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I own an S Corporation that has launched a niche market web service and have signed up a few customers. I'm still very much bootstrapping this and doing everything myself (a one-man show).

I'm currently negotiating a deal with a largish customer who wants have a 5 year agreement in place. Because I'm currently a one man show, they rightly have concerns about what would happen if I die or something happens that causes me to be unable to provide the service.

What should I do to relieve their worries? I've already explained to them the following:

  • A comprehensive list of all critical information, such as servers, passwords, and so forth are stored in an encrypted file (using KeePass).
  • My master KeePass password is safe with a trusted outsider who has instructions on how to recover the information if something was to happen to me.
  • The web service allows the customer to export all of their data so they could conceivably switch to a different service or build a suitable solution.
  • The trusted outsider has instructions on how to get the service up and running if it is down and the customer needs access to export data
  • The trusted outsider has information on the types of skills necessary to run the operation so they could hire someone to handle things while they sort stuff out.
  • They understand this is a startup business and they really like the product. I explained that I need customers like them to take the risk so that I can grow large enough to hire additional staff. They are getting a good deal because they are an early adopter.

I'm considering doing the following:

  • Getting an insurance policy that will cover the costs of running the business (hiring someone to do so) for some time while my beneficiaries determine what to do with the business.
  • Setting up an account with Entrustet or Legacy Locker.

However, costs are tight, so I need to really think these through. Even though this customer is considered largish, the contract by no means will pay for everything. A full year of the service for this customer might pay for my business expenses for a month or two, but not anything toward a salary. I need to get about a dozen customers before I can consider hiring someone.

The critical issue at the moment is that we are negotiating a contract. The customer wants some sort of provision or clause in our agreement that explains what will happen in this situation. Any suggestions on how to do this? Any examples of contracts or agreements with similar provisions?

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@jimg and @jesper both give great answers below, its hard to pick which is best. i'm going to award to @jimg because his came in first. – Tauren Nov 4 '10 at 6:11

3 Answers

up vote 4 down vote accepted

While it is admirable that you are working to come up with a solution, I think death has to do with more than the individual - its the company as well.

I would stop and consider - is this company truly worth this much distraction? Companies come and go all the time - be it from market conditions, acquisitions, or pure burnout. I understand the customers fear of relying on a startup, but whether your employee count is one, 10 or 100 the same business risks apply.

If they are that risk adverse, then maybe they are not the correct customer to be targeting at this phase of your growth.

Unless you're willing to put your code in escrow and legally allow the company access if the company goes under (which is likely the only thing that matters to them), I'd recommend focusing on providing a service that will attract 12 more customers rather than attempting to define a business continuation strategy for a one off customer.

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thanks for the ideas. After posting my question last night, I came to the same conclusion and sent them an email. Basically, I told them that they are an early adopter, and by being so they are getting many benefits, but also need to recognize they come with risks. If they are not prepared to accept those risks, maybe it isn't the right service for them. I explained the things I have done to reduce the risk, but that there still is risk involved. – Tauren Nov 2 '10 at 19:26
Good for you! Best of luck getting those additional 12! – jimg Nov 2 '10 at 19:31
up vote 3 down vote

First off, I'm skeptical of small early stage startups doing business with large companies. The exception is when a 'early-vangelist' is in charge in the large company.

But if that's not the case, then my experience is that the large company slowly sucks the life out of the startup, by constantly requiring more help, more support, more features -- and not paying. That's what they are used to, that is what they normally do after buying something from IBM for $$,$$$,$$$. Now, this can be managed of course, but doing so takes energy.

A full year of the service for this customer might pay for my business expenses for a month or two, but not anything toward a salary.

Sounds like you're pricing wayy too low. This is great if the company is a well-known brand, and fully committed to engaging in co-marketing with you (case studies etc). If not, it is a bad idea to price too low, especially as you should expect the company to be support-heavy afterwards. In my experience, if a deal starts out with unreasonable terms, then it only gets worse over time.

they rightly have concerns about what would happen if I die or something happens that causes me to be unable to provide the service.

The answer is escrow + easy data backups by the customers themselves. Escrow takes care of the source code. Regarding data, since you don't want to upload data backups to the customer all the time, provide the customer with a way of doing it themselves.

There are many technical institutions around that provide escrow services, as well as lower-cost providers like escrow.com. You'll put terms into your contract which state that in the case of death, illness or bankruptcy the escrow service will transfer all source code to the customer for their own use in continuing the service for themselves.

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Thanks for your thoughts. In my situation, I'm not talking about large corporations. Even the customer I'm talking about is small, but they need the full range of my services, not just some of them. My main contact is not only the head of the organization (an early-vangelist as you say), but is also the president of a national association and is VERY well connected in this niche industry. He believes in the product and is willing to help it get exposure to other organizations across the country. I do already offer easy backups, but will look into escrow services. thanks! – Tauren Nov 2 '10 at 19:21
@Tauren: Sounds good! :-) – Jesper Mortensen♦ Nov 2 '10 at 20:01
up vote 0 down vote

Onecle has a lot of sample business contracts for your perusal. There may be some with the specific death clauses you are looking for. Take a look: http://contracts.onecle.com/amazon/gise.shareholder.1995.07.24.shtml

The ones I am more familiar with are spousal consent portions of shareholders agreements wherein terms are laid out for the repurchase of a shareholder's shares in case of death. In addition to these terms there may be specifications as to how the company may be reorganized and how resources are redistributed or managed.

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Thanks, those are the same types of things I've found and the make sense for spouse and partner arrangements in the case of death. But to me it doesn't make sense to have a legal agreement between a customer of a web-service and the web service that goes into details about the death of the web service founder. – Tauren Nov 2 '10 at 7:31

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