A relationship between a distributor and supplier is born with great enthusiasm. When starting out, each party views its partner through a lens of ideological expectation. Over time, each party modifies that lens to one of actual observation. Assuming appropriate due diligence was performed, expectation blends gradually into observation and the relationship develops and matures into value for both the distributor and supplier.

A great distribution relationship begins with a win-win distribution agreement. Such an agreement allows both the supplier and distributor to believe they are equals in the relationship; equals in a business partnership.

At the beginning of a distribution relationship, partners view themselves on equal footing. If the partnership is to prosper, both partners must nurture and maintain that view. When the relationship is in its infancy, only the distribution agreement is fact. Sales, growth, prestige and profits are nothing but expectations.

As the relationship develops, actual experience replaces expectations. Since the agreement is the only fact in the beginning, it is critically important that the written agreement establish a level playing field between the supplier and distributor. If one party is favored over another, one partner will view the agreement as biased before sales, growth, prestige and profits commence.

When this happens, the relationship begins to suffer an unnecessary but avoidable burden. Fairness is a standard that will not only result in a win-win contract, but also stabilize the relationship during inevitable rough moments in the years ahead.

The best distribution agreements are well balanced. Agreements sometimes become imbalanced because the supplier and distributor have unequal experience drafting and negotiating those agreements.

When a distributor agreement contains bias, it works against development of a solid relationship between the supplier and the distributor. A great relationship is not necessarily the product of a great distribution agreement, but a poorly written or one-sided agreement often works toward the detriment of a solid working relationship.

Each section of the agreement should strive to balance the power between the distributor and the supplier. If there is a clause on indemnification, the supplier should hold the distributor harmless under certain conditions and the distributor should hold the supplier blameless under corresponding situations. If there is a paragraph outlining the duties and responsibilities of the distributor, there should also be a paragraph outlining the duties and responsibilities of the supplier.

A unilateral phrase only works to the ultimate distrust of one party by the other. Distrust always works against the relationship and ultimately against sales, growth and profitability—the original purpose of the relationship and the agreement.

A distribution relationship starts life in a period of bright optimism. It develops during a phase of expansion and excitement. The relationship matures during a long period of hard work. After reaching its peak, it begins to unravel for a number of reasons, many of which are quite natural. Ultimately, termination comes to most distribution relationships.

It is crucial to spell out clearly the conditions allowing for termination and the responsibilities of both parties upon termination.

A durable distribution agreement must allow both parties to manage their respective businesses with minimal intrusion from their partner. Both must have the opportunity to upgrade their respective network of distributors and suppliers. The ability of both parties to terminate the other for cause and for convenience enhances that opportunity.

Termination for cause is mandatory in order to accommodate situations when there is breach of the contract and failure to remedy the cause within a term specified by the contract. Termination for convenience, sometimes called termination without cause, allows either party to terminate the agreement when business reasons dictate. When only one party may terminate the relationship, problems frequently arise. Such one-sided arrangements create an imbalance in the relationship. Imbalance spawns mistrust that weakens the relationship and undermines performance. The best agreements allow both parties to have the opportunity to terminate the agreement for both cause and convenience.

Due diligence is not a component of any written distributor agreement. It is a process. However, since lack of adequate due diligence is one of the most frequent causes of the deterioration of a distribution relationship, any discussion regarding a win-win contract would be incomplete without addressing due diligence.

For a supplier, due diligence means holding interviews with customers and distributors: Has the distributor been growing faster or slower than its competitors? Will sales through the distributor cannibalize existing sales, or bring sales from new customers and market segments? Do customers enthusiastically welcome the new distributor? How does the distributor's integrity and quality of staff compare to its competitors?

For a distributor, due diligence also means holding interviews with customers and other distributors: What is the supplier's reputation for product quality and reliability, customer and technical support, integrity, and on-time delivery? Do customers encourage the addition of the supplier to the line card? Does the supplier represent an opportunity for new customers and market segments? Are stock rotation policies and returns practices within acceptable norms?

Taking the time to perform adequate due diligence is mandatory if a new relationship between a supplier and distributor is to thrive. A win-win distribution agreement must start with a supplier and distributor that hold mutual respect for each other. Respect can be enhanced if both parties to the agreement have performed suitable due diligence on their new partner.

Visions of success for both parties are natural when a relationship between a supplier and distributor is new. A win-win relationship begins with a well-balanced distributor agreement that unfairly favors neither the supplier nor the distributor. A balanced agreement can help launch a growing distribution relationship.

Distributors and suppliers must avoid developing an agreement that is biased. During the course of the relationship, both parties must have the ability to terminate the agreement at will. Before negotiating that next distributor agreement, be sure to perform adequate due diligence. Time invested on due diligence pays great dividends. Be sure to spend that time wisely prior to signing the next agreement.