I talk to a lot of founders about how much they hate contract negotiation. It slows down deals, increases costs, and adds compliance risks. When I tell them that I’m working on this problem, they’re often skeptical at first. The problem isn’t on their end, so there’s nothing they can do to solve it.
The problem, from their perspective, is that too many of their customers propose ridiculous redlines that don’t actually matter. They hold the line on unfair and illogical positions, drag out the negotiation, and increase costs. That’s not to mention when they insist on using their general-purpose procurement contracts for all of their purchases, even if the contract is not suited for the transaction at hand. If you’re pressuring a cloud software vendor to agree to your hard hat policy, that’s a clue something is amiss.
(this and images below generated by DALL E 2)
Those founders are right to be skeptical. Most solutions for improving contracting don’t address the biggest problem: the other side.
Sure, it’s valuable to use technology to improve the workflow and coordination among the different stakeholders on your team. Or similarly, if you can get a more cost-effective hourly rate without a decrease in quality, go for it. But none of that gets at the core issue. The real problem is that when we send the contract to the other side, they take too long to review it, and they come back with unreasonable, irrelevant, or immaterial redlines.
This is why standard contracts are so different from other contract solutions. Standards help your customers negotiate better.
Here’s how:
Use your paper more often
When selling to a large customer, they’ll often want to use their procurement contract (or NDA, DPA, etc) rather than your sales contract. You want to use your own. This battle of the forms can be like a bug fighting an elephant, and the big one usually wins.
Starting a relationship off with a battle is rarely a good idea under any circumstances. It’s especially bad if you’re going to lose.
A far more effective strategy is using standard contracts to reframe the conversation as cooperative rather than adversarial. You can tell your customer:
“We adopted an industry-standard contract that was created by a committee of 30+ attorneys and is used by hundreds of companies.”
This adds to your leverage without negatively impacting the relationship.
It also decreases the customer’s expected cost of reviewing and complying with the contract. This is not a bespoke contract used by one vendor, but rather something that they will likely see many times in the future.
Most importantly, it works.
Our users have found that when using Common Paper standards, the percentage of deals on customer paper dropped by 47%.
It’s hard to overstate how big of a deal this is. Contracts on customer paper often take 10X longer to negotiate and close. Replacing almost half of these contracts with the standard represents a huge acceleration of sales cycles and cost savings.
For most companies, reducing deals on customer paper is more impactful than any other change to the contracting process. If that were the only benefit, standards would be a no-brainer, but they also dramatically improve other parts of the negotiation.
Make your customer’s redlines better
For each change your customer or their attorney wants to propose to a traditional bespoke contract, there are an infinite number of ways for them to do it. They’re only bounded by the English language and their expectations of pushback in future turns of the document.
For a sense of how this plays out, take one of the simplest clauses in a contract: Governing Law. The clauses below are all pulled from real contracts, and they show four different ways to describe Governing Law. Each of these are about almost the same thing, but there are important differences. You (or your customers) cannot determine what they mean without reading every word.
The Common Paper standard agreements offer a better way by extracting the most commonly changed terms in each agreement and presenting them as variables on a cover page. The rest of the prose still exists in the contract, but in standard terms that reference the cover page and don’t get edited directly. All changes happen on the cover page and are made in a prescribed way.
This structure is designed to help your customers and their attorneys focus on the right things when redlining, but you might be skeptical that these rules will actually get followed. What prevents anyone from making edits to the standard terms or writing a novel on the cover page?
There are no contract police to get people in trouble if they do things wrong, but in practice, virtually all contracts on Common Paper standards follow the prescribed format. The structure of the standards sets guidelines and rules about how to negotiate, and lawyers are great at interpreting and following rules.
Understand your own contracts better
Standard agreements also make it easier for you to understand your contracts. When you get redlines back, you don’t have to go through dozens of pages to find the changes and how they influence each other. Rather, all of the edits are upfront on the cover page. That makes it faster to review and keep the sales cycle moving, plus it becomes easier to train members of your team on your contract playbook.
As your company grows, you will divide approvals into different categories. A junior sales rep might be able to unilaterally approve a 10% discount, but a significant increase in liability limits requires a conversation between the attorney and CEO.
Whether you have a sales team of 1 or 100, the process of becoming better at contracting becomes significantly easier when working with standard agreements. Contracts can be quickly routed to the right level of approval, making sure the sales cycle keeps moving.
Save your customers time
The second time that your customer receives a Common Paper standard, their review will be much faster. They’ll still need to read the cover page and think critically about the vendor, relationship, and risks. They don’t, however, need to review and get up to speed on the standard terms, which makes up the majority of the contract. They’ve already done the with the first standard contract they received.
It’s analogous to an attorney helping a company decide which open-source license to choose for their software. There are tradeoffs to consider and counsel to provide, but they don’t need to re-read the GPL.
We’ve seen this in action among our users.
When comparing deals with customers who have signed at least one standard contract to first-time signers, the repeat signers closed more than 85% faster.
We believe in the value of great collaboration software, choosing your vendors wisely, and anything else that improves your contracting process. But if you don’t adopt standards, you’re missing out on the most valuable tool at your disposal.
Common Paper standard contracts are free and released under a Creative Commons license. They are created by a committee of 30+ attorneys from tech companies, BigLaw, and boutique firms. Learn more about the Cloud Service Agreement, Mutual NDA, Terms of Service, and more.