While browsing sales tools recently I realized not many people were talking about how to accelerate a product sales cycle from a legal perspective. There are hundreds of tools aimed at optimizing a salesperson performance to convert leads into customers - but not so much information regarding an efficient legal documentation and process. The paperwork for closing the deal is the final step to success, yet the efforts deployed in earlier stages of the deal often goes to waste because of how poorly optimized the contract is for selling.
As discussed in last week's LinkedIn video, I wanted to put together a more exhaustive list of the various ways an entrepreneur, sales or legal professional could improve their contract drafts by integrating more mutuality. Here are a couple examples:
1) Selling goods or services - a value exchange
Whether you are selling goods or services, it is really important to tie the financial aspects of the deal with the actual value being provided to the client. If you are providing consulting services to client, it only makes sense to invoice the client for every milestone reached or every billing cycle (usually monthly). If you are asking for a lot of money upfront, and you deliver very little value in exchange, you can be sure your negotiation will take more time. Same goes with goods - if delivery is expected many weeks or months after an order is passed, you probably will have better chances of getting the deal closed faster if the money asked upfront is reasonable with regards to the total contract value.
Take away: always keep in mind that an out-of-balance pricing schedule with regards to product/service delivery will slow down the contract finalization.
2) Intellectual Property ownership
This section is really important. No one reviewing a contract will (or should) ever overlook this section. That is why your draft needs to be on point with your actual business model. If you are out of market standards with this regard, you can be sure your contract will take a lot more time to review and, ultimately, close.
So let's put some things out of the door:
- Everyone always expect to keep ownership of the pre-existing intellectual property rights, and expect this right to remain intact even if some portion of this IP is exchanged for the performance of the contract;
- If you are paid as a consultant by the hour, for example, as a programmer or a designer, then you can assume that the client will expect to own the end-product intellectual property. Trying to both be paid for developing something new and keep the intellectual property is a clear breach of the mutuality principle and will more than likely slow-down your deal getting closed; and
- If both you and your client or partner will put some elbow grease into developing a new awesome thing, then it only makes sense that both parties get to keep some form of intellectual property at the end of the process - unless one of the two parties is well paid to do its part of the job.
Take away: you should never try to get the prime development money and the end-product's IP ownership except in very specific circumstances. Keep the IP ownership aligned with mutual respect: who is paying for what in the deal.
3) Termination rights
Let's put one thing out of the way right now: termination for cause should always be mutual. If your draft is written so that only one party can terminate the agreement for good cause, you can expect this to get automatic push back from every client.
Now, termination without cause can be a trickier topic to address: it depends on your business model. Generally speaking, just keep in mind that every one always prefer to be able to walk from a deal at any given time, for no reason whatsoever - this is just risk management. However, making this section unilaterally in your favor, will likely generate some push-back from some clients. I highly suggest to keep this section mutual if your business model allows for it. If your pricing is structured around annual commitments, maybe you should consider opening a time-window during which both parties can terminate without cause (maybe before renewal).
Take away: If you need a termination without cause section, then you should make it mutual. If this puts your business model at risk, be creative and try to create a time-window during which this right can be exercised by both parties.
This section is usually very specific to what product or service is provided, so it is hard to make this mutual. However, some contract drafts will include some very generic indemnification causes like breach of contract, breach of law, breach of representations and warranties and so on. It doesn't make sense to ask your client to indemnify you for intellectual property infringement if they are not providing you any IP, but it doesn't really make sense neither to ask to be indemnified for contract breach without providing the same indemnification language in return.
Take away: If you want to accelerate your sales cycle from a legal perspective, make sure whatever generic indemnification language present in the draft is made mutual.
5) Limitation of liability
This section is a great classic. Anything non-mutual here will likely create some form of delay during the review process. If you feel like you need to limit your financial risks with regards to a deal, then you can be sure the other party thinks exactly the same. You will gain a great deal of time in the contract review process if this section is made mutual. Creating any sort of difference between the liability limits of the parties to the contract will raise eyebrows.
Take away: It is fine to want to limit your risk with regards to a contract (for example to one time the annual value of the contract), but making this section mutual will definitely help the contract review go more smoothly.
This one is easy. The best example out there is the non-disclosure agreement. Nearly every business relationship begins with a NDA being signed. Why make this unilateral by only protecting one party? You might feel like you'll be the only one sharing confidential information, but the point is that you'll make the other party much more comfortable by ensuring the draft also covers their information. To help you here, I give away a free mutual NDA on this page.
Take away: always make confidentiality sections or agreements mutual. Whether or not you think your client or partner will actually share information doesn't matter. Not protecting them will only cause delays here.
7) Contract Assignment
Without talking about subcontracting, let's say here that most businesses see an advantage in being able to assign an agreement to either an affiliate or an acquirer of substantially all of their assets. If you believe keeping your recurring contracts ongoing when your company is being bought-out is valuable, then it is most likely the same with your client.
Take away: this section often serves the purpose of protecting the exit plan. Make sure that it is mutual by default to avoid useless push backs. If the client has specific concerns, it can easily be carved-out later.
Hope this helps you close more business, faster!