Your paper, our paper

“Your paper, our paper – what’s the fuss about? As long as we get the deal done, right?”

Wrong.

For B2B tech startup operators, it is absolutely worth investing in setting your business up so clients routinely contract on your standard terms.

What’s the big deal?

If you operate a B2C tech company, you’ll likely have a standard clickwrap customer agreement where your customers either accept your terms of use or they don’t, and most of them do (In that case, lucky you :D).

But for B2B tech companies, especially those selling to large enterprise customers, a common headache is that customers often insist on using their own supplier / vendor / 3rd party / software provider contract templates.

Here’s the common line (paraphrased from a message I’ve received from an enterprise customer):

"<insert client's> internal policy (set by the <insert department>) is that this agreement must be used for contracting with all our 3rd party vendors."

Most times this works because a startup really needs that big enterprise sale and has probably already invested lots of time and resources to acquire the client.

The David-vs-Goliath power dynamic will invariably play out because jeopardising the sale is not an option and so the startup will deviate from its standard contracting process and use the customer’s paper.

The best the plucky startup can then do is try to negotiate as much of its standard terms into the customer’s template.

Here’s why accepting customer paper is a bad idea for startups:

Negotiations take time and cost money

Using a customer’s contract template means starting your contracting process from scratch.

You’ll need to include as many provisions from “your paper” as possible to make sure the contract actually reflects the nature of the service or product you provide.

This means many rounds of red-lining agreements and in my experience, you’re more likely to end up with a contract resembling Frankenstein’s monster than an agreement both sides are actually comfortable with.

The whole process takes time and is a major distraction for everyone involved.

For our plucky startup, it means the sales team has to spend time negotiating contracts instead of chasing leads and acquiring customers. Startups simply can’t afford to incur this opportunity cost.

If this happens frequently, the startup will probably need extra legal support which means either outsourcing to an external lawyer, or hiring an internal resource.

Most importantly, a drawn-out contracting process delays the customer’s onboarding and how quickly they can start using the service and being charged for it.

This means that not only the tech provider but also the customer is leaving money on the table.

Inconsistent terms create unnecessary risk

I’m yet to see a customer template that isn’t weighted in favour of the customer. And there’s no reason it should be.

But using a customer’s template usually means extra risk and obligations that wouldn’t normally be included in a tech provider’s standard terms.

There’s a good reason why standard terms are standard.

Managing multiple agreements with varying terms makes complying with each customer’s bespoke obligations expensive and impractical. Resources will need to be deployed to audit contracts individually to make sure bespoke obligations are being met.

Most startups don’t have the capacity to do this.

The irony is that insisting on customer paper actually makes compliance harder for tech suppliers and distracts them from delivering on the promises that actually matter.

It’s the exact opposite behaviour that enterprise customers should be trying to incentivise.

Not scalable

Scaling a business also becomes very difficult.

Here are some examples to illustrate the point:

What the customer wants in the contract	What that means for the tech provider
Bespoke SLAs and reporting	Engineering and Client Ops teams must update their incident response procedures and service monitoring & reporting processes for that specific customer.
Non-standard indemnities, warranties and liability caps	Losses suffered because of assumed liabilities (like indemnities and warranties) are usually specifically excluded from cyber-insurance cover. Even if an insurer will cover those losses, the provider may need to buy more insurance to manage a higher liability cap.
Their definition of “IP”	The SaaS provider’s IP is almost certainly not captured accurately by the customer’s definition, and therefore inconsistently or inadequately protected. The SaaS provider takes all the risk with limited upside for the customer.
Bespoke payment terms	Finance team has to implement a separate invoicing process for that client.
Their dispute resolution clause or choice of arbitration/litigation seat	An incident involving multiple customers (like a widespread service failure) means the legal team has to defend multiple claims in different processes, across multiple jurisdictions.

Now imagine this multiplied across many, many customers…

Death by many cuts.

How much is “your paper” worth to your business?

This is the question both parties must ask themselves before agreeing whose paper to use. And I don’t mean in some vague, esoteric sense.

In real, money terms, how much is your contract template worth to your business?

The gap that every startup tech provider contracting on customer paper should be trying to cover is the money cost of a longer sales cycle and deploying resources to manage contract risk, whilst operationalising bespoke contracts in scalable way. From the customer’s perspective, does the benefit of mitigating the (perceived) risks that contracting on customer terms achieves outweigh the cost of the delay in receiving value from the tech service?

Or, more to the point, will the customer compensate you for the extra cost you incur by contracting on their paper?

If yes, then it’s perfectly reasonable for the customer to insist on using their terms and for the tech provider accept using them.

But to answer this question, it does mean lawyers at enterprise customers actually have to engage with the tech provider’s terms – for starters, how big are the gaps really when compared to your customer template?

For startup operators and lawyers, this also means making the effort to meet your customers halfway and show them the value in using your paper.

Navigating the “your paper, our paper” paradigm

From the startup operator’s perspective, there are ways to get customers using your terms more often than not:

Make sure your terms are balanced and well-drafted

There’s no point forcing a customer to accept your standard terms when they are too one-sided, or poorly drafted.

Emphasise alignment and mutual benefits

It’s in noone’s interests to have a drawn-out, bitter negotiation.

Emphasising throughout the process that you are aligned with the customer and that you want to do an efficient deal where they get onboarded as soon as possible, and therefore see ROI as soon as possible can go a long way.

Focus on all the ways that you add value to their business, including the peace of mind they get from battle-tested, carefully tailored terms of service.

Be flexible (sort of)

There might be changes that a customer asks for that don’t have a massive cost impact or increase risk, but do add value for the customer.

Engineer your terms so that they allow for some flexibility and negotiation on non-core terms.

In my current role, our approach is to use a Service Order in conjunction with our standard terms which allows for minor, bespoke changes to the standard terms to be agreed in the Service Order. I only need to review 1 section of a customer’s Service Order to know all the bespoke terms applicable to that client, instead of a line-by-line review of our entire terms.

Involve the right stakeholders early in the process and find your deal champion

This is where the sales and legal teams need to be an effective tag-team.

The sales team should be well-versed on why using your standard terms is important, and fully equipped to handle these discussions with the buyer / deal champion within the customer’s organisation (read on to find out how).

This will help your sales team set clear expectations early on in the sales process, and allow buyers to properly brief their in-house lawyers.

An inhouse legal team receiving a tech provider’s standard terms without being briefed that they aren’t open to heavy negotiation is like putting a nail in front of a hammer.

There’s only one result.

Charge a higher fee if the customer insists on their paper

Charging a higher fee for contracting on customer paper is likely to encourage the customer’s lawyers to engage with your terms.

It will force them to judge whether the benefit of insisting on their paper is worth the costs, and they can only do that by actually reading your terms.

This is difficult to get right in practice though:

• How much should you charge?
• Does charging a fee for bespoke terms or customer paper mean it’s open season on what you can be asked to agree to?
• What happens if the customer pulls out of the deal? Managing the psychology around this, especially when you’re the David in “David and Goliath” is hard.

I don’t have the answers, but I’d argue the aim of attaching a fee to contracting on the customer’s terms shouldn’t be to punish the customer nor turn your contract negotiation function into a revenue-generating machine, but rather to create alignment.

Customers (their legal departments) far less likely to arbitrarily insist on their paper when they need to pay for it, and you’ll be far happier using their paper if you’re getting paid for it.

Have a ‘one-pager’ objection handler / FAQs doc

Having a ready-made document that anticipates typical objections from customers is a useful piece of collateral that your sales team can proactively share with customers.

In general, I’m a big fan of one-pagers specifically addressed to legal and procurement teams (in the context of enterprise SaaS deals) to help make their engagement with your sales and contracting process easier.

I’ve previously written about how ‘one-page’ explainers can speed up enterprise sales.

Your one-pager might also have a section motivating how the customer receives value from contracting on your terms.

Leverage your contract data

If you are tracking key contract data, like what percentage of customer contracts are signed on standard terms versus customer terms, you’ll have a powerful anchor during the initial contract negotiation.

You might try something like this:

“94.56% of our customers contract on our standard terms, including many clients who have the same profile as you. They were comfortable with our standard terms, why aren’t you?”

Know when to duck and run

In some instances, it does make business sense to give up the fight altogether.

For significant enough deals (I’m talking about those game-changer contracts), it might make sense to use customer paper. This is only worth it when:

1. You are comfortable that you’ll be able to adjust the customer’s terms to appropriately match the service you provide.
2. You have high conviction that the deal value justifies, or adequately compensates you, for the extra risk.
3. You’ve discussed with the customer and they’ve justified why you need to use their terms.

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• Please share your experiences tackling the “our paper, your paper” discussion, and whether you’ve had any success using these tips or have other ideas! 😃
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