Erin Austin: Hello ladies.
Welcome to Hourly to Exit.
I am a lawyer and I feel some kind of way about contracts.
So while I love talking about scaling today, I'm going to get
into the weeds just a little bit.
About contracts with a particular emphasis on services agreements.
as an expert, I am going to argue that services agreements are the most
important documents in your business.
A contract for, at the basic level is an agreement between parties creating mutual
obligations that are enforceable by law.
So, simply put, it is an agreement between two or more parties
about an exchange of value.
You know, I'll do x, I'll provide services, and you do
y you pay me for the service.
At the beginning of a business relationship, it's tempting to just
to focus on moving forward with the project as soon as possible.
As soon as that sale is made, we agree, we wanna work together.
we know what the number is, we know what the deliverable is, let's
just go and no argument there.
even we all want things to proceed, forward as quickly as possible.
. But the problem comes if the contract and any lawyers, if there are any lawyers
involved, if the contract is considered a hindrance instead of a helper.
cuz the truth is that when working with a new client are on a new project,
both parties are making assumptions.
And if we're skipping over the very important contract phase, we.
In danger of relying on those unspoken assumptions being the same.
And the only way we can know that those assumptions that we're each bringing
to the table are the same or are at least compatible, is by being explicit.
And that means we need to very clearly set forth in writing,
what the rights and obligations.
both parties are that way.
Everyone is on the same page as we move forward.
So, big fan of putting it in, writing a contract can be made orally,
it can be made with a handshake.
it can be made, less formally, but in writing such as through e email exchange.
But I recommend against, all of those options.
I realize that.
Sometimes people dislike dealing with the contracts if they feel
like it's gonna be full of legalese.
You know, 10 words are used where one word would suffice.
However, there is a way to strike a balance between.
The excessive flourishes of her two fours and leaving everything to the
party's memory of a conversation.
So the best way to make sure we're on the same page is to spell it out.
Literally : so rather than leave critical issues open, let's put them all down
on paper and get everyone to sign off on the terms of the relationship.
Nope.
Speaking of relationships, let's put the legal definition of contract aside
and just look at the plain English definition of agreement agreement.
Harmony in opinion or feeling.
And when we think about agreement as being in a harmony with our clients or
with our contractors, hopefully that puts a more focus on the upside of contracts.
You my goal is to get you to love contracts and to stop being in
fear of the possibility that the contracts will somehow kill your deal.
That the lawyers will come in at the last second and, Bring in
some contracts or some comments that will scare off the client.
The fact is, it is extremely rare for the introduction of a contract or, having a
few reasonable comments to kill a deal.
I could tell you I've been doing this for a very, very long time, and I can say
there's only A single instance I can think of where a client said absolutely no de
comments, and let's just say it was one of the biggest companies in the world.
And so anything less than that, , I'm you're okay,
So in a world where intellectual property is king, You cannot
have a no contracts attitude.
You cannot be afraid of negotiating.
that attitude is not only outdated, but it is also counterproductive to
building a business that is sustainable, scalable, and hopefully someday saleable.
And that is for both parties.
protection contracts are not unilateral as they shouldn't be.
If they're properly drafted, they spell out the terms of the relationship.
And relationships are two ways, and there are benefits to both parties.
So if you look at contracts in terms.
Harmony in terms of relationship building.
Then you will also see that they are the necessary components of building a
business that you can grow and, not just in terms of revenue, but also in terms of.
So to get you to love, your contracts.
I have seven reasons here to love your contracts and,
there's definitely more of them.
but, these are in the, agreement, harmony, area.
First, the contract helps to build trust and give peace of mind.
Contracts show your clients that you care about their business, that you care
about your business, that you're taking this transaction seriously, that you
are a professional who can be trusted with their proprietary information.
They may be sharing confidential information with you that
you'll deliver on your promises.
And the smaller that you are, the more important that the gravity of
having written contracts is when working with corporate clients.
if you want them to take you seriously, then you need to take yourself seriously.
And contracts is an indicator of that.
Number two, a contract allows you to manage expectations.
A written contract sets forth the terms between the parties with regards
to their duties and responsibilities.
It documents the expectations of each party and the terms that
have been agreed to after what may have been extended discussions.
if you.
salespeople who are different than people who are doing delivery, then there will
always be a gap in there somewhere, and that gap is filled in with your contracts.
I am a huge fan of having operational terms and conditions, either attached
to your version of a sales agreement.
or, of a services agreement or if you're using your client's version
of the services agreement to adding those operational terms and conditions.
So it brings clarity so the client understands this is how the business
works, this is how delivery works, what the milestones will be, how
acceptance, and rejection will happen.
What will happen if something is rejected?
what to do if there's a dispute.
All these things, are captured in your written agreement.
And so that, makes sure that everyone's on the same page,
managing those expectations.
Number three, a contract helps you get paid.
It tells the client the circumstances for payment.
when they become due, how things are payable.
Will it be invoices or.
Will things be automatically, deducted from a credit card on file, what
the milestones will be, how much will be due at every milestone?
And of course, if there is a dispute, then having a written contract gives
you a much cleaner path to enforcement.
Yes, oral contract.
Are enforceable, but if you don't have something in writing, then
we get to that he said, she said in court, which you may lose.
So make sure that you have that written agreement so that the court
can clearly see what the intent of the parties was by what's in writing
as opposed to having to interpret the different memories of the two parties.
and in terms of creating long-term, profit and building a business that can
someday be, saleable recurring revenue and revenue visibility are key drivers of
value in the event of an eventual exit.
And you need to have signed contracts for that.
So in order to have, something where your client.
Obligated to continue paying you on a recurring basis that
would be recurring revenue.
You would do that through a signed agreement that, permits you to continue
to charge a credit card, like in the case of a subscription or a membership.
and, having multiple, agreements that may not be recurring revenue
but are long-term engagements where you have revenue visibility.
Those are things that would most typically be documented in a assigned
agreement so that you can see.
Okay.
I.
These three projects, they are continuing for the next 18 months.
And this is the, revenue that they'll bring in that allows you to see in
the future what will be coming in and make plans accordingly, whether it's
in expenses or investments in team.
Team.
and in the event that someone is looking at your business to purchase it, they'll
be looking at that revenue visibility as.
Number four.
A contract helps to minimize disputes or problems.
Of course, a contract can't guarantee that there'll be no disputes or problems.
in the real world, despite our best efforts, sometimes things go wrong
and disputes arise with our clients.
a properly drafted agreement will anticipate common.
and provide a process for minimizing the fallout.
it may be through, some sort of dispute avoidance process, like an
internal escalation, system where if the people on the operations level
aren't able to resolve something, that it goes up to their manager.
So something where decision makers can head things off at the past
before it escalates, any further.
in the event it does escalate, to, having to get lawyers involved.
Then you can include mediation provisions.
So at least we don't get courts involved, and so we wanna make sure
that we are including provisions that.
Will minimize the fallout of any misunderstandings.
So that is something that a contract helps you with and sometimes,
the contract can just prevent.
Issues from arising at all.
So if there's a question, for instance, about how a client can
use a deliverable, well that should be spelled out in the agreement.
Can you use it with subsidiaries?
Can you make copies of it and use it with other team members that
weren't part of an original training?
Those things that can be causes, of disputes in the future can be headed
off at the path with a contract.
Number five, a contract limits liability, things like disclaimers, indemnification,
other methods of limiting liability.
These must be agreed to in writing.
So if despite our best efforts, a dispute does escalate to the point that
it needs to be, handled through legal.
Having disclaimers, having indemnification, having liability caps.
These are all things that can limit the amount of exposure that you
have, what your legal exposure is.
And if you, I'm sure have seen in contracts where you have this type
of limitation of liability language.
Not only is it in writing, but it.
Be in all caps, and by all caps, I mean the letter caps, because it is
so important that, in order to have a disclaimer or a limitation of liability
enforced by court, they wanna make sure that there's no way that anyone missed it.
so that's why you'll see those things in all caps in your.
Number six, A contract protects confidential information, so a
contract defines what confidential information is Confidential information
may or may not be just everything that we think is confidential.
Just because we think it, is confidential, doesn't mean that it
is appropriately protected through confidentiality provisions or an nda.
And so we have these, agreements that will make it really explicit
what is included in confidential information, what the exclusions
are to confidential information.
, what are the circumstances where disclosure would be appropriate, such
as when we're working with, you know, financial advisors or legal advisors.
what are the restrictions on the use?
I mean, we share it because we're going to use it, but we do wanna have clear
boundaries about how it can be used, and then remedies for what happens
when there is some sort of breach.
these are things that we want to have in writing.
. And then last, but most definitely not least, a contract protects
your intellectual property.
intellectual property rights is one of the fundamental terms that
will be addressed in your services agreements, and property ownership.
It can be confusing.
The rules regarding ownership are not intuitive and can be the opposite of
what you think or what your client thinks, is or, are the ownership rules
in the absence of assigned agreement.
for instance, your clients may believe they fully own a
deliverable because they pay for it.
And likewise, when you hire someone and you're the client and you receive a
deliverable and you've paid for it, what rights do you have in that deliverable?
So these are the things that signed agreements.
Answer and in the absence of assigned agreement, you might be
unpleasantly surprised by what the default ownership rules are
under intellectual property laws.
So your expertise, your most valuable asset.
, everything you do in your work has potential value as intellectual property.
We wanna make sure you protect those assets.
You need to protect them if you wanna monetize them, and
therefore scale your business.
And the value depends on clear ownership.
So muddled ownership is almost as bad as no ownership.
that's why contracts are so important.
and, when you're working with a contractor or when you're providing services with a
client, when you are an expert, both of those circumstances, intellectual property
is being created and the default rules will apply unless we make, uh, clear
how we want ownership, use restrictions, to apply to those deliverable.
we need to have those things set forth in our agreements.
So not having agreements, does put you at risk of losing control of your expertise,
of your valuable intellectual property.
if you don't have those things clarified in writing in your contracts.
So that brings us to the vital role of services agreements.
Now, if you've worked with corporations as long as I have, then you have had
a front row seat to the growth in the use of complex services agreements and
the proliferation of the use of NDAs.
I still have a current client, B2B Professional Services company.
I worked with them for about a decade, and when I first started working
with them, the vast majority of their clients would just sign the quote.
The client say, Hey, I need this service.
And my client would say, okay, we can do that.
Here's the quote, and there will be a signature line on there.
And their client would just sign it and send it back.
Could you imagine that happening today?
today the vast majority of their clients requires signature of the
long form master services agreements.
Likewise, assigned N D A is pretty much, required.
Meet with people these days, like I can't even talk to you until you've
signed an nda, and so that means you're signing agreements, long before
there's any revenue attached to it.
at least a dozen NDAs pass over my desk in any given month.
And the reason for this, as of 2020, 90% of all assets in the
s and p 500 are now intangible.
of the value in the s and p 500 are trivial to intangible assets that.
Means they need these contracts to protect that the executives that
you're working with, their job is to maximize and protect that value.
That's why we are seeing 100 page MSAs and that ubiquitous n d a that, is
required just to, to get on the phone.
Four, our protect our most valuable assets, our expertise, our
intellectual property to protect our clients' most valuable assets, their
proprietary, assets, their intellectual property in order to compete.
In this 21st century environment, you have to have a baseline
understanding and a comfort.
With B2B professional services agreements, you have to have a baseline understanding
and comfort with intellectual property rights that these agreements are
specifically intended to protect.
That is, again, the reason for the rise of these MSAs.
The reason for the rise of the nda.
Is because of the increased value of intellectual property assets.
So we cannot stick our heads in the sand about these anymore.
I know that.
a lot of people have spent their careers, without really understanding, intellectual
property or services agreement.
But if we want to build businesses that are sustainable, scalable,
and hopefully someday saleable.
We have to get in the practice of, caring for and feeding our expertise,
which is our intellectual property.
And that will be the key difference between building, a short term income
generator business, which is just kind of selling your time without
creating assets versus one that is sustainable and wealth building.
So in 2023, that is my mission, is to provide content and products
for you in a way that is usable and implementable to make you.
Feel confident about services, agreements, and about intellectual property.
We're going to talk about the essential terms that you need,
in your services agreements.
We're gonna talk about how to negotiate agreements when you're presented one
by a client or when you're presented one by a subcontractor or a vendor, or
a supplier, like a software company.
and the best practices about how to use contracts to move your business
along the hourly to exit journey.
I have a lot of, cool ideas about how they fit in along the entire
customer journey, you not just at the sales end, but also the delivery.
and what happens after delivery.
Contracts play an important role on the entire lifecycle and customer journey.
And so we're gonna talk about that as well.
So looking forward to having you along for the ride, as always, a hundred percent.
open to any, questions that you have.
as I do more of these solo episodes, I actually want you to tell me what your
questions are, tell me what your concerns are, and I will be able to address them.
So, until then, be well.