Building Trust in Cross-Border Business Relationships with Matej Ftacnik

So you've got your startup idea off the ground and have realised you want to work with service providers outside of your home country. But what are the red flags to watch out for in contracts with these businesses? 

Annabel spoke to Matej Ftacnik, CEO of Vacuumlabs. A partner of Sparring, Vacuumlabs provide digital design and engineering support particularly to companies in the fintech and blockchain industries. They discuss how you can build trust with new service providers, overcoming cultural barriers and what startups should invest in when growing with global businesses. 

They also highlight which contracts these nuances might appear, such as Service Level Agreements (SLAs) and Master Service Agreements (MSAs). 




Savvy by Sparring is a show where we reveal the stories founders, investors and other startup ecosystem players face when they do not consider legal questions at an early stage. Get your startup off the ground with business inspiration, meshed with legalities, including how startups incorporated, protected their works and raised funds in a (legally) smart way. 

You can find Sparring's Startup Playbook which supports the show here: https://playbook.sparring.io/

Transcript

I truly believe that in the 21st century, when we're looking at building new innovative products, you want us try to get the best possible talents to be working on your company. Matej Ftacnik, CEO of Vacuumlabs who provide digital design and engineering support, particularly to companies in the FinTech and blockchain industry.

Surprisingly, you do not always find the right talent for it. The selling of the right price and your particular country. So, you know, since we are a part of European union and we're in a global markets, it's fairly easy to actually do international pro sport or relations with other organizations.

Well, expanding to other countries is synonymous with startup growth. You may find yourself in a position where working with businesses outside your home country is more attractive. The only thing you need to really look at is trust and to find ways how to identify the right partner for you to, to, to work with today.

Mata and I will set out to prove to you that both contracts and trust, crucial in a long term cross border business relationship and the red flags. To watch out for along the way.

This is savvy with sparring, where we talk to founders, investors from people in the startup ecosystem about entrepreneurship and getting a business off the ground. I'm Annabel, Pemberton, legal mind as farming, and I'll be guiding you through how business and law matched together.

We are a no, it's a decades old company that we started, S three, , three founders from Slovakia and essentially a dorm room. And, it grew into a company where right now we're over 300 people all across the world. And what we do, we help banks. Fintechs in innovative organizations to actually build the next generation of financial services and financial products.

We're currently looking at three strategic verticals for us to, to expand in. , the first one is, FinTech. The one where we are right now, most at home. With building new virtual banks or, or an each banking propositions. The second one is crypto, stood as the hype of the day. And we've been actually hitting the space for the past several years.

We've built a number of products there. And then the last one is legal tech, where we work closely with you guys, actually on, on, on building UN interesting tech propositions that are on the intersection of technology and legal. We are primarily focused on the global market, whatever that means. But if we zoom in a little bit more, we have traditionally had a strong footprint in the UK and Germany and Southeast Asia and also in Hong Kong and also in the United States.

So you would say the. Better developed markets and financial services. That's nicely into today's topic, establishing cross-border contracts and business relationships. So why would you choose to work with service providers outside of your own country in the first place? I truly believe that in the 21st century, when we're looking at building new innovative products, you want to try to get the best possible talents to be working on your company.

Surprisingly, you do not always find the right talent or the talent at the right price and your particular country. So, you know, since we are a part of European union and we are in a global markets, it's fairly easy to actually do international cross border relations with other organizations. The only thing you need to really look at as trust and to find ways, how to identify the right partner for you to, to, to work with.

So what are the foundations of trust and what are some indicators of a good partner? The, the thing here is, is understanding the trust. You know, trust is combined of several things. Some are bigger, some are smaller. Trust is one of the, the more, the less subjective ones are how fast as the partner respond to your emails.

Or, or there available 24 seven to answer your questions, do they speak the same language, on a, on a higher level? Do they actually have references from clients in a similar space? Can you call those clients to actually see if they've been happy and satisfied with the service provider or not? So they, you know, are they out the media and reputable places?

Have they won some awards from UI, from anywhere else? And having they been in Forbes mentioned a couple of times, east kind of small, thanks that any single one of them, it's not enough to actually give you a data point, whether or not they're the right partner, but the combination of them, , can provide you with the goods idea.

If it's a reputable partner to work with or not all businesses are different and startups take their own unique approach, but surely each startup that is looking to scale should utilize global talent. Not quite turn it around a little bit and focus more, less on the verticals where the, the businesses are focused on broader look at, the types of services that a client needs or the, you as a company need when they're, when they're growing.

Right. The. You need to be more protective. You need to be more diligent about the types of services that actually influence your core proposition. So if you're looking at engineers, if you're looking at service designers, if you're looking for, for product people, these are absolutely crucial for you to be successful.

And for you to actually build something that has legs. That is, , solid that doesn't have any, tech debts or anything like that, that the going forward would, would have, , bad ramifications. If you, if you chose an embed vendor, however, on the other side, you have the digital marketing people, or you have the corporate writers, the CEO people, , all these that have, you know, ha can, can really successfully be digital nomads living in Thailand and, and doing stuff around the world.

Um, You have less of a, , we would say vendor lock-in with them. You, your Morris, Chuck mentioned a similar thing in our episode, the bottom line consider wisely what you do designate to a service provider. And also we have a less of a stress that if they don't do their job, that well, well, your, your ads won't convert or the texts on some blogs are not going to, it's not going to be that stellar, but other than that, you're, you're, you're kind of safe.

So I would say it's a continuum from how close does the vendor need to touch your core proposition to the other side, where it's more of a marketing or more about the additional services around that playbook relates to Slovak and Czech law RB providing you with some general principles to keep in mind when agreeing to terms in cross border agreements.

Couple of the hurdles that I know that are out there, but I've been lucky to avoid. The majority of them is actually, the, the finishing of defining the rule of law. Like where, what kind of role, what kind of law do you want to, govern your, your acumen is it's the Slovak, jurisdiction is it's the, the, the British or the  or what is it?

And this. For a small starting company out of central Europe can seem like a small thing and you don't really care because you need the cash. But at the end of the day, you can, it can have big ramifications and big issues if you don't choose wisely. And don't, don't carefully, , understand what, what you're doing there.

So what Marty is referring to here are clauses that you would typically conclude with a service provider. Yeah. When you were agreeing Masa service agreements, or MSS service level agreements, or SLS or other contracts concerning your relationship? That's the that's, that's not everyone. The other one is, , if there's an issue, what's courts, would you want to, , have your, your.

Legal proceedings in. And, , I know that many, many, many years ago it's been a practice that, you know, in Slovak companies, when they were contracting between the two of them, they went to Vienna, for, the court of law to actually, put it there because it has been way faster and actually more transparent and less, less prone to, , Issues with, with, with, with the law and Vienna rather than Slovakia.

And these things do happen and you need to be, you need to be diligent about that, right? If we're bringing a lot of contracting with a middle Eastern current company in Dubai, you probably want to define a neutral law where you are going to, govern the remanent or maybe red tent, maybe something that you're accustomed to, where you have some other clients, right.

Um, Those kinds of things you should keep in mind that organizations of a certain size will not really want to do it under slow buck, low or check low or any other small regional law. They want to either stick to a bigger, bigger, , Trusted, you know, countries that they, they, they, they do understand or they want to tight take it to their home country, which sometimes could be complicated for you when you have zero knowledge of that, or they're governed under very different laws than, than, than, than what you have at home choice of law and court are typically hidden in the miscellaneous sections.

However, they can be expensive mistakes. If you do have a dispute with your service provider later down the road. In addition to these areas, there may be different expectations to what should be included in an MSA, depending on the market standard of the location. For example, non-compete terms can vary depending on the trust between parties and the countries.

The contract is between something as small as a linguistic change can also have a large impact on the parties, such as how long the terms of the contract are going to survive for after the termination of the agreement. For example that you have to respect confidentiality clauses for two years after the termination, the cooperation, we have mentioned this before in savvy, but wallpaper contracts provide the rules of how you do business and can be relied upon in tough times.

Disputes are more likely to occur. If you don't cater for good interpersonal relationships. The way, how Americans conduct business and how they negotiate is completely different to the way the fridge do that, which is completely different to the way central European students. And there's only just getting you to deal, but then when you're working with a partner, you know, essentially European, when he, when, when they say it's okay, you mean it's the best thing after slight spreads?

But for American, what if you say, oh, it's okay. It's oh, this is really, really bad. As someone who is British, I can definitely vouch for that says, you know, normalizing those words and sentences and a working pro sporter in different times, those through slack or zoom, and to actually understand each other, even though we both speak English is a big thing.

Right? So, so coming into this with a little bit of, of a mindset that, you know, what I'm trying to do my best. This is who I am. This is how we typically work. Tell me how you operate and let's find a way yeah. How we can work together is really important. Most of the partners, most of the clients, I've seen a world, the world you been extremely happy to actually educate me about the, the customs and the ways that they in their country conduct business.

And, and, it's been a great icebreaker in a way for them to, to give me something, , a little bit of a, of a leg up there to, to, to, to, to get started. So, and the end of the day, we're we're human. We want to help each other. We want to do goods where Jetter, and if you drink an open mind and, and a curiosity to learn about new cultures and new ways of business, the partners will, , you know, treat you well and, and help you to succeed.

Business is built on people and the people need to understand how to do cross border relations and how to respect the, the, the cultures and the customs of the others. This isn't all talk vacuum labs were able to establish business out of Europe in Hong Kong, through incrementally learning the business environment and partnering with locals.

So getting into Hong Kong, as a, as a vendor that typically works with European and, an American clients, we've been lucky enough to actually be recommended from a very trusted source, to the particular bank we started working with in Hong Kong. And when. I flew there and it's important to us too.

We have, and physical, relationship in the beginning, you know, I was negotiating with a British national and Australian and an, a jerk. Right. So, so it was more of the, the ex-pats sink business and Hong Kong where. We found the common, common language very, very easily. And then when we started a relationship and started the work together, it's the Hong Kong nationals came in and we, we learned how to, how to work and, and it's been, you know, that project itself has been a very big melting pot of different nationalities, different cultures as like Hong Kong itself.

So, , it's been, it's been quite cold whites. Gentle for us to actually learn how to work in the region. And now when we're working with, with others more traditional for Asia, we are more accustomed to, and yes, you did hear Marty say they were physically present in the country when this occurred. I know Corona has taught us that we can also do business without that, but I'm still.

Maybe I'm getting old, but, I'm still a big fan of doing things. Physical startups who have reached scale-up phase going global is a dream. So how can it become a reality? One advice I would give for, for, entrepreneurs they're starting out in this region to actually want to do global business is not to be afraid.

It's not rocket science. But be ready to fail a couple of times, which is completely fine. Be ready to leave our stuff true European mentality at home, and to bring an open mind to the foreign markets and to actually listen, to learn, to understand the way how they do business, how they conduct negotiations and how they treat partners and vendors.

And, , to understand that. What works at home? Well now it's probably worked for, in a foreign country and, and that you need to be humble to, to, to, to learn a lot and to, to, to understand how to conduct business in a foreign country. And also just to ask for help and ask for, for support. Yeah. We've already hinted at this, but Mattie also suggests.

To partner with those who understand your business, choose a good legal partner for you to, to work with that's. I think that's number one. You know, I've always had illegal counsel and legal advice when I'm doing business, especially when you're doing cross border business. It is extremely important to have somebody that understands the law, where you're trying to send the agreement in.

Remember, this can also extend to other services such as accountants for taxes. And other admin rights. And, honestly in central Europe, you don't do not have a lot of, organizations that both are affordable and startup friendly. So they don't have the legal nonsense. He happy at PRP and they, they.

They, they seem to actually want to help the startups or the businesses to succeed. Plus have an understanding of U S Britain and the, in many other jurisdictions. So for me, that is a key key element for success is actually finding that that partner we understand sometimes legal is just not your priority.

However, if you're in a situation where you do not have a parking like that, , Try to always be more conservative, try to always sign things that you're more comfortable with rather than less comfortable with. Even if it may means you, it costs you a bit of money, very costs you a part of, of, of the, the total rate, even duration or whatever it is, being more conservative in that.

And, Just really good legal advice for this. And even if it's just for the first time, you, you know, when you're starting to work, let's say with Austria cross border, have somebody check that agreement. And then if it's the same template, you can just continue using that. But, , you don't want to start this with, with, with the wrong type of agreements, if you're just starting out and you're, don't want to buy services by, do you want to sell services?

Um, you know, do it as simple as possible, try to use the payment gate, try to something that's, that's a verified or, or just stick to a country where you're comfortable with try to stick with the EU or, or with something that you. No a little bit about, or additionally, there's a bunch of accelerators, startup incubator, as in check, trigger, worldly core Slovakia, you know, reach out to them.

And they typically have agreements with, law firms that they partner with and they can give you an hour or two or three of, of free time to, to, to discuss that, to talk to or prevalence rates. So, so that's an other, that's the other option.

Do a good, honest job, ask, you know, for a fair, fair money for, for, for good work and do this enough times. And you're gonna, you're gonna see the, the fruits of your labor is things overall. When optimizing your business, you are likely to work with businesses outside of your home country. While this can be beneficial for your growth and success.

It is important to keep in mind the admin costs. It's with establishing business with that country. Have you chosen a choice of law that will benefit you? Both is the cost of a lawyer who can practice that law more expensive than your normal legal support. Are there any small terms that could trip you up in your business relationship for other areas to watch out for?

You can look@ourarticleonsoftwareagreementsinourplaybookatsparringdotplaybook.io, but remember communication and legal contracts need to work in parallel. Make sure that you have taken steps to ensure there is trust between you and the party by engaging locals and building a meaningful business relationship.

This podcast is created by sparring the legal and strategic service protect visionary.