My own startup (it was a small business that only turned into a startup once I realised the difference between the two) sold back office outsourcing services (specifically, 3rd party claims administration) to enterprise clients.
It was largely face-to-face sales with middle managers of Fortune 500 companies.
It was the wild west … my clients were the good, the bad, and the ugly … and, I was the man with no name, spitting tobacco and taking names, as enterprise contracts relentlessly fell under my steely stare …
… until, I met the new sheriff in town.
It was my very first meeting with the new sales director at one of my largest clients (imagine a college-quarterback-turned-company-exec):
After a short discussion about my startup, and what we were already doing for his company (we had a signed contract and had commenced services), he said something I will never forget:
If you screw me over, I will break your legs with a baseball bat.
I‘m not sure if he was joking, but I never got the chance to find out; we didn’t screw up.
The fact of the matter is, as startup founders we can never face off directly with the Bad Sheriff In Black; he may be on the wrong side of the law he is purporting to hold up, but he still has the shiny star …
Such is the life of a Founder-as-BDM negotiating her first few enterprise contracts.
My late father once told me a story - a story that helped shape my future business strategy - about a guy who made plastic cups for a bunch of small to medium size customers. Business was fine. He made a reasonable living.
Finally, he really broke through … he won an order from a national retail chain. And, a bigger order. Then, an even bigger order. He delivered to perfection, correctly sensing it was a series of tests.
Eventually, he was called in by the Buyer who told him that his product, pricing, and service were excellent, and they would like to swing all their business over to him … and, handed him a big, fat Purchase Order.
A Purchase Order, Paper Gold, as good as Texas Tea …
He danced a little jig, then took their PO to the bank who then advanced him a large funding line for new machinery, raw materials, larger warehousing space, and working capital.
The first order was fine.
So, was the second and third.
But, 6 months later, when the next order was due, the Buyer called him in again.
The Buyer told him that he was very sorry, but ‘management’ had sent notice “down from the very top” to cut costs. The Buyer said that another supplier was willing to supply cups 20% cheaper, but “if you could just match their price, naturally we would like to stay with you”.
Of course, the little cup manufacturer had to keep the machines, and people, working so he had no choice but to cut prices, tighten his belt, and tough it out.
6 months later he was called back to see the Buyer. Another 7% price cut.
This cycle continued every 6 months, but he had no choice … until our guy went broke.
Or, so my father told me …
I arrived in the USA in 2004 - after a very stressful move - having signed a contract (literally, 1.5" / 4.5cm thick) that specified a Start Date, only to have this conversation with the CFO of my new, largest, client almost immediately upon landing:
CFO: “We’re not ready to start”
Naive Founder: “But … but … we have a contract with a specified Start Date”
CFO: “We’d like to set the contract aside in respect of the Start Date”
We have a wonderful saying in yiddish that beautifully encapsulates what what was going through my mind in that very moment:
Sure, after some spluttering, swearing (under my breath), and dancing around the (re)negotiating table, we went ahead.
But, on the CFO’s new timeline.
And, what I realised is this:
Your corporate clients will bang you on the head with your contract at every opportunity. But, for the startup founder, a contract is largely a waste of time.
If a large corporate client wants to vary one clause, or many, or all, you’ll acquiesce.
You probably can’t afford the loss of business and you certainly can’t afford to call your client’s bluff in court.
This same client then wanted a large price reduction just one year into a 5 year deal because they thought we were making too much money from them (we were). We gave them the price reduction they wanted.
It took us from profitable (the USD$1m kind of profitable) in Year 1 right back to break-even in Year 2. But, we did it … not because the “client is always right” (they are); we did it because the Big Picture is always more important than the small picture.
So, quite early in our startup’s life, we threw away our tightly-written, 10 page, 3-year standard client contracts and replaced them with simple one page service agreements, that really only served as disclosure documents i.e. so that we didn’t fall afoul of any laws, rather than anything to tie the client down.
What keeps a client on your side - the founder’s side - is simply delivering more than you promised. That’s it.
That’s all you need to do to keep an enterprise client happy.
Even so, the minute you sign your largest deal, you need to find 5 more just like it, to spread the risk.
And, if you can’t?
What if the deal is just. too. damn. big?
Well, remember the guy with the plastic coffee cups?
I sure did, and as soon as I signed my ‘once in a lifetime’ 250+ page contract, I looked for (& found) an aquirer …