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We've recently started a service based software start-up.

We've developed a relationship with a company that sells software licenses such that they market us as their "software development capability" for doing customization work for their customers on the software that they sell.

This is fine except that we need to work out the details of this relationship. They are concerned that in the future their customers that they introduce us to will be able to go directly to us and cut them out.

I can understand this concern, especially as they will be providing us with free licenses of the software for us to use in the work we do.

The problem is that if we agree to only work with those customers via them we are potentially limiting ourselves too much.

We also have many direct relationships with customers in this field and if we agree to any terms that would prevent us from dealing with people we already know that would not be good.

We also don't wish to limit ourselves to not being able to do any work at all to do with this particular software product unless through our partner, as it's quite possible we may wish to do our own development in this area. Even if we are not competing directly with the services our partner offers, it may be tangentially related and may run afoul of any agreement made if the wording is not correct.

Surely the situation of how to structure a partnership and avoid conflicts of interest and avoid people cutting out the middle man occur all the time.

Does anyone have any experience in the types of contracts, wording and agreements that get used in these circumstances to allow such partners to happily work together? Any advice in how to fairly reach a concrete agreement?

Thanks!

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4 Answers

up vote 1 down vote

This is a pretty complex case, I would definitely recommend an attorney. That being said, here are some suggestions:

  1. Do not grant them exclusivity to sell if you are also dealing with customers directly (this can only end badly for you).
  2. Consider a solution where you send a list of monthly contacts (or a time period that works, depending on your sales cycle) that you are dealing with directly. Maybe these customers are outside the scope of the agreement.
  3. In any partnership there is a bit of 'good faith' required. If there is mutual trust, you should be able to agree to terms that are fair and concrete.

Before heading to an attorney, try coming up with an outline of a type of agreement you are looking for; any experienced corporate attorney should be able to help you from there.

Good Luck!

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up vote 2 down vote

It's usually pretty easy to prove you have a prior relationship with a given customer.

I've used CRM for similar situations with resellers. That is, if you have documented evidence of who you talked to at company X and when, their contact info, etc., then you have prior communications.

Separate idea: For jobs billed through this other company they participate, otherwise they don't, that's it. For a few free seats of some software that sounds good enough to me.

Opinion: There are services companies and product companies and rarely is a single company both. It's usually best for the product company to make money on software (scales with seats) while the services company makes money on hours (scales with effort). When one tries to tie up the other inside their business model it doesn't mix.

Therefore, I think it's enough that you're providing their customers with added value; maybe you should pay them a "finder's fee," and maybe that's small enough that you don't care about customer overlap. If they agree, great, if they don't, this might be more effort than it's worth, especially if you already have these contacts yourself.

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@Jason, it is easy to prove but unless you have a concrete agreement in place you may be doing the proving in a lawsuit -- which is expensive. – Jeff Epstein Jul 6 '10 at 3:25
When I say "prove" I don't mean subjective evidence that you argue about. Too much work. I just require them to log their communication (email, phone, whatever) in a CRM system. You could set up strict rules about what amount of communication "counts," but IMHO if you're having to nitpick about that it sounds like an unhealthy relationship. That's why I think the best scenario is to avoid it completely as I put in the second half. – Jason Jul 9 '10 at 1:28
up vote 0 down vote

One thing that is important here is time restrictions.

  1. It's obviously reasonable that if the other company finds the client, bills the client, then pays you, it is their client. (risk is entirely with other company)

  2. It's also reasonable that if the other company finds the client, you bill the client, you pay them a commission on finding you the client.

  3. It's also reasonable that if you work for a client, and the client buys the other company's software, it is still your client. (Possibly the other company pays you a commission).

What's not reasonable is that these structures should persist indefinitely when nothing is happening and neither of you has a relationship with the client.

Cases (1) and (3) are easy. For (2) What you need is a time limit on the arrangement: e.g. you might pay a commission on all client billings in the next 2 years.

Note that your arrangement should also ensure that if the client does not pay his bills, you do not have to pay the commission. And the agreement needs to consider the case where the the client is taken over by another company: if Microsoft or IBM buys your client, you don't want the agreement to suddenly include the whole of Microsoft/IBM.

You should also limit the agreement to a single department within a company and to software development work related to the product: if IBM's Penetanguishene office is the client, the agreement is for work related to that office, not the whole of IBM. If the client is so impressed by your abilities at customizing the product that they choose to employ you to create a billion dollar genetic simulator, then that shouldn't be covered under the agreement either.

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up vote 0 down vote

What about a deeper integration with a similar vendor?

  • We are both SaaS, but they are more established and have paying clients which are interesting for us
  • They basically promise to sell to their clients (which remain theirs) when we integrate deeply into their solution
  • We provide a solution which is a wonderful add-on to their software, and is being asked for by their clients. We complement each other (qualitative and quantitative)

I am looking for a win-win, where we don't get cornered by a larger partner and become a feature within another company without being a company ourselves anymore.

What specific terms would you put in place about revenue sharing, revenue goals, cost for development, duration of the contract, obligations to the contract, contact with clients, terms of termination, references, press releases etc.?

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