customer-development, contracts, difficult-clientI’m a partner in a tiny software startup (an advanced portfolio management system for investment companies) and we are getting interest from several medium-sized companies ready to buy our product.
These would be key accounts in the sense that they would increase our visibility by referral and of course increase revenue as well, which at this point in time is quite useful, although we already reached actual break-even. They all like the system very much, but the fact that we are newly established is a problem since if we disappear their investment is gone. Entirely gone in case of bankruptcy or our long-term servicing might degrade in case of a buy-out. Migration to a new system in this industry is a major deal, so they all know they better get the right one.
We are open to talk about “special conditions” in our contracts, but for now we haven’t found anything acceptable for us. For example, one company asked for an equity stake, one for an equity swap, two others a seat on the board, another requested that we put our source code in escrow.
We fully understand their concern, but we can’t give equity or board seats to clients mainly because their competitors (the rest of our market) would immediately lose interest in the system. Plus, it would be smart to retain as much equity as possible for potential major opportunities down the line, rather than “sacrificing” it for a single client.
As for the escrow idea, we are afraid of making a mistake in the contract that could leave us vulnerable and loose everything. So something less drastic would be preferred.
What could we offer these key clients to neutralize their concern related to our long-term survival or ability to service them?
Putting source code in escrow is a fairly common provision in contracts. I have been part of startups where this was included in contracts. The other party only gets access to the source code in escrow under specific conditions, such as your company not being able to provide your services. If that is all it takes to get these customers signed up, then you should definitely do it.
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