Nov 19, 2019
Negotiating commercial contracts is a crucial part of the path to revenue for emerging and high growth companies. However, one of the most difficult things in negotiating commercial contracts is being able to scale them – and one of the biggest risks you might face is not getting the contract signed. That’s why as you prepare to sell, having robust and highly developed processes and standardized agreements (when possible) in place can help avoid unnecessary delays – driving towards a more efficient process for your revenue stream.
Knowing your customer from the perspective of contracting with them is one key to ensuring a smoother sales negotiation process – but there are several things to consider. This presentation by Simon Hodgett, a partner in Osler’s Technology Group, and Salim Dharssi, a lawyer in Osler’s Technology Group, details best practices for streamlining sales negotiations for EHG companies. Available in both webinar and PowerPoint format, the goal of this presentation is to help you navigate the following issues and more:
- Preparing to sell and revenue initiation
- Knowing your customer
- How customer agreements can be selling tools
- Developing your standard form agreement
- The sales process
- Documenting your contract negotiation process
- Non-disclosure agreements and confidential information
Transcript
Slides: Streamlining sales negotiations 101
This presentation is part of Osler’s Emerging and High Growth Companies 101 series, designed to help emerging ventures navigate through the various issues and legal requirements they will encounter throughout their growth cycle.
Video transcript
SIMON HODGETT: Well, welcome. So I'm Simon Hodgett. I'm a partner in the technology group. And Salim and I, we really head up the effort of keeping commercial contracting on track for emerging and high growth companies here at the firm.
We believe that start-ups and high growth companies should get the same high level service that we provide to all our clients at Osler. And we're very busy behind the scenes in ways that you won't often see, putting in place processes-- dedicated personnel, precedence, and even some in technology, to help us support this part of our practice. It's a very important area for the firm.
What we thought we'd do today is really give you some of our thinking and learnings from having worked with countless start-ups going from no revenue to revenue to growth to that really very, very successful businesses. And just to give you a sense of that, in our commercial practice in the past year, we've done about 300 matters for start-ups and fast growing companies. In the past couple of years, it's been 750 matters.
So we really do see this across a huge spectrum of clients. And we'll give you some impressions as to where-- I'm losing my nametag. It's OK, you know who I am. We'll give you some impressions of what we've learned from that, and, hopefully, it'll be helpful for you as you grow your business. See if this thing works. It works.
OK. So let's think about your journey as innovative companies. And if you've been to some of our presentations before, we put up this slide a fair bit. So, you know, there's financing, there's that side of the business, but really, every business requires a journey to revenue. So you go from a foundations stage where you have the idea, you have the concept, you grow maybe, get some financing. But really revenue initiation is every business is their goal.
So what we see is a progression. We see foundations where-- we should have called that the scramble-- you know, that's where you're putting together the ideas. You've got lots of input into your business and into your technology. And then you edge into revenue generation.
So you know, pilots, LOIs, term sheets, and things like that. We're going to talk at the end about NDAs, which are often signed, very, very often signed but sometimes not quite sufficiently understood as to how significant a document it can be.
And then, eventually, you turn it into a machine. So you turn it into a client acquisition machine where you have very clear programs, a very clear process, you have clear templates, that allows the acquisition of customers for your business in a way that's systematic with actually less legal involvement and allows you to scale. Because one of the most difficult things in negotiating commercial contracts is being able to scale it. So that's what we're going to talk about today.
So let's talk about preparing to sell. So you've got your basic company put together. And Salim will talk a little bit about that.
SALIM DHARSSI: So hi, everyone. My name is Salim. Before we get started on the slides, I guess I just wanted to introduce myself quickly too. I have been at Osler for the last year in the commercial technology group. And prior to that, I spent almost four years in-house with a growing cloud services business unit within a larger organization. In that capacity, I did a lot of sales support, which is what we refer to as helping our business sell its platform, sell its services. And that business grew over time.
And so, I've been on the other side and now I'm on this side, I guess, in private practice helping clients do the same. And so I'm hoping to share some of that, as Simon mentioned, with you. And we think it's, as you prepare to sell, quite important to know your customer. And it might go without saying but, in a sense, you want to know your customer from the perspective of contracting with them.
And if your customer is in enterprise, your contracting process and experience will be much different than if your customer is a small business or even a medium-sized business. And at each sort of juncture in the sales process, your experience will be different depending on that type of customer.
And so, for example, an online ordering process, if your product's available online or at least can be signed up for online or purchased online, it might be fine when you're selling to a small business, even maybe a medium-sized business, but a large organization won't necessarily appreciate that or they might not think that it provides them the adequate ability to negotiate the terms. The terms aren't just legal terms. It's the framework of the relationship.
And so they want an ability to negotiate those, and so you'll want to consider that as you prepare to sell. Not only the order process will be different, but the comprehensiveness of the terms will be different. And we'll get into making an agreement a selling piece for you.
But at the outset, just it, might, again, go without saying, but just give some thought to the type of customer you have. Because they might want comprehensive terms or they might want brief terms, and it depends on how they're situated.
So another factor that plays in is really what industry your customer's in. If they're in a regulated industry, like a bank, they will have a lot of requirements, and you really have no choice within a spectrum of the types of things you will agree to. They'll need security commitments. They'll need background check requirements. They'll have a large number of requirements, but within that, there's variability within which that they will want to see.
And so if you're preparing to sell to them, you want to be prepared. And again, that will dictate how you move forward in the process.
Some companies, like consumer product companies or other non-regulated industries, are regulated in different ways. They will be much more relaxed even though they're large enterprises. They will have some rigor in their process, but you just don't need to check so many boxes, and they won't have that many boxes to check. So again, this will dictate how you present your agreement to them.
You will get into a battle of the forms, inevitably. If you have an agreement and you present them to your customer, again, as you go to the spectrum of the larger enterprise customers, they're more often going to want you to sign their agreement. You'll never win that battle, or if you will, then it will take you some time to get from point A to point B to convince them to use your form of agreement.
We often suggest don't pick the battle, just agree and use your customer's form of agreement, if it makes sense. But an important thing would be to really help that counterpart-- the person you have on the other side-- understand the nature of your business and the product.
And again, might go without saying, but you might deal with procurement teams at the larger organizations that you're selling to. And they might think they know your product but they probably won't. And if they give you a services agreement and you have a software as a service product, it might be appropriate, but it might not.
And it could just be that you have to get that agreement from them. Explain to them again what your product is and what your service is, and say maybe this paper isn't the best one. They'll have dozens of agreements that they could potentially have given you, and they give you one. It might not be the best starting point. And so knowing your customer, avoiding the battle of the forms, and having some dialogue with them about that first agreement is really helpful.
Another important thing to keep in mind, and this will be dictated by the type of customer you have, is timing expectations. So we typically, or I typically say, at least, it'll probably take between one month and four months to enter an agreement with your customer if you have a B2B type product.
It depends, now-- and this is not necessarily all the legal negotiations and back and forth-- there's often business discussions had, but having an expectation internally as to what your expectations are will help manage everyone's expectations. And you won't make mistakes and fewer mistakes will be had and you'll have more time to dedicate to getting the right deal, which will really impact, I guess, the ongoing relationship.
SIMON HODGETT: Just to add to that, the knowing the customer and knowing where you're selling leads to timing, which leads to revenue. So if you're selling to banks, you need to make a significant time commitment to reaching an agreement with them.
If you've got a mass product that you're selling to thousands of customers, you can't afford to make a lot of time to sell to them. So having a very clear view of that-- and also, more importantly, communicating that to your team. So your sales team and your legal team, and we're going to talk a little bit about teams as we go through this.
But having a clear understanding that you know what, it doesn't matter if you need the revenue in a week, if you're dealing with a bank, you're not going to get it. And you can avoid a lot of disappointment and stress and so on if you clearly understand your category of customer and how they're contracting approach is likely to play out.
And, you know, I started off the talk by talking about the high volume of matters that we do. And that's something that we can help you with. I mean, an early discussion about that in your business can be very valuable to you because we have seen all of the different spectrums of customer. And we can help you with what the timing's going to be, what they're likely to come back with, what you're likely to be concerned about, and just setting appropriate expectations as to when you're going to get into that revenue.
So customer agreements as selling tools. So I always think that it's an opportunity missed if you don't treat the form of agreement you use as if it's a promotional item. So when you go out to customers and you have clean, maybe not complicated, but certainly well thought out agreements, it has a tremendous impact.
I mean, I can't tell you the number of times we've been dealing with companies and they'll send us their form that they've been selling in the market and you say, well, where'd you get this from? It's like, honestly, it's Facebook's terms, it's Salesforce's terms, and we chopped them up and, we put them together. And you can tell.
And it's important that it be something that when you put it out there, it is as much something to be proud of and is developed as the product itself. And once again, everything flows from highly developed processes, understanding of timing, understanding of your forms, feeling good about the form that you can defend the form and have put some reasonable time into it. And all of this is driving towards a more efficient process for your revenue stream.
So standardized agreements where you can, not every business can. As Salim said, sometimes you're selling into government or you're selling into a procurement business that is just not going to accept your form. But if you can, absolutely. And I would say the vast majority of our clients can set up standardized agreements.
It allows you to give some forethought to the important things in the agreement. Like what is our IP position if you're an AI company? That's really, really important to you. If you're-- and as-is, how data is used in the agreement. If you're a different kind of company, other things may be important to you. Liability may be important to you. If you're in an e-health business, that may be extremely important to you. And it gives you a chance to think about it without the pressure of the deal that needs to be closed next week.
We generally recommend-- unless there's a really good reason for it-- to go out with something that's relatively balanced. I mean, some of our forms, we're reviewing them right now and starting to think a bit about well, maybe we should make this clause a bit more balanced because the response you get is quite different. And once again, one-sided forms create discussion. Discussion creates delay.
So if the one-sided form is just because we didn't really think about, we had to get out the door, we needed a form, it's not the best result. What we need is something that's actually tailored to the business and actually takes into account the real risks within the business.
SALIM DHARSSI: Yeah. And there are a strategy-- the strategy at play as well, where again, as we get to the later slides, we'll see that there are ways to make the process more efficient. And if you're prepared, you might choose to have a more one-sided approach where your first agreement's in your favor, but you have, ready in your back pocket, terms that you might be able to substitute in. But we'll talk a little bit about that.
So there is some strategy, but we find that it's often more effective to reduce the time from start to signature by having a balanced approach at the beginning.
SIMON HODGETT: We're going to keep moving because the time goes surprisingly quickly. By the way, we'd love to take questions. You don't need to wait to the end just if you have any questions.
So you saw a little bit about developing the standard form that you use. There are, once again, there's that process of thinking from product, customer, what matters to me, and then think about what's the easiest structure for the agreement.
What we're trying to do is create an agreement that is going to be safe for your business but at the same time get signed. We recognize that of all the risks that our clients deal with not getting the thing signed is actually one of the more significant risks. I mean, there are times to walk away from deals, but you generally don't want to walk away from deals.
So think about the structure that's appealing to your customer. Sometimes we'll have a sheet on the front that you can fill out at the sales meeting with the customer. Sometimes we'll have more formal agreements if you're dealing with an institution that's more formal, such as a bank. And so you wouldn't want to use the please sign on the front and set out what the deal is on the front of the document approach. You'd want to have a developed in a different way.
And then there's all kinds of hybrid ways to do it. Sometimes we'll have terms that are actually online but an order form refers to them. Sometimes it's all online.
And it really does depend on your custom audience. And all of them can work. There isn't one form of agreement that your legal team should be saying that just doesn't work.
Electronic contracting is fine if your customers will accept it. Signing on the front is fine. But think about, once again, it's your selling tool. You know, what's the what's the quickest way to the deal?
And make sure that it actually refers to the product and the service. Sometimes I'll go back to an agreement that we've done that's been very general, it's been very quick that we've had to do. And I'll go back, you know what, it doesn't really tell the story of the product.
These agreements are, by far, most impactful because they tell the story of the deal, and they allow the parties to perform within the deal. The chances that you're ever going to litigate on one of these things is very, very slim.
But what does it do? It means the parties agree on something, it tells the story of the deal. So sending something out that looks like it came off a general set of terms and conditions that doesn't reflect the product or the service at all, I think it's a mistake. Because you go back to it, and it could be anyone's form, but it should be your business and your services and products should be reflected in the agreement.
SALIM DHARSSI: And what that might look like is if you're selling hardware or some sort of device, you might have more upfront in the agreement, the warranty terms, specifically. Because it's what people are interested in when they're reviewing those agreements.
If you're selling software, you might have your support terms quite upfront, or you might-- I mean, your license language will be up front, but your support terms around maintenance and support will be fairly high up.
And ordering is one thing, but just thinking about what your customer's looking at when they're buying and picking that agreement up in five years when you're looking to maybe renew or you're looking to understand how an issue might be kind of approached under the agreement, you want to be able to have that perspective and that, I guess, nuance in the agreement so that you can understand what it was that you sold. Because over time, your products and services will change. And you'll have different products that are released and you'll have different agreements and you'll change approaches. So having that in your agreement is really helpful.
For a SaaS product, for example, your customer and you'll be more concerned about your service levels and even your customer support around that. And if you're selling through a channel, like reselling or distributing, again, there'll be different things to consider.
And all of these agreements will have different starting points, but again, tailoring them to the situation and your product is really helpful because, again, down the road, too, when you want to pick it up, it frames your mind much more quickly.
You want feedback from--
MODERATOR: Question over here.
SALIM DHARSSI: Yeah. Go ahead. Yeah.
PARTICIPANT: With enterprise sources, you said [INAUDIBLE] was probably the least [INAUDIBLE] for the contract, but is there a middle ground? Well, there are of course, LOIs, but is there a middle ground, for instance, for term sheet form on binding prepared by the company to be signed off by business division, does it facilitate faster signing, closing the deal, with the legal and procurement, or normally it doesn't make much sense to--
SIMON HODGETT: In a com--
PARTICIPANT: [INAUDIBLE]
SIMON HODGETT: Yeah. No, in a complex deal, I like term sheets, but I don't like them signed. I don't like MOUs. I don't like LOIs. I think it's just a big waste of time. The reason is because when you sign them, you tend to spend as much time on that as you would spend on the actual agreement.
But a term sheet-- and we have a form that we use, which is really, it's a table. It's nothing fancy, but. And it allows you to work through with your customer the major issues, but I never like to see them taken to the level of signing them because it goes to the same stakeholders at the customer that the agreement's going to go to so it can slow you down.
But they're extremely valuable, particularly where your product's a little out of the ordinary and they don't know how to deal with it. It's much easier to have an intellectual property discussion. Say that you don't actually assign any intellectual property to them, it's much easier to have that at a conceptual term sheet table level than to get their standard form agreement and it's got all these assignments in it. Right? So absolutely, I think so.
I think that the only exception to actually signing those types of things is where you want to show someone that you're making progress so you've got financing or something like that. We're often asked to can we do an MOU or something like that, but it's generally the exception. It's generally not the commercial deal that drives to a signed term sheet, but the actual working out the terms is a really good exercise because if you get the enterprise agreement and it's-- take your pick, 50 pages long-- you're immediately into cost, you're immediately into resources internally to deal with that, and you may not even have a deal. So I think it's a good idea.
SALIM DHARSSI: I find they're helpful, as I mentioned, in the complex deals, but these normally come up in the collaboration context, a partnership context, where you're partnering with a company. Well, what is that partnership? Are they really providing you with services or are you collaborating to create a new product? And to pin down what that is, it's often helpful to then articulate some of the key terms in a term sheet, but really the complex deals is where it's more important.
And then otherwise everything takes longer otherwise.
SIMON HODGETT: Yeah.
SALIM DHARSSI: When you're developing your standard agreement, it's important to get feedback from the stakeholders, and these are the internal stakeholders. So your engineering team, your product team, and at early stages, there will be one person wearing all of these hats.
But as you grow, you'll have different people in your organization wearing these hats. Your customer success team for customer support terms. And your finance team on the finance terms. And having their input, it gets basically everyone aligned on what it is you're selling. And it's really important at the stage where you're developing a standard agreement.
SALIM DHARSSI: Selling across borders. A lot of our clients are-- not a lot, but a good number of them-- they have a portal online or they sell a service online, a software online or-- the days of maybe distributing software on CDs is gone-- but you can turn on these technologies now, and it can be accessible from essentially anywhere and if someone has an internet connection.
And so not a lot of thought these days, we see, at the early stages going into whether or not you should be turning it on for everyone or just for people in certain countries, maybe based on IP address. But we do suggest that some thought be given before you do launch an online portal or SaaS product broadly because there are implications to selling into certain countries that you might not be aware of. Or someone might give you their name, company name, and you might not even track where they're accessing this service from.
But there are implications to that. And large organizations, when they launch a new product, I mean, they have the resources to do this, but they will launch country-by-country. And that's to make sure that they comply with the laws locally, but it's less of a legal review. It's more of a compliance review that happens.
And so it is something we wanted to touch on to make sure you give it some thought. Less legal, more business and compliance review though.
SIMON HODGETT: I wrestle with this one a little bit because we have lots of clients coming to us and they say, you, know I know we've been working on this for six weeks, but they just changed the law to Washington or New York, is that important? And the answer is-- great lawyer, right-- it depends. Right?
Because if it's a high-risk agreement in a sector that is highly regulated, it probably matters quite a bit. If it's not, if it's something that's fairly general, it's very common, it may be that we just say, you know what, there is a risk. You'll hear our mantra-- we are not called in the state of Washington-- and they'll take the risk.
Mainly because, once again, you need the deal, and we could get a Washington lawyer to look at it and maybe sometimes we do recommend that. But often, it's a matter of deciding is there significant risk here. Is there high risk? Or is this something that we can live with?
And more often than not, the answer is you can. But you have to be aware that the lawyers you're dealing with may not be familiar with that jurisdiction. It's a tough one because not every start-up can run off and get local law review for every agreement, particularly if there are multiple jurisdictions. So it is something to discuss with legal advisors.
SALIM DHARSSI: Yeah. At the very least, I think you might want to do restricted party screening checks on customers you sign up. And there are services that you can get. And my language may not be right, I think it's RPL screening. But things that will check those entities against restricted party lists.
And it's sometimes at least is check some boxes in different jurisdictions as to what you might need to do. But again, it depends on your service and offering.
So that was all about preparing to sell. We're going to now talk about the sales process itself. We find it very effective when our clients have a documented sales process. This would be something that would be used internally by the business, the sales team, or the person responsible for sales, whether it's the CFO or CEO at the early stages, or just someone who wears multiple hats.
But having a process can really help align everyone internally so that you can get from point A to point B, which is a signed deal, much more quickly. So it involves a few things, and it can look very different company-to-company.
One way would be to have a flow chart. Something that you might put together in Visio or just on paper. And it would literally just pedantically go through OK, start, who's sending the agreement to the customer. Is it getting reviewed before it's sent, maybe by the CFO to make sure fee terms are OK? And each step in that process will be documented.
It's helpful, mostly, to actually even have a quarterback doing this. And so you assign someone internally that's responsible for stepping the agreement through the various stages it will be in that process from A to B between initial contact with the customer and signing. So the quarterback will have accountability and will be responsible for getting feedback internally.
It might not even be the person who's actually liaising with the customer. It might just be someone operationally inside the company who's just responsible, again, for getting everything done with the agreement. Sometimes it's a sales team, sometimes it's not. It could be a sales operations person. It could be someone on the finance team. Someone on the product team. It really depends.
But having a quarterback step through that process-- and on the next slide, I'll show you a sample process, but it's a bit fuzzy on purpose because it's high-level and these things really depend on the situation of your business-- but they can be very effective.
In that process, you'll identify the stakeholders. And it will be, basically, if someone-- for example, if someone changes the service levels, your customer will revise your terms and they'll change the service levels. OK, well, what do you do with that? Do you just send it to legal? Probably not, because they're not the people who can tell you if you can accept these service levels or not.
So you might send it to your lead of engineering, perhaps, if that's the function within your business that's responsible for service levels and making sure your platform's up.
If you have someone who's changing the fee terms and they want net 90 days instead of 30 days. Well, who are you going to turn to? Not legal. It should be your CFO or whoever's in that finance function in your organization to see if that's acceptable.
At the early stages, a lot of these things will be acceptable. But as you grow and you want to do this in a high-volume basis, you'll want to have controls in place for a lot of this.
So the process will dictate who's quarterbacking, who's the functional lead for each of the types of terms or key areas in the agreement, and it'll say who you reach out to. And again, it can be briefer and simpler with the early-stage business where you have fewer individuals, but it might just be it's the same process, just one person is checking the box for a few different areas.
SIMON HODGETT: That's good for-- you good?
SALIM DHARSSI: Yeah. Yeah. So this is a sample of the process. It's a little bit hard to read. But these things often have swim lanes, and so in the top swim lane is the customer. The second swim lane, the row there, is the quarterback. The third one is stakeholders, generally described. And then you have legal.
Typically, what you'd have is a flowchart that is ideally not more than one or two pages. And then you might have notes for each step, and then behind that you have a one pager that just gives some instructions for the person who's walking you through this-- or who's reading this.
And here you'll see, it starts with the quarterback. They first have to check to see if an NDA is in place. We'll talk about NDAs and whether or not they're appropriate in all situations.
And if there's no NDA, well, you might have a process for an NDA. That's getting a bit granular, but the idea is this makes sure that there's an NDA in place.
And someone has to fill in that initial agreement to send to the customer with the right information, whether it's picking the product in the check box and indicating what the features are that the customer might be getting, to putting in the customer's name, or just doing very simple things in the agreement. It depends on what you're selling.
So that might have an approval process itself, maybe. Maybe not. Often, you'll see there will be as you grow. And--
SIMON HODGETT: Yeah. Yeah.
SALIM DHARSSI: So that's a sample, but we can help you put that together if you need or it's something you can put together yourself. And there's no magic to it. They look different organization-to-organization. And so it's something that we offer to our clients as well.
SIMON HODGETT: So one point on the stakeholder reviews. We're moving through a process at the beginning where we're getting to standardization. So each of the stakeholders has an important function to record concessions that have been made to customers.
And one of the reasons for that is we're after standardization, and we're also after a collective experience as to what's holding up and creating friction in deals. And it allows the stakeholders then to say, you know what, that particular one, I don't care about that that much. That's not that important to our business. Or that's one I really care about and how are we going to deal with it.
So making sure they keep a record of how things are developing, and the discussions and what clauses or terms are creating problems is essential. And, usually, it's essential that they do that in their own area of expertise. So they're collecting-- while our service levels aren't really that great because everyone's pushing back on them. That sort of wisdom through the process.
So just talking a little bit about-- now we have standard forms, we have a process, it can be either formalized or general. So that comes down to a selling mindset where everybody is on board with this.
And one of the ways-- certainly, I like to distinguish how I deal with these things-- is that I appreciate that we're a revenue pursuit. This isn't an academic exercise. So at the end of the day, one of the-- and I said this before-- the biggest risk is not entering into enough customer agreements. So that means you need teams that are responsive, your stakeholders are responsive, your legal team is responsive. And that means turnaround times have got to be relatively quick because we're now in heavy sales mode.
Now, that doesn't mean that there aren't some critical issues that we won't give on. And all we've done so far is learning what the approach is and how to sell, but we also know, now, that for this business, the IP clauses are really important to us. For another business, the liability clauses are very important to us.
And when does that start to outweigh the need to get the deal done? And once you see it, it actually is really effective. Sometimes you'll get into a situation where you've dropped in a stakeholder or someone from a legal team who doesn't really know your business, is just kind of responding to the wording, and doesn't appreciate what you've given before. But as time goes by, this should get easier and more streamlined because you just know the business.
And I can tell you that one of the things that happens when we have standard forms and start to appreciate where we'll give and won't give, I'll have clients say, you know what, we closed five deals last month and I didn't have to come to you. Isn't that great? And so yeah, it's OK.
No, but it is good because that means we've done our job. It means that we now have a standardized process where the stakeholders can make decisions internally based on standard forms, or if you're dealing with customer agreements, based on standard positions you take. And the legal team is an escalation point as opposed to being right in the middle of the selling process. You may not always get there and not every business can if you're selling into complicated clients, but that's the ideal.
So working with your legal team. So I think this is me again, so. We appreciate that-- and when I say legal team, I don't necessarily mean us, by the way. It could be your internal team.
And as we go across that development of your business, we often recommend look, now's the time to have someone in-house helping you because it's either economically effective or just from a risk perspective, you need somebody. But in any event, having the homework done, everything we talked about so far, what are our positions, what's this customer, what's the business, download that to the legal team.
And there has to be a little bit of lead time. I mean, one thing I guarantee you, your lawyers will never do things as quickly as you want them to. But there is a reason. There is a process. Sometimes we have to check conflicts and things like that. But we also have to learn and understand the business because this is a highly contextual exercise.
And you should have a legal team that's highly responsive to sales support requests. And that's just-- please work harder, that's not just that-- it's actually, OK, you know our business, you've identified three or four people who are going to help us with this. If Simon's not available, Salim's available, or someone else is available.
And understand that there's an urgency, and please communicate that urgency to the legal team. This is a big customer. We need this, and this is a very important one. Can you please make sure that we're responsive on that? All of that kind of communication can be very useful.
And what is the turnaround time expectation? Every business gets jammed on turnaround. Everyone has the odd customer that, you know what, it slipped, we didn't get out in time. Just make sure you convey that to everyone. Like, this is not like the other ones. We've let it sit for a week for whatever reason, and we need you to make it a priority.
And I think that'll help. I think that at the end of the day, you should have a legal team working with you that gets it. I spent 20 years working for software companies on selling product, and it's important that they bring to it a certain mindset. At the same time, you can help by doing some of these things.
SALIM DHARSSI: Great. And sort of part and parcel with that process is potentially having a playbook. As Simon mentioned, if you are prepared going into negotiations and know what your fallback might be on some of the terms you have in your agreement, that will get you from point A to point B quicker. And you actually don't necessarily need legal in every case.
This would be fallback terms, not only for the legal terms like limitation of liability and indemnities, but even for service levels. Maybe you offer only certain credits at the beginning. But maybe you're willing to go up to a certain point and your quarterback might have the ability independently of any executive level of your organization to make decisions on negotiations.
And so having a playbook in place-- it could be something as simple as a Word version of your agreement with comments in it with alternative clauses or just some notes, some annotations. It could then be a separate document that's a table where you have your initial term and you have, like, different alternatives going down the spectrum of what you're willing to agree to.
These are very effective if you are truly interested in closing deals quickly. This is probably the number one thing that will help you. It takes some time to put together. It's an investment upfront, but if you think you have the volume that will necessitate something like this-- I mean, even low volume deals could benefit from this. Because you have vetted your types of terms.
And again, if you're not using your form of agreement, this exercise is still helpful because when you're reviewing the customer's agreement, you can say, OK, well, how far down the spectrum did they start, and maybe I can actually agree to it right away. Sometimes legal review is still required at that point. But this is definitely helpful to frame what you're doing.
SIMON HODGETT: Yeah. I'm actually a big fan of approval grids with what has to go to CEO, what has to go to legal counsel. Because you can end up with-- you want to empower people, but you don't want to empower them in areas that they don't have a full appreciation of the implications. For some companies, the kind of license you do or the IP that you provide, you get it wrong, it's absolutely devastating for the company.
So those ones are on the grid and they're high up. And all of this is actually learning from everything we talked about up to now. That's why in the very first slide, this is near the end. Because you need a fair bit of experience. And time has gone into it in order to get to this place where you have essentially a bunch of fallback clauses and positions that you're willing to take and willing to approve.
Just before we have a quick chat about NDAs and get into some questions, if there are any, there are few clauses-- and maybe we should put this in our deck for next time-- that absolutely, you need to be alert to. Anything that begins with exclusive, you need to be telling your team it's got to be escalated. We see so many exclusive licenses, territories and so on, where it's drafted in a way that it looked OK three years ago, but boy, when you went to do your financing, it sure doesn't look so good now.
And any kind of assignment of IP out of a product company where you haven't properly distinguished between what's your product and what's your services, absolutely essential. And Salim mentioned doing joint development agreements and collaboration agreements, they're actually, usually pretty short, but they're actually very, very fraught with pitfalls, mainly around joint ownership arising in the course of doing some kind of work together.
And rights of first refusal, which you should know. Rights of first refusal are used sometimes to-- maybe we'll buy you later on-- and it is absolutely essential that those sorts of clauses be flagged and hopefully dealt with in a very methodical way. Hopefully, not at all, if you can.
So are there any questions at this point that we want to deal with? I see where the time's going. We've got the exciting topic of NDAs coming up, but I do want to see if there's any questions before we do that.
SALIM DHARSSI: Hi.
PARTICIPANT 1: Say you know that you have a physical hardware product and you're going to be selling Canada, maybe the US, maybe elsewhere, is it best to get a firm like Osler that has international offices all over the world, or should you be thinking about finding multiple lawyers from different jurisdictions?
SIMON HODGETT: I think that it depends on the person that you're dealing with locally. Right? So I mean, I think all of those have-- it's a really tough question. Right? Because some of those international firms are quite deep in all of their offices, and some of them have no more relationship to the local office than if you had referrals.
At Osler, we've chosen not to have an international flavor to our practice except the New York office, and we do it by way of referrals. And you get to pick and choose. Like, if you've one large office, you may not get to pick and choose your local representative because they're just who you got. Whereas our referrals tend to be based on what they did for us last time was a good quality and so on.
I wouldn't categorically answer either. I think that you need to-- if you are going to work with an international firm, have a look at their structure, and that's not always accessible to you. Are they similar in reputation in the local market? Are they similar in how they approach the work? And I'm slightly biased to the referral model, just because each time we refer someone, it's based on the last bit of work they did. Not because they happen to be on the payroll of an international firm, so.
SALIM DHARSSI: Yeah. I think you have to be comfortable with who you're working with locally, as Simon mentioned. And you probably may not want to liaise with three, four, or five lawyers. And whoever you're with locally, whether it's an international firm or a local firm, they will likely be the person liaising with the council and other places. So as long as you have that expertise locally and you enjoy working with that person, it's probably the most important thing.
SIMON HODGETT: Yeah. I'd like to dig in-- without going into your specific situation, I'd like to dig into the need. If you're going to one or two jurisdictions and you're selling something that obviously has a regulatory flavor to it, absolutely. But we often have clients who don't do that. They often are selling cross-border and they're not necessarily getting the local law advice, but it's got risk to it. So you need to think about the context of the product. Anything else?
Exciting NDA. So the world of non-disclosure agreements is one of the most common customer relationships is you end up saying OK, let's talk, let's enter into an NDA. First of all, the first bus stop on this thing is you shouldn't be entering into these things unless you really are going to exchange confidential information.
And I can't say enough for early stage companies. The whole lifeblood of your business is you have a really, really good idea, and you're about to share that really, really good idea with a whale. Right? A big customer who can probably put people on that and replicate what you're doing.
So yes, you may want to enter into an NDA, or you may not want to disclose that kind of level of information in the first place. So NDAs can be fraught with risk in the sense that they're usually mutual. So first thing is do you enter into it at all? Do I want to have that level of discussion with this company?
Next thing is are they mutual, or are they one way? Because I'm actually doing a lot of sharing here, and they're not doing tons. But they may be telling you things that they'll come back later on and say you used. That's a really great product you brought out this year. Boy, didn't we share that with you in our confidential discussions? And often you cannot figure out if that actually occurred or not because, of course, nobody was really thinking in that terms. So I'll let you make some comments as well, so.
SALIM DHARSSI: Yeah. I mean, I echo what Simon said. I think when deciding whether or not to use one, I like to think of it this way-- if you're speaking with someone who might be competitive with you down the road, even if they're not-- whether it's a potential customer or otherwise-- don't enter one. Likely, it's not a good idea.
Again, for the reason Simon mentioned, they could give you ideas and you might incorporate them in a product. So they might naturally evolve into where you were going and then that happens to be maybe something they went into as well and that's just a highly risky situation.
Often, you will probably disclose information that's not super confidential, and so even when talking to competitors or companies that might get into your area, you just don't need one. Each of you kind of can share information. And it depends what you're doing and what level of discussion you're at. The later you go in the discussion, chances are you will need some form of agreement to govern that.
But then you might be getting into a term sheet or an LOI or some other type of agreement that will contain confidentiality provisions if you're maybe doing a complicated collaboration, and you're trying to pin that down, a partnership or something like that. So give some thought to an NDA before you enter into it.
And then of course, you'll need to look at the terms. They're all different and-- yeah, they're all different. So you'll need to look at them in that way. But it's not so risky in the typical sales motion where you're selling to an enterprise, selling to a business. Less risky provided there's no hidden gems in there that you want to basically remove.
SIMON HODGETT: Yeah. The thing with NDAs is try to use a form that you trust, like ours. But they are the most routine and boring topic until they're not. And then there's something in there like an assignment of IP or a declaration.
You'll often see, for example, that you agree that the other party owns the confidential information they're providing to you, but they might not. And you don't want that declaration out there. In fact, most confidential information that is disclosed is not owned by the party that gives it. It's come from all over the place. It just happens to be confidential. It's not the same as ownership.
And then you'll have some exclusivity in there, sometimes. And some non-solicit clauses. So there's things that get hidden in NDAs that you should just be sensitive to. And we even sometimes see non-competes thrown into NDAs.
Like I said, you'll look at 20 of these things and it'll be nothing, nothing, nothing and then you'll get one where you go whoa, this had an assignment in it.
So it's really important to give them a read and have someone have a look at them as much as we-- we kind of haven't solved the problem because most of the time, you're going to have your lawyer look at something that's got nothing to it. But then the few that do, they're very, very significant, especially for early stage companies where if it's going to impact IP or your confidential information, it's going to be everything. It's not going to be just some part of the business, it's going to be everything. So very important to read those and escalate them as appropriate.
SALIM DHARSSI: Great. I think we're out of time. Simon and I are going to stick around for a few minutes after the chat in case anyone has any other questions. But thank you for coming today.
SIMON HODGETT: Thank you.
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