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Getting to Initial Scale

Time Doesn’t Kill All Deals. But It Puts Them At Risk.

echojason@gmail.com'

Jason Lemkin

There’s a little bit of death-by-a-hundred cuts that many SaaS companies box themselves into.

screen-shot-2016-10-11-at-3-19-04-pmAs they scale, they get out of the hackey way they do contracts, NDAs, proposals, and other documents.  They have their controller, then their VP of Finance, then their CFO review things, then hand off to the General Counsel.  Which takes a week or more.  Then legal sends over an internal “issue” list.   That takes a week or two to discuss.  Which then leads to a redline, often a very red one.  That takes another week.  That you finally send over to the customer.  Where it lands, weeks after the soft handshake, with a thud.

Now we’re into a 3-4 week turn around.  On a deal you want to close this month?

Are you laughing?  You shouldn’t be.  This is probably a more common timeline than not.  Many great companies box themselves into this process as they scale.

And it truly drives sales teams nuts.

However, the answer isn’t to “sign anything”.   That’s bad, too.  At least after the earliest days.  As you scale, risks also can scale.  And importantly, risks start to sneak into things.  Risks you could take with 5 employees and $500,000 in the bank — frankly, you can take a lot of risk at this stage — don’t make as much sense at 250 employees and $25m in VC capital, let alone $25m in ARR.

So what’s to do?  Just some tips from experience:

  • Build in a organization-wide turn-around SLA for all contracts and NDAs.  Almost no one does this. Do this.  Force your finance+legal team to sign up to a very tight turn-around time on contracts — and measure it.  They will hate it.  But do this from the top.  For example, I promised our salesteam a 48-hour turn around in general, and 24-hours toward the end of the month.  That was my commitment to them.  It was tough to meet.  But everything is tough.
  • Understand the trade-offs in the Different Types of General Counsels (and Controllers/CFOs).  Broadly speaking, from a sales/deal perspective, you can break GCs and CFOs into two groups — those that have directly supported sales & sales ops, and those that have only indirectly done so.  I’ve found that 95%+ of GCs that have at some point in their career directly worked with and supported a sales team end up being one of the sales team’s greatest assets.  And 85% of the rest will drive your sales team nuts, and drag deals on forever.  If you decide to hire a General Counsel or head of legal that hasn’t supported sales before, understand the risks you are adding to your internal processes here.  At least impose the SLAs from the prior point in that case.  Mostly the same for CFOs and controllers, too.
  • Don’t allow any stakeholder meetings to end without a full issue list  Do this for both internal and external meetings.  You know the call, with 20 folks on it, everyone “contributes”.  And everyone pats themselves on the back for doing the call.  But no one ever really went through a complete issue list.  So that means all the issues weren’t addressed.  That deal is going to take 5x longer to close that it should.  Every internal and external deal meeting should end with an issue list, and make sure everyone agrees the list is complete, and as to the status of each issue.  Do this.  Almost no one does this.  Instead, they send over the 43d redline.  I’ve been on the sidelines of 2 M&A deals that fell apart because issues were left hanging even though people thought they had a deal, or at least, almost a deal.  Don’t let it happen.
  • Revise your form contract twice a year.  And make it better for your customers.  No one does this systematically.  But you should.  Over time, it should emcompass most of the issues, and not push them all off onto “the other side”.  In a win-win deal, there is no other side.  It’s not a zero-sum battle.  Your form contracts shouldn’t create one. They should get simpler, and more and more customer-centric, as time goes on.  Not the opposite.  I know others will tell you this is impossible.  They are wrong.  And remember — yes, the issues are real.   But customers are placing their trust in you.  You have to accept some risk as part of that.  Whatever you do, don’t ask your customers to sign a contract you honestly wouldn’t sign without reservation.  This happens far more frequently than you’d think.
  • Become a General Counsel yourself (sort of).  Don’t view contractual issues as a black box.  This is a strategy more folks should employ.  I don’t mean this literally.  But a decent percent of great VPs of Sales are pretty darn good at legal and contractual issues.  Because no issues are new.  They repeat themselves.  Again, and again, and again.  Whatever your role in the company, become a mini-General Counsel.  Do not see legal and contracts as a black box.  Become an expert.  Not a lawyer.  But a student of contracts.  After 5 or 10 deals, all the issues will repeat.  You can start to learn all the objections, and how to manage the process on both sides.  You can remain ignorant.  But if you become a semi-contract lawyer yourself … your deals will close faster.

There’s no great answer to how to truly streamline deals and contracts.  The idea that let’s use a “neutral” form works, but only in trivial transactions.  For smaller deals, for sure, try to use standard T&Cs, often just referenced in a single one-page P.O.  But that won’t really work for the bigger deals.  They will take more time and work.

But Time Kills Deals.  I know you know this, but many non-stakeholders in deals don’t, or don’t care enough.   When you are architecting your team to scale, investing the time to make sure everyone is accountable in the dealmaking process.  This will pay big dividends.

 

 

Published on October 11, 2016
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