Physicians: Plan Your Exit Strategy before Agreeing to Any Deal

January 15, 2014

The best time for physicians to plan their exit from an employment contract, operating agreement, or merger is when the initial deal is being negotiated.

The most productive and efficient way to manage any breakup is to plan for it when the parties have no reason to believe it will ever happen. That is why individuals with substantial wealth negotiate and execute prenuptial agreements.

In a business situation, the employment contract or operating agreement for a merger or acquisition should serve the same function.

Here are four reasons why the best time to build an exit strategy is before agreeing to a deal in the first place:1. No person or situation is ever more attractive than when it is being pursued.
I have learned this lesson multiple times, and always the hard way. My tendency is to avoid any appearance of being pushy or greedy, and to postpone asking for what I believe I deserve until I have "proven" myself. The truth is that I have proven myself, or we would not be working on a deal.

The reality is that my negotiating power drops like a rock as soon as I have signed on. Everyone has invested time, energy, and professional fees in getting the deal done. The people I am dealing with expect, fairly, that the negotiating is done and they have gotten what they want.

Even worse, I cannot even attempt to renegotiate without giving the impression that my word is not worth much. If it was OK last year, what has changed?

NOTE: Beware anyone who suggests you start with an interim arrangement and revisit later, after you have proven yourself. Unless the agreement specifically addresses an interim period of a given length and the parameters for renegotiation, you will find that the offer to renegotiate will have been forgotten when you raise the issue.2. The focus is on getting the deal done, and each party will interpret the agreement in the most positive light.
During courtship, most people are focused on what they want. They tend to give short shrift to avoiding what they do not want. Language is often deliberately vague to avoid difficult conversations and allow all parties to see what they want to see.

The courtship period is the best possible time for resolving difficult issues: Everyone is happy and wants to move forward.
The person who is willing to push for clarity is rewarded with an agreement with fewer unpleasant surprises and unintended consequences.

Another reward can be that the deal falls apart before it is consummated. Any arrangement that is too delicate will ultimately fail. The less time you invest in trying to make it work, the better.

3. Buyer's remorse is inevitable, and it infuses breakup negotiations with emotion.
No one initiates a breakup without being significantly unhappy with the status quo and at least some of the other parties, therefore, the situation becomes emotional. The parties tend to forget what they ever saw in one another and remember everything that ever irritated them. It is rare that negotiations conducted in these situations are fully rational. People work at settling scores.

4. Even if everyone behaves well during a breakup, having to negotiate the mechanics makes this already stressful time more stressful.
Breaking up a business arrangement is disruptive, time consuming, and expensive. An initial contract or agreement that adequately anticipates the details of dissolution gives answers to all or most of the pertinent questions.

Such an agreement lets the parties move directly to execution rather than negotiation and decision-making. The decisions made as a theoretical exercise are also likely to be of better quality.

The best time to plan your exit is when the initial deal is being negotiated. You will never have more power and the conversations will never be easier. Letting the decisions be postponed until they need to be implemented makes the breakup more unpleasant, more drawn out, and more costly.