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Avoiding signing stupid, large, contracts with big orgs for SaaS startups


#1

Has anyone got any useful strategies for dealing with very large companies that insist on purchasing SaaS software and impose their own contracts and terms through central purchasing?

Let’s say there is a large but nameless general electric company that wants to purchase a small number of licenses for c $3,000 per month but the contract is then negotiated through central purchasing who want to impose their own terms, have their own dedicated support site etc. The cost of going through the 45 page agreement, negotiating, setting all the requirements up is prohibitive. Of course, having their name in the customer list is nice but the value of the contract will never be very significant. The end users, a small group in the business really want to tools, the central purchasing people insist on the contract.

If any SaaS software startup signed the agreement they were sent, they would either be very foolish or dishonest.


#2

I have no experience in selling to big corps, so take what I say with a grain of salt.

As with any contracts, you need to decide what you’re comfortable with. And you need to know when you will walk away. I got this advice some time ago : Assume that, five years from now, the company you negotiated with will be bought by the devil, who will put the most evil demon who totally hates your guts to go thru the contract line by line, seeing how he can screw you. Would you still sign the contract today? (Im paraphrasing and exaggerating, of course!)

Ultimately, it’s your decision, but unless you are making a big pile of money, enough to justify any legal costs in the future, I wouldn’t go with it.


#3

The issue is that the contracts that purchasing want you to sign up to are pretty unfair and very few smaller companies could sign up to them cost effectively - they might be for purchasing millions of $ of Oracle licenses.

Assuming there is no sensible way to reach an agreement on the contract, has anyone got creative ways of getting the deals done?

I have had a similar issue with a large multinational that wanted to purchase two conference tickets. Their purchasing people said they would pay 90 days post event and I had to set ourselves up as a supplier in their system. I said we couldn’t do that for them as it would be unfair to us and to all of the people who pay up front. The purchasing people said they would not do business with us. the two attendees then put the tickets on their credit cards and claimed expenses. Might not be as simple for a recurring monthly fee though.


#4

You let them deal with Oracles and IBMs of the world. There’s a reason these big companies can charge $3000 for something that costs them $30-- because they have to deal with all this bullshit.

Im sure other people with more experience will chime in, but I think this just happens to be one of the markets you may want to avoid.


#5

And avoid the money that market has? :wink:

@MarkLittlewood has a sensible suggestion – find a creative way to go around the central purchaser. The group wants the software, and they may be willing to brainstorm other ways they can buy it without involving the central guys. May be include it into a project budget, or some such.

If that does not work, then may be it worth to quote them a $30000 price instead of $3000 and let a lawyer go via the contract?

And when that one doesn’t work too, only then give up.

The good thing about good software within big corps is that people are rotated within groups, and they tend to spread the software with them if they like it. Ian (? I think that was him) was talking about that in one of the recent podcasts, how they establish a small footprint in a large company, and other groups see the software or get exposed to it and buy copies for their own groups. The first sale then may be painful and at a loss, but if there is a chance it will generate more sales, than it may worth the trouble?


#6

A) Get the team who want the software to find a way

I’ve been on another side of your situation, Mark: in the small team inside a overly bureaucratic organisation, when we wanted to buy some software, but the purchasing department put themselves in the role of “Preventer of Information Services”.

It was possible to get around this from the inside, by calling in a favour from someone with enough power to tell Purchasing “just do it!”. But that approach rapidly uses up political capital.

B) Use a reseller, who then carries the contract risk, shielding you. Many corporations in Europe spin off separate purchasing or supply entities. These entities then enter into their agreements with various suppliers. I guess it is possible to do this from the supplier side too.


#7

I think that runs the risk of significantly reducing your growth potential. I am coming from the perspective of,

‘OK, here are the rules that some big companies impose, how do we get round them?’


#8

Interesting.

Also, This thread, negotiating terms with resellers. is not unrelated to this one… :slight_smile:


#9

Exactly what I was thinking! We’ve found some utility for the resellers after all.


#10

There is a reason that all sorts of organisations exist. I don’t get the, ‘I hate resellers’, ‘I hate angels’, I hate VCs’. They all exist for a reason. None of them is either necessary, nor evil, but you have to understand what they do, how they work, how that fits with your business model. If you don’t appreciate where they are all coming from, how they all work and what they can and can’t do, you are likely to do things that are not in the best interests for either your company or your partners.


#11

My company deals quite a lot with bigger customers (banks, insurance,…). We only do these custom contracts for people who buy or Enterprise version which is simply priced accordingly.

Mostly once purchasing hears the higher price point they will conclude that a custom contract is not necessary. On the rare occasion that they still want to negotiate a custom contract we make them pay a higher monthly price and bill them seperately for a legal review.

If they want neither we don’t get a deal but this happens very rarely.


#12

How big is the custom contract? 3x, 5x, 10x etc?


#13

We currently charge 20% extra per month plus $250 per hour for legal review if more than 5 hours are required.


#14

I have had some luck here selling through a partner who has already navigated the bureaucracy. That can be hard to arrange, but I have on more than one occasion had the customer say, “Can we buy it through XYZ? We already have a supplier agreement there.” Of course, this is more a reseller agreement situation, but there is a non-negligible side benefit that the middleman may become a salesman for you. Just depends on whether your business model supports this type of sales channel.

I tend to think these people are used to this problem and have ways around it. It really is on them to figure out how their business spends money. And, if your product is good, and it solves a problem, they will figure it out.


#15

My 2 cents…

My experience with mostly large utility companies… that are a pain to deal with on the procurement side… Most of the large ones are SOX bound… and they will put you through the ringer initially… however, I find that those large companies are not litigious by nature and are quite easy going once going… the problem is to get them going…

I only sold enterprise licenses… so it was not a problem but I like Daniel’s idea very much… just charge for it…

Now, naturally, those companies are going to take you somewhere else business wise… They will want you to commit to many things… the most complicated of is probably insurance and insurance coverage… but those can be negotiated…

A good commercial lawyer is essential… so a 3000$ sale is really not worth the trouble sometimes…

Things we did sucessfully with some very large entities…

  • We never signed unlimited liability… we were always able to limit it to something manageable or max it out to the value of the contract…
  • Insurance amounts… can be rachetted down in most cases… commercial liability insurance is a royal pain when they require a specific contract based coverage…
  • Discount licenses a lot, but base your support contracts on % of list prices… ha ha ha…
  • Charge for support… $$$
  • Escrow is easy, just agree on a 3rd party…

The rest, is a case by case I guess… don’t sweat the small stuff… like I said, these are not litigious companies generally (cost of litigation is huge for those guys…) Just don’t go there if you are not comfortable with the process because it is a process. However, once they are in… they are locked up for good… this sets-up a very nice long term recurring revenue…

I would not go out of my way for it… but if approached I would for sure give it a long hard look… it’s good money sometimes… but you definitely need an ‘enterprise’ version …

I survived 10 years of only those contracts with not one gone bad… the largest one 6M$… So hey, might look like a mountain… but I say just put on your mountain gear and go for it… lol

My 2 cents worth…