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Just had an experience in my startup about a customer in my software start up. I develop server based software products for the past year and have a few customers for the same.

A new customer came through one of the freelance sites and after a few introductions saw the demo of the product and got very impressed. He was looking for the same product.

Discussions went on and finally it came to a point where he wanted the source code. Initially I was reluctant and I finally agreed to give the source code with a condition that this will not be resold and can be used only on one server.

But the customer did not agree and went ahead to choose some other developer company. I am sure I could have given him the best product to suit his needs as my experience in this area was good and I feel he has made a wrong decision.

How should I deal with customers in such scenarios? And does it mean that customers from freelancing sites are quite hard to be convinced and I should look for other sources of leads?

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Did you have a contract with the customer? If you didn't, you got screwed big time. If you did, you might be able to sue them for copyright infringement & breach of contract but it depends on the terms of the contract. – dnbrv Jan 10 '12 at 2:48
There was a contract sent by them, but I got it reviewed with my lawyer and my lawyer literally rejected the entire transaction. After a long list of modifications and expenses paid to the lawyer, I sent it to them and finally they disagreed on the "limited rights" clause :( – Muthu Jan 10 '12 at 4:31
It sounds like you gave your work away and may not be able to collect damages. – dnbrv Jan 10 '12 at 4:36
Nope, the transaction did not happen at all. It broke at a point when we were about to sign an agreement. So thankfully I haven't given anything out. – Muthu Jan 10 '12 at 4:39
You gave them your source code without a contract. That means you've given them the right to do whatever they want with it. Your lawyers may try to prove the contractual power of your emails where you ask your "client" not to share your software but that's doubtful. – dnbrv Jan 10 '12 at 5:03
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2 Answers

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You need to remember that customers and potential customers do not always tell you the whole story, in fact sometimes they lie and may in fact be potential competitors.

You state:

agreed to give the source code with a condition that this will not be resold and can be used only on one server.

But the customer did not agree and went ahead to choose some other developer company.

It's not clear which part (or both) they disagreed with, but assuming their intent was to either sell your code to other people or run it on many servers but only pay for one, do you really want them as a customer?

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The disagreement was on the "limited rights" clause and I agree on your last point :) – Muthu Jan 10 '12 at 4:35
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Contract or no contract, once you release the source code it's gone and they could do anything with it. They might have agreed on the limited rights clause then done anything with it.

Remedy through legal action is going to cost you more time and money with a low probability of success.

If a prospect gets into a lot of legal detail or wants source code we offer them our consulting solution and start adding zeroes to the end of the price.

Ultimately you have to qualify prospects and decide if you will make more profit from one special deal or from selling 10 other standard deals. Special deals create future maintenance and support problems which will distract you from building and selling your core product.

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