Negotiate a B2B contract

How to get the legal side of your B2B business in order? Challenges like: contract negotiations, Terms and Conditions, SLA’s and so many others contracts where we tend to underestimate the impact of it. The tech landscape is evolving so fast you need to make sure that the legal side of your business can catch up. Anneleen Vander Elstraeten, managing partner of Four & five joins the Sales Acceleration Show to discuss how to match the fast-moving business reality with the legal aspect.

Listen to the podcast or read the full transcript below.

The best B2B contract negotiations advice

Michael Humblet:
Welcome to the Sales Acceleration Show. My name is Michael Humblet and I’m the founder of Chaomatic. And in this show we only focus on accelerating your business and making more revenue. And one of the things that keeps coming back is doing negotiation, contract negotiations, terms and conditions, SLAs, all the legal side of your business, especially within tech companies.

Michael Humblet:
So I’ve invited, and it’s about time we do this, a proper lawyer, somebody that eats, sleeps, dreams law and can solve it. Anneleen, may you introduced to our viewers what do you do?

Anneleen E.:
Thank you Michael for the invitation. Thank you for the introduction. My name is Anneleen Vander Elstraeten. I’m managing partner Four & Five. I founded my own law firm only six months ago, but meanwhile I have a very nice start-up that’s becoming a scale-up with 16 people in my team-

Michael Humblet:
In six months?

Anneleen E.:
In six months’ time. Yes.

Michael Humblet:
So there is a big, big need for what you do.

Anneleen E.:
There’s absolutely a big need, and we are in a niche market. We have high expertise in what we do, and I think we’re one of the sole players in the market having this expertise in-house.

Michael Humblet:
So as a strategy you need to dominate and go much faster and take it, take the market,

Anneleen E.:
Now I’m being challenged by a sales expert.

Michael Humblet:
That’s what I would say [crosstalk 00:01:17].

Anneleen E.:
I must say that a strategy for the coming 18 months is more like focus, increase expertise, because for us the biggest challenges is what’s next. I’ve seen in my career that, if I look 10 years back, I was negotiating large ERP licensing agreements, et cetera, mostly obviously with FinTech-

Michael Humblet:
Towards SAP, Oracle-

Anneleen E.:
Correct. Whereas today we see that the market has changed. Now technology means a bunch of different applications. Also, 10 years ago, we were not using WhatsApp in a professional context. Today it’s normal to use it even internally. It’s a communication tool.

Anneleen E.:
So from our perspective, it’s very important to be able to see what’s next, what’s next in the market and what are the legal challenges. Because we all speak about blockchain, artificial intelligence, et cetera, et cetera, but what will it mean from a legal perspective? Our legislator will not be able to keep up with the changing markets, but we have to be able to serve our clients in where they’re developing,

Michael Humblet:
Can I jump straight in? Because I hear you talking, and I suddenly realized the last 10 years, when the classic software business started shifting to SaaS business, software as a service, also the model of selling changed dramatically.

Anneleen E.:
Exactly.

Michael Humblet:
So I used to be a distributor. I would sell my software to a partner and a partner would then resell it to an end user, right?

Anneleen E.:
Correct.

Michael Humblet:
Very classic handovers and all of that, no problem. Suddenly SaaS is there. And SaaS sells directly. They try to cut out the middleman. Sometimes, yet, you have the middleman, but then you’re getting this really, really weird contractual discussions about the end user license agreement.

Anneleen E.:
Correct.

Michael Humblet:
Right.

Anneleen E.:
And you can even say what’s the next step? Because when you’re having a negotiation with your end user, then you’re still in a very typical negotiation. But my assumption is that the next point is I’ve never seen a salesman off WhatsApp. I’ve never seen a salesman of multiple applications that I’m using-

Michael Humblet:
Do they actually have people working for them?

Anneleen E.:
I’m not sure.

Michael Humblet:
I’ve never seen a person in any of these. Skype. And just thinking, yeah, it is scary.

Anneleen E.:
So the next thing for us in the challenging legal work will be what’s the next thing? I assume that within five to ten years, we will all purchase our software and our applications without having a legal discussion. So our focus will not be on negotiation anymore, but in making sure that the legal framework, as of the beginning, is correct, that nobody drops out and it’s that it’s an correct contract, that it’s not balanced only towards the supplier. But it’s something that you can say, “I clicked true. I accept, and it’s fine for me. And I even pay by credit cards.”

Michael Humblet:
That’s true.

Anneleen E.:
Not only if we’re talking about thousand, two thousand US dollars, even if we speak about higher amounts.

Michael Humblet:
I still see the very large amounts. It still is a very classic process. You will go to the ERP, create a PO number, whatever you do. They’ll not give you the MasterCard, whatever. The lower ones, typically SaaS, very low, you see them transacting very fast. And actually, nobody reads the EULA. Except once you get to larger banks and larger corporates, they will check it, but also not for the really low ones, I think.

Anneleen E.:
Correct.

Michael Humblet:
They kind of let it go, because it’s more on a personal based kind of thing. I never actually thought through this, but you’re completely right. It will change dramatically. I also think we will start more talking bot to bot and that kind of stuff, if we go real AI and we pull it 10 years further. I’m getting scared.

Michael Humblet:
So before we get scared, maybe I pull you a little bit back to some of the lessons learned and some of the things that you see, like maybe be some use cases. I think the typical scale-up has a lot of these negotiations. How can they avoid some of the pitfalls and what would be your advice? Like, “Okay guys, when you make this, think like this, and these are some of the steps you need to do.” So where do you want to start? I just-

Anneleen E.:
I think the first thing is think about your contracting process. Of course I could respond to you with a content response, but I think the first thing that you should tackle is your process. Do you want to go into face-to-face negotiations, or do you prefer to send over general terms and conditions together with a purchase order, and hopes that nobody reads the terms and conditions?

Michael Humblet:
Most people do.

Anneleen E.:
And on the first page, you just need to sign. You get it back, and a deal is done.

Michael Humblet:
Yep.

Anneleen E.:
What we now see in the market is that even when we speak about large amounts, most of our clients try to sell their product this way.

Michael Humblet:
And they put the TNCs on the website public and then they just make referral in the in the offer. That’s what I see most.

Anneleen E.:
It happens. But if you speak about a substantial amount of money, it’s preferable to have it as an annex. Because if you need to go into litigations, always best to be able to prove what version of the general terms and conditions. I think it’s a good idea to do business like this, but the moment you decide to do so, the most important thing is to put a balanced version of the general terms and conditions. Don’t ask your lawyer, make it-

Michael Humblet:
Close it.

Anneleen E.:
100% favorable in my favor because it will not fly. It’s not because it’s in the very small font that nobody all reads it. The purchase and compliance departments of larger corporates are still read it, but if it’s balanced, it will pass. So that’s I think, my first advice.

Anneleen E.:
And then the second is you always have to take into account, and that’s some misunderstanding some people have, even if you’re selling software, you might be into a regulated environment. If you’re developing a separate software application that is used, for example, in a courier service, you still need to comply with all the regulations. If you’re in mobility, you still need to comply and check the insurance company. The speed of start-ups and scale-ups is sometimes that high. They all already start walking without being able to run. Or sorry, it is the other way round.

Anneleen E.:
But anyway, in start-up world you see these kinds of things, and that’s where I can understand sometimes people say, okay, first we go to market. We want a challenge. We make sure that we’re able to sell the product, and then we will set up a company. Then we will see whether we need funding. Because of the SaaS world, it’s very easy. Your investment-

Michael Humblet:
It’s the sale’s way. You first sell it and then build it. Engineering way’s. first build it then sell it.

Anneleen E.:
Correct. Correct. But some of the cases I’ve seen might cause even criminal sanctions. For example, we’ve been focusing on the legal framework of ICOs, the initial coin offering. It’s prohibited in Belgium. But I’ve seen start-up companies coming to me and saying, “I’ll do it. I’ll do it tomorrow.” Okay. And I said, “Do you know that?” “Yeah, I know it’s prohibited, but it’s easiest way to get funding. So I’ll do it. I’ll get 2 million euros in only 48 hours. So I don’t want your advice. I don’t want to pay a bill of a lawyer. I will just initiate it.” The only thing I could bring up was, “Okay then at least could you please use a management company or do you somewhere have a company to have unlimited liability.”

Michael Humblet:
So then if they fine you… Yeah.

Anneleen E.:
And that’s what I mean by saying always be careful.

Michael Humblet:
So one of the things I always… What is completely ignored, like warranties and the kind of stuff and SLA’s SaaS software. If we stick to SaaS for a minute, because that’s something very different. In all the others, you had to minimum X amount of years that you pay and then you had the minor major abdicates and pay all of that. What about SaaS actually? What’s your advise there? Should you limit it very much or should you just open it or what? Because if you buy something for 50 Euro a month, I mean if you setting up the whole organization behind and stuff.

Anneleen E.:
What I’ve seen in the past is that by doing a copy paste, some of these start-up even scale-up companies, they thought this looks like very nice SLA, let’s just use it. But then they included up times, response times, but also resolution times. And they were not thinking about who will pick up the phone. Do we have coverage? Do we have people in the weekend. Will it work? I think everybody can live with the fact that if you spend 50 Euro a month, for example, on a SaaS product, nobody will pick up the phone. Microsoft will also not pick up the phone. But the moment you spent much more people expect that somebody picks up the phone, that you get a response in a certain time. So my advice would be never to copy the terms and conditions of another because what I see is copy pasting sometimes can be useful, but if you do not understand what it means-

Michael Humblet:
You don’t read it even.

Anneleen E.:
Exactly.

Michael Humblet:
It’s like find and replace.

Anneleen E.:
Yeah. Find and replace. And the most difficult thing in reading a contract is reading what is not real written. You’re opposite party will never by himself include limitation of liability. But if you read the contract, you will not think, if you’re not a lawyer, there is no limitation of liability. If you read, for example, if I turn it the other way round, if I sit at the purchasing side, nobody will include a resolution time for itself.

Michael Humblet:
No, of course you would be crazy to do it.

Anneleen E.:
You would be crazy, except if you know that in your kind of business, in FinTech for example, you will not fly if you’re not proposed by sale or resolution time.

Anneleen E.:
So being able to read what is not written, that’s why you need a lawyer.

Michael Humblet:
Yeah. That’s your value prop actually. It’s even more than that.

Anneleen E.:
Exactly. Yes.

Michael Humblet:
Now we’re getting into the mood. I have two other questions. Something that always pops on my desk is NDAs and penalties.

Anneleen E.:
Okay.

Michael Humblet:
So in essence, I always say I don’t do penalties. In some very rare cases when they really, really want penalties, I always want it mutual. I don’t know. What would be your advice around and NDAs and penalties because that the NDA thing is something you see in start-up, scale-up life coming back all the time. And then I’ve read in my life I think hundreds. They are all just a little bit different. I’ve never seen one being effectively when to court, put in place, the whole song. I’m wondering how far can you stretch it? What would be your advice on this?

Anneleen E.:
I’ve seen a case where the NDA and the signing of the NDA blocked the entire sale of the company in the end, because apparently the founder signed an NDA before starting his own company, and apparently the entire company was based on the IPR of another company.

Michael Humblet:
You’re a liability.

Anneleen E.:
So NDAs are important, and it’s-

Michael Humblet:
Good God, I’m getting scared.

Anneleen E.:
An NDA everybody… Because what we have, for example, in our law firm, we have a checklist, and we send it over to clients. It’s something that’s off the shelf. And if you want to read your NDAs by yourself, you just use-

Michael Humblet:
The checklist.

Anneleen E.:
The checklist, and you say, “Okay, this is in. This is in. That’s fine. I can sign it.” It’s not a challenging legal work to review on NDA.

Anneleen E.:
That being said, what is sometimes hidden in an NDA is a non-compete clause. And that’s, yeah, that can be also at the end of your company.

Michael Humblet:
Yep, exactly.

Anneleen E.:
And it happens a lot. Also a non-solicitation, the fact that you can not touch the other ones employees.

Michael Humblet:
That’s something that you see a lot.

Anneleen E.:
You see it a lot.

Michael Humblet:
Is that such a problem?

Anneleen E.:
It depends of your business. But if for example, you sign up as a start-up for an NDA with Ernst & Young.

Michael Humblet:
Yeah, yeah. Okay. In that context, I fully agree. Yeah, of course. Yeah. Yeah, after a while you get so much of these things that you get common sense for that’s going to work or not. What about the date? Something I always wonder where you have people that put in 10 years of an NDA. It’s completely stupid. I mean, Facebook didn’t… Now it exists, but I will say the argument. I mean, two years things will be different.

Anneleen E.:
I think it’s common practice to put in five years, but the reason-

Michael Humblet:
Still five? Because I tried to push the three. Oh well, I think in three years everything changes again, so…

Anneleen E.:
The reason why there should be a number in it is under Belgium law you have two kinds of agreements. So one is unlimited in time and that you can always stop with a reasonable notice period. So the reason there’s a term in it, because at least if you are sure about the term. If there’s no term in it, because that’s also a very interesting case I had once. There was a signed NDA on the table, but it was unlimited in time. So then you just end the engagement with a reasonable period of time, and you get rid of it with a few months time.

Michael Humblet:
One more question on the non-compete because my mind is racing. I’m thinking, because I got a question very recently. Somebody signed, they had the discussion, I was there. And he said, “Okay, it says non-compete, but what do you do if you go on stage and you speak in front of a large audience where are your competitors of the company could be.” You cannot be liable for that. Does it mean you need to adapt the NDA for that, to cover that practice? So imagine I sold software. I sign NDA with you, and basically you say there is a non-compete. You cannot sell to other companies doing the same thing as I do. Right. The day after I’m on a stage. All your competitors are in the room and I’m explaining stuff. I’m not selling to them, but I’m explaining parts of the [crosstalk 00:14:53].

Anneleen E.:
Yeah, that’s-

Michael Humblet:
Is that something you need to be worried about or not?

Anneleen E.:
No, no, no, because a non-compete is about actually doing business.

Michael Humblet:
Business.

Anneleen E.:
Yes.

Michael Humblet:
Okay. Even if they are paying you to be on stage. I’m trying to find holes in the… Okay. Another one, another one, because that was way too detailed for the show. No. Another one is one of the things that I hear a lot and I keep getting back is okay, dear friends, you have a company and it can be a pretty large. What if you go broke? It’s one of the things that keeps coming back from small to larger companies actually, and some very large companies went bankrupt. So what do you answer there? What do you do? What do you do there? How can you cover that? I mean the first thing that comes to mind is escrow, but is that the right way to answer it because it’s a painful process.

Anneleen E.:
It’s a very good question because you see now in the market that a lot of large corporates, not only because it’s cool to buy from start-ups, but only because they are not able to innovate themselves.

Michael Humblet:
Exactly.

Anneleen E.:
But their compliance department is completely different, and it’s like, yeah, what are the risks? And indeed, if a start-up will go bankrupt and they implemented their software as a core product, what will happen? The best answer to that question is indeed escrow. Suggest escrow. However-

Michael Humblet:
Maybe explain very briefly what escrow is.

Anneleen E.:
Escrow means that a third party, an independent third party will get possession of your source code. And whenever you go bankrupt, the source codes will be released to your clients.

Michael Humblet:
So it’s basically you put the source code in a vault in a very simplistic way. Somebody gets the key if things go bad. They go to the person with the key. But yeah. Okay.

Anneleen E.:
Well the problem is that such escrow agents, there is a cost linked to it.

Michael Humblet:
It’s pretty expensive.

Anneleen E.:
It’s pretty expensive, and its markets practice that the client picks up this bill. However, depending on the amount you’re speaking about on a yearly annual subscription basis, it might be that your escrow fee is higher than your subscription fee.

Michael Humblet:
Of course.

Anneleen E.:
We have a solution to that. You will not go bankrupt just day by day. Your clients might know in advance, so sometimes client accept the clause where you see that instead of saying, “We will upon signature of this contract sign an escrow agreement,” that you say that “upon first requests of the client, whenever in the future your client asks for-

Michael Humblet:
You do an escrow.

Anneleen E.:
“We will engage ourselves to do the escrow agreement.” And only as of that moment the fees will start.

Michael Humblet:
It’s a much more healthy approach.

Anneleen E.:
That’s a compromise.

Michael Humblet:
Yeah, but is escrow the only answers to that on the bankruptcy? Because it’s a tough one.

Anneleen E.:
It’s a very tough one.

Michael Humblet:
And I’ve seen lots of corporates when you do that backing off. Just you saying we can do escrow was enough for them to say, “Okay, okay. They understand the risk,” and then basically they didn’t do it because of the pain and the hassle.

Anneleen E.:
I must say it’s the only solution to that problem because of the that you go into bankruptcy law. Whenever you go bankrupt, the [foreign language 00:17:53] in Belgium will take over, and it’s not held to each and any agreement that you already signed on a longterm. So indeed that’s one of the solutions, escrow. Another solution is to say, “Why don’t you invest in my company?” Then you’re sure about-

Michael Humblet:
Yeah, but on the other hand, I wouldn’t advise you because typically the first big customer that comes along says, “I really think this is a valuable solution,” and they want to invest. The problem is when the moment you do that… Imagine you’re selling in the retail space, and Delhaize or [inaudible 00:18:24], one of these guys looks at you and says, “I’m going to invest.” You basically kill all of the other. You can’t go to the market anymore.

Anneleen E.:
Well, it depends. It depends. I’ve had cases and our solutions to it. First of all, in Belgium it’s still not public who is your shareholder, except if the shareholders are presented in the board of directors. You could explain to Delhaize, for example, “Sorry, but you’re not invited to the board of directors. You will not be represented in the board. You will not get the access as a board member.” So that’s a way to keep it confidential. That’s Delhaize is one of your shareholders. You should not disclose to each and any client who is your shareholder. Another-

Michael Humblet:
But then you’re kind of lying, yeah? No? Just challenge you. I mean, I’m a sales… I know all, everything about the different type of truth, everything. So I’m thinking, “Oof, yeah. Okay.”

Anneleen E.:
It’s not the first question that you will get when you walk into a room and you’re trying to sell. You could always say, “My cap table looks like this.” And you just divide it, and you say, “My investors is 10%.” You don’t have to say the identity of your 10% investors are, so that’s one thing that you could say. “Okay, you invest. We keep it confidential.”

Anneleen E.:
Another important thing about big corporates investing in your company, it’s that they get a certainty about what’s going on. And it’s not because they invested in the first place, that it should stay in your equity forever, and whenever you accepted, for example, Delhaize to invest in your company, it’s good to have a clawback clause where you say, “Okay, you’re the early adapter. You’ll invest, but we might need to think about what happens if indeed we start to discover that we’ve been perceived as a Delhaize company and the market is not reacting in the correct way. Why not already discussing the divorce papers? What about if we want to separate?” Because if in a Belgium entity you are a shareholder, getting somebody out of their shareholdership, it’s not provided in the legal code. You have to discuss, put in call option, et cetera. So that’s something that I would highly recommend whenever you have these discussions.

Michael Humblet:
Okay. Very good. Is there something else that you see as a veteran coming back. You say, “Michael, goddamn, I wish they would have done that.” Something you see keeping back. I mean, we immediately talked about NDAs, EULAs. We talked about the supply negotiations. We talked about SLAs, help desk TNCs. When you go bankrupt, how do you deal with that? I mean we kind of covered a lot already. Something else?

Anneleen E.:
I think it’s not really a legal recommendation, but in general, each and any lawyer, not only in our firm, but whenever you discuss and you explain what your business is, it’s like a doctor. Just on discussion of one hour, a lawyer can say these and these are the risks. And that’s something that you should know even after thinking only one month about your business because these risks can also jeopardize your idea of doing business. It could even detrimental for your business that you have to say, “Okay, maybe this business idea was not such a good idea” because you end up into regulatory, et cetera.

Anneleen E.:
So my advice would, whenever you think about an idea, you have the financial feasibility, you have the business, sales side, but have this first discussion just in due time.

Michael Humblet:
The liabilities. Check. Make sure of that.

Anneleen E.:
Yeah, just to get an overview of what will be the topics that you will have to be working on. It’s not because a lawyer in this first conversation will say, “Okay, whenever you’re starting business, you will have to become the GDPR part” that you have to do it immediately. But at least as of the very, very, very beginning of your business, you should know where the topics are and when which topic will rise in when moment in time.

Michael Humblet:
So my dear friends, I think it’s about time you all rewrote your TNCs and your SLAs and all of that. Thank you very much for that share of wisdom, and I hope we all make sure that we don’t run into troubles later on. If you like what you’ve seen, give it a thumbs up and subscribe for a lot more. And Anneleen, thanks for coming and sharing with us.

Anneleen E.:
Thank you very much. Bye.

2019-09-24T10:48:30+02:00April 28th, 2019|

About the Author:

Michael Humblet is obsessed with designing, building and scaling sales engines and founder of Chaomatic, focused on unlocking & maximizing revenue growth trusted by over +207 companies. He is a seasoned sales strategist who served in different Sales Leadership functions. Michael Humblet is the host of The Sales Acceleration Show, the sales and marketing focused Q&A show on how to accelerate your business.
THE PODCAST