One of my long-time business friends called recently with a whale hunting problem. He is in the software development and training business and has had several whale-sized clients over the years.
This time, however, the prospect refused to sign his company’s standard contract in favor of their own. And this contract was onerous. In particular, it stated that the whale company would own all rights to any materials created for them or modified for them. The seller would technically no longer have the right to re-sell templates or standard software that had been customized in any way for this customer. They would also lose the right to include this customer’s bugs and fixes, anonymously, in their ongoing FAQ materials available to all customers.
Furthermore, the small company’s hesitancy on this contract was making the whale angry and the deal seemed about to slip away.
He asked what I thought he should do? Here are a few ideas I offered:
1. It’s very common for a big company to have a very different view of contracts than the small company does. Sometimes you will have requirements in your standard contract that no large company is going to sign, period. Other times, you will be faced as my friend was with a contract that frightens you. If you want to complete your big sales, you’ll have to find a way to come to terms quickly.
2. Big companies have staff lawyers; maybe you don’t. If not, be sure that you consult regularly with an attorney who specializes in entrepreneurial ventures and will come to understand your business. Have your attorney review the contract with an eye to any pitfalls. Now is not the time to save money—invest in some good advice.
3. If the attorney’s advice is ambiguous, you’ll just have to decide how much you want this business. Is it likely that the customer could or would cause you real trouble down the road contractually, or are they just using boilerplate language to protect their own interests? If there seems to be real danger, now is the time to say no. But if any danger is remote and unlikely, and otherwise you want to do the business, get the contract signed.
4. Once you begin doing the work, be scrupulous about following the rules of the contract. If issues arise that are not clear-cut, negotiate them and get agreement in writing.
Contracts between big and small companies are tedious because each faces different kinds and levels of risk, regulation, and responsibility. If you routinely have problems negotiating a contract with a large customer, work on your own contract to make it more familiar to the whales.
Have you ever lost a job through contract negotiations? Have you signed a contract that proved to be a mistake? Post your comments below.
