Software Negotiations: Do You Know How to Say NO?

This is a pretty fundamental concept in any software negotiation, so this is something you have to master. One of the big guns (William Ury) from the Program on Negotiations at Harvard (which is in my opinion the best negotiation program out there), wrote a book on how to say 'No.' If you did not realize it, 'No' is actually the most used word in the English language (which kinda makes sense) so how to use it in software or SaaS negotiation is worth learning about. 

Here goes,  

1. In saying 'No' to something, in essence means you are saying 'Yes' to something (I know that seems weird at first, but there is always a reason for saying 'No,' which is what you are actually saying 'Yes' to).  
2. Express your 'Yes'  and then deploy your 'No.' 
3. Propose a 'Yes.'

Ok that was probably confusing, so let's go through an example using the three steps (in the software or SaaS negotiations world). 

1. "Your company is not making a real long term commitment to our technology" (that was your internal 'Yes' (ie. the reason you have to say 'No')).
2. "So we cannot give you the discount you asked for" (that was your 'No').
3. "However, if we can work on a long term commitment then I definitely think we can get there on the discount you are looking for. What is more important to your company?" (This is the proposed 'Yes').

Think about using this when you negotiate your next software or SaaS agreement, as Accommodating (saying 'Yes' when you should be saying 'No'), Attacking (saying 'No' in an ineffective way), and Avoiding (not saying anything), are not good ways of dealing with issues. Oh yea, don't forget to actually read the book, as to make the change in your negotiation style, you need to read this book. 

IBM Training Material presentation on this topic (yep, IBM is into how to say 'No' and trains their employees on it). 

Buy 'Power of Positive No' on Amazon for $16.50

Disclaimer: This post is for informational and educational purposes only, and is not legal advice. You should hire an attorney if you need legal advice, which should be provided only after review of all relevant facts and applicable law. 

Where to Go For Software Negotiation Training?

There are many different places to go for negotiations training (in general), but where is a great place for learning about the art of software negotiations with customers, partners, etc. I highly recommend the Program on Negotiations at Harvard. I have attended some of their seminars, read some of their books, and have found that there is no better methodology for software customer and partner negotiations (from the perspective of the software vendor for say their software or SAAS contract negotiations). You ask why the PON is great, well let me elaborate.

1) Software Negotiations are Unique. These negotiations are unique as,

• you are selling something that is by definition intangible,
• a general matter software transactions are (i) long-term (i.e. it is not a one shot-deal) and (ii) co-dependent relationship (i.e. you each need each other over time) negotiations, and
• you are generally dealing with super smart people on both sides of the table, who are technically savvy too (i.e. BS will not get you very far).

2) Transparency and Honesty are the Key. I have negotiated in many different industries over my nearly 20 year legal career, and I have not found any other industry that requires more honesty and transparency over the long haul than this industry. Every software vendor wants their customer to understand how their technology works, what their revenue model is, and what problem it is solves (and doesn't); so communication and education are super important. Now selling vaporware is not the way to do it (even though it has been done in past and probably will still be done), and the courts have shown that when this happens you will pay (in a big way).

3) A Collaborative Negotiation Process Works Best. There are hundreds of different negotiation styles, but I think this industry demands a win-win negotiations process. This is where the Program on Negotiation at Harvard comes into play, as this is core to every part of their program.

Take a look at their curriculum of training classes, as I think you will find a few that will resonate with you or address a problem you are having (from 'Difficult Conversations' to 'General Negotiation Training for Senior Managers'). If it is not for you, then consider sending your head of Business Development or Sales, or CFO, as they may need to build their negotiation skills.  In my opinion–for the software and SAAS industry–this is the place to go to get trained on how to negotiate.

Resources:

Advanced Negotiations: Difficult Conversations Training

Negotiation Training for Senior Executives

Disclaimer: This post is for informational and educational purposes only, and is not legal advice. Hire an attorney if you need legal advice.

6 Tips, If Your Customer Wants You to Use THEIR FORM AGREEMENT

Let me frame this right. When you are selling to an end user, they sometimes say/insist/require that you use their form of agreement as part of the Software agreement negotiations or SAAS agreement negotiations. So what do you do?

1) Negotiate, Negotiate. Don’t forget about this, as this is not the time to simply say yes! and hope that somehow this will make it easier to close the deal (it won’t). Trust me. What to negotiate? See 2-6 below.

2) Price and Terms are Linked. If you think about it, your end user agreement contains your model (what rights the end user receives (and doesn’t get), what restrictions they have, warranties, transfer rights, etc.) and your pricing is based on your model. If your customer wants to significantly change the terms of your offering/model, then this could/should affect the price they receive. Remember this, as price and terms are inextricably linked.

3) Time is of the Essence (hopefully). Is time an issue for them? If time is an issue (i.e. there is an impending event), then make sure you bring this up before you agree to use their form agreement, as I have found that using the customer’s form as a starting place will too often lengthen the sales cycle (not shorten it, even though they may tell you it will). Instead, try to start with your agreement, and make the changes that your customer needs to that agreement (much more efficient).

4) Set the Right Expectations. Make sure the customer understands that there will likely be a lot of changes to their form agreement (every customer form of agreement I have seen looks very little like the vendors model), as you will have to build your model into their agreement and take the terms that affect your pricing/model out. If you don’t bring this up early and get their buy in to help you work through the open issues along the way, the process of using their form will likely be very long/delay the deal unnecessarily. Oh yea, try to get a business owner/decision maker separate from their legal/purchasing department to help you out, as you will need someone to help you make decisions on open issues.

5) It is All About $. It really is all about the money. If the transaction size is too small, then it could be a waste of your time and resources to start with the customer’s form of agreement (suggest that if the transaction was $x, then it would be worth using their form agreement but as it is $x-y, it is not). However, if the transaction is large then read the other tips in this post, as you may be forced to use their form agreement. Where do you draw the line as to $? That is company specific (= your decision).

6) What Are Your Goals? If you land up using the customer’s form of agreement then your goal should be to end up with an agreement that if you sign:

• does not pose any significant risk to your company (i.e. a risk that you normally would not take),
• is administratively efficient (i.e. you don’t have to spend a lot of time maintaining the agreement, tracking it for compliance, looking over your shoulder, etc.), and
• is consistent with your model (i.e. you can still book the revenue as you would other deals).

Keep these goals in mind, or add to/change this list to fit your business model.

Just a few thoughts from an attorney that has negotiated hundreds of deals using the customer’s form of agreement for software and SAAS companies.

Disclaimer: This is provided for educational and informational purposes only, and is not legal advice. Talk to your attorney for legal advice, as they should consider the pertinent facts and applicable law before providing any advice.

Why EDUCATION is So Important to Software Negotiations or SAAS 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 eula or SAAS contract (i.e. Software negotiations or SAAS negotiations).  This is important as with all IT based contracts the buyer needs to know what they are buying, as they are purchasing an 'intangible' item. As they can't touch or feel it, it is incumbent on the seller to educate the buyer about  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?

• Put together a 'simple' 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 summary must me simple, and does not necessarily need to be very long or detailed (think bullet points, and short sentences).
• Be transparent and clear (this is not the time to hide anything).
• Educate not only the user of the technology, but also the person that is reviewing the contract (sometimes it is the same person, but not always).
• Make sure your Software EULA or SAAS contract describes your model. Your contract can help communicate, so don't forget that part.

If you don't do this, I think you will too often find that the buyer will then 'over estimate 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 negotiations don't have to be adversarial, and if you look at it as an education 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 not hard to remember, so just think education when negotiating with that new customer or partner.

Resources:

ScriptLogic Licensing Resources

Adobe Licensing FAQ

Disclaimer: This is provided for educational and informational purposes only, and is not legal advice. Talk to your attorney for legal advice, as they should consider the pertinent facts and applicable law before providing any advice.

You Lose Nothing in Software Negotiations by Showing Respect!

Here is something that costs nothing but can really help when selling software or other IT products or services, or otherwise in software negotiations. As a software attorney, I can tell you this can make a difference.

Think about it: when negotiating with a purchasing manager or member of the IT department, you are dealing with a person at the other end of the phone (yes, I have worked with people that forget this basic fact). There are probably a lot of other things going on in their mind or life, besides buying the software, so a little respect can go a long way. By the way, all this means is showing 'regard or consideration for, courtesy or deference.' This is not hard stuff.

This may be as simple as:

1. making sure you address/listen to all their concerns and issues,
2. don't talk down to them (on the phone or in email),
3. under-commit and over-deliver (don't do the opposite),
4. realizing they are not simply a check box in the buying process, and
5. remembering that they will be taking a risk (putting their reputation on the line) if they select you as a vendor.

When I work with software or cloud based clients as an attorney, I try to remind them of this very simple truth.

Is Your Software Agreement Airtight?

I find that most clients believe that they have an airtight software agreement and their liability is limited to the contract value. Well, from the perspective of a software copyright attorney, as a general matter they are right, but of course there are exceptions (at least from the perspective of a software licensing attorney). Once of the exceptions is fraud claims.

Fraud Claims: While there are many different flavors of fraud, essentially all of them are based on some type of ‘misrepresentation.’ Under certain strong legal theories no fraud claim/damages should be allowed when there is an underlying contract, but needless to say these claims are made to try to get around the contractual limitation on liability.

SAP is learning a lot more about this issue, as they are facing a fraud claim for over $500 million arising from a $30 million software deal with Waste Management (the contractual price)…yes the claim is more than 10 times the contract value. So even though SAP negotiated their contract well and had it reviewed by their lawyers, they are facing a claim for more than 10 times the contract value. Read more here.

Q: So what can a company do to avoid these claims?

1) Get Involved Early in Customer Problems. What I mean by this, is have someone in senior management work closely with the people on the ground to ensure that this gets worked out.

2) Use your Best People. This is not the time to use junior employees or less experienced sales teams, as by their nature these type of disputes need custom solutions and out of the box thinking.

I bet you that someone high enough at SAP did not get involved early enough in this dispute, as this case could have been avoided and the customer relationship rescued. So remember, your software agreement can’t protect you from every claim, and take care of customer problems early on with your best people.

2 Software Negotiation Books to Read