by that.

Contracts and other written agreements can be an effective risk management tool.

Think about it

As you negotiate with your customers and suppliers, are you focusing only on the upside or are you considering your risks as well, and managing those risks effectively?   Do you have written agreements with your employees?  Do you have written agreements with your suppliers?  Do you have written agreements with your investors and board members?

Clip from: Ken Done Gallery, Sydney - Leverage Art

   "I see business... as the most creative act of all." - Ken Done

Sydney: Meet Ken Done.  He has become one of Australia's most  beloved and respected artists with his own world-class following. We all struggle to master our talents and apply these talents in a meaningful way. That's life. And, that is how the best among us also define our work.

Meet a man who spent eighteen years mastering his craft and learning business skills. Then, he broke away to go down his own path.  Almost unwittingly he started a business through which he learned how to leverage his art in creative ways.

This business is a family businesses.

You meet Ken Done, his wife, Judy, and their daughter and son. Ken was never a starving artist yet he certainly paid his dues. With over 150 others working within this family enterprise, they make art affordable, often wearable and  even whimsical.

Today you meet an artist who like so many others follows his own heart. Often there is a price to pay  among the art community's elite.  In the earlier days they were not gentle on this man and his work. But Ken Done stood firm within his vision, he persevered, and today even his critics are giving him his due.

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The Ken Done Galleries

Ken Done, CEO, Artist-in-Residence

1 Hickson Road
The Rocks

02 9274 2740

Visit our web site: http://kendone.com

Office: 02 9274 2740

Business Classification:
Arts

Year Founded: 1991

Sign Contracts Only With Those Who Don't Need One

JUDY: A few small pieces have come in.

HATTIE: (Voiceover) In terms of rolling out the design around the world, you control all the pieces of it or would you license your art to a handbag manufacturer or a shoe manufacturer or a...

KEN: Here's what we've done. We have already had two very successful licensing arrangements in America......one with a company--it started off a small company in Los Angeles. We had a number of shops there. We actually had a shop in San Diego. We had to work in Neiman Marcus, in Bloomingdale's, in Macy's. And that arrangement was good. It was fine. But we started to lose control in a sense that because it was often going into colder parts of America, they wanted more winter clothes.

HATTIE: Right. They wanted browns.

KEN: They want brown. They said, `Brown's very important in Chicago.' I said, `I'm playing golf. I don't care whether brown's in Chicago.' I'm not putting it down, it's just that America's like this huge ball; it's really, really, really hard to get it rolling. And once it starts to roll, it's incredible--and it was just too much for us.

HATTIE: Right.

KEN: And the clothing or the stuff wasn't looking exactly like our stuff. So we decided at that point in time we would cut out all wholesaling and all licensing, and we cut our business by 50 percent in one hit, because we couldn't control it.

HATTIE: Wow. OK.

KEN: You have to have the passion, first of all, to start something. And then if it doesn't work, you have to decide, `Will I adjust, or will I blindly go ahead making,' you know--I don't know...

HATTIE: The same old same old, right?

KEN: `Or will I change?' (Voiceover) You will see, hopefully, more of our stuff in America, but it'll be ours, the way that we control it. And, look, you know, I've had a number of arrangements over the years, some have been good, some have been less than good. In the end, it doesn't matter--the complexity of the contract doesn't matter a damn. You've got to like the guy; you've got to like the person. I've never been involved in any litigation related to any contract. I either liked the guy--and when we I had to ring up the president of this particular company in the States, or go and see him, and said, `I'm not going to do it anymore,' we didn't need anybody else; just he and I. I didn't want to do it anymore and that was it.

You could send me to jail and hit me over the head, I wasn't going to do it. That's it, end of story. But if I say, `I am going to do it,' then I'll give you 1,000 percent.

HATTIE: So what to you is art?

KEN: Well, you can find it in all kinds of ways. Obviously, it can be in film or it can be food, it can be in wine, it can be in everything. But if you bring it down to painting, the bit that I do, I think there are certain paintings that have the great ability to give you pleasure over a long period of time. And for me personally, I look more for beauty rather than shock value. I think art should be about beauty basically.

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