Why EDUCATION is So Important in Software & SAAS Contract Negotiations

Think about it. One of the most important things to remember — maybe the most important thing — is that it is really important to educate your customer, partner, etc. about your Software or SAAS model when negotiating the software or SAAS contract. This is important as with all IT based contracts the buyer needs to know what they are buying, because they are purchasing an ‘intangible‘ item. Since they can’t touch or feel it, it is incumbent on the seller to educate the buyer about their model (what they are selling, what the customer can expect, how it is paid for, how additional usage will be measured and paid for, etc) as part of the contract negotiations.

So how do you do this?

1. Put together a document explaining your pricing and its methodology (or maybe a FAQ page), and put it up on the web (don’t forget to send this link to the person that is reviewing the Software EULA or SAAS contract). This can be (should be) a simple summary, and does not need to be long or detailed (think bullet points and short sentences). 
2. Educate not only the user of the technology, but also the person who is reviewing the contract (sometimes it is the same person, but not always). You can send them a link to the item in 1 above. 
3. Be totally transparent and clear (this is not the time to hide anything). 
4.  Make sure your Software EULA or SAAS contract describes your model. Your contract can help communicate the model, so don’t forget that part. 

If you don’t do this, I think you will too often find that the buyer will then ‘overestimate the risk issues’ (as they don’t understand the model) and put legal terms in front of you that you don’t want to (or can’t) sign. I have seen this so many times during the negotiation process, and it is something that can and should be avoided.

Remember that contract negotiations don’t have to be adversarial, and if you look at them as an educational process they will probably go a lot smoother (you educate them on your model (for starters), and they educate you on their concerns/issues in getting the contract signed). This is advice for any company looking for growth equity or a venture capital investment. I often discuss these type of issues with the OpenView portfolio of expansion stage companies as part of the OpenView strategic consulting services. 

Resources: 
ScriptLogic Licensing Resources Adobe Licensing Resources
Microsoft SAAS FAQ [I actually think that this is a very thorough FAQ, but it should be split up (into different FAQ for the different offerings) and is too long/wordy. I would strive for something simpler and shorter]