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Contract negotiation tips for SMBs that have landed 'whales'

12/30/2011

It's a sought-after and exciting moment for any small- or mid-sized tech business when it lands a huge enterprise client. However, the initial excitement may soon turn to frustration, as the SMB hashes out the details of the IT contract with the larger enterprise's legal team.

Andre Gharakhanian, a leading Silicon Valley legal strategist, recently wrote an article for Inc. magazine providing some tips to help SMBs successfully navigate the contracting process with the huge enterprise clients he calls "whales."

According to Gharakhanian, SMBs need to accept that they may have little leverage when negotiating IT contracts with a whale, and so it's important that they identify the key components of a contract that are non-negotiable and allow that when it comes to other terms, the whale might get its way. Among the potential non-negotiables Gharakhanian identified as common were retention of intellectual property rights for the technology underlying the SMB's software and clarity around payment terms.

If the contracting process becomes stalled or onerous, Gharakhanian recommended the SMB reach out to its business-side contacts with the whale, prompting them to put pressure on their legal team to close the deal.

While it is not wise to agree to highly unfavorable terms, even a less-than-ideal contract with a huge client can be worth it, as landing a big contract can put a start-up venture or mid-sized player on the map. Dennis Askew, a contributor to the website Small Cap Network, made this point; he wrote that investor interest in the mid-size company Rackwise is likely to surge, given that Rackwise recently finalized a major contract with Intel.