Contract negotiation tips for scaleups

This is an interview from our quarterly, community-led publication, The Bundle. Download volume two, issue #1 now to hear from legal leaders at Klarna, Paddle, Omnipresent, and more.

Juro was thrilled to host a three-part masterclass with Laura Frederick, exclusively for members of our community. The sessions covered contract playbooks, negotiation techniques, and much more.

Laura has 26 years of experience working on tech transactions in large international law firms and in cutting-edge tech and energy companies like Tesla.

She’s now the Founder of How to Contract, an online learning platform that helps lawyers and professionals learn how to draft and negotiate contracts in the real world.

Among the sessions we ran was a Q&A on how small companies can hold their own in contract negotiations against big corporate players. Here’s our selection of the best head-scratchers from our members, with Laura’s insightful responses.

Want to level up your negotiation skills and get to yes faster? Download our guide on contract negotiation in 2023.

Q: ‘We need limited liability across the board’ - have you ever had any success in pushing back against this, and explaining why this request is unreasonable?

LF: The problem is thinking you can explain why it’s unreasonable. The lawyers for these large corporations hear it from every single counterparty, but they’re still taking that position.

Having a different mindset for these negotiations is key; this isn’t about convincing them - they’ve heard every argument you’re going to make. This is about:

• Inspiring them to see your perspective
• Using emotional intelligence to make your point
• Trying to find techniques to help them accept those changes

When responding to this, legal can ask: “are there changes you’ve previously approved to the limit of liability provisions that might also work here?”

‍This might be a situation where you need to hold out and walk away. You may say: “my executive team can’t agree to this liability. we can’t put the company at risk for one deal.” But don’t say that statement if it’s not true. Because most scaleups will close the deal regardless.

Treating the lawyer like a person and showing kindness goes a long way. We get used to demonizing these big company lawyers because it feels like they’re against us

Q: How would you approach situations where your scaleup only has the ability to negotiate if you buy the most expensive plan?

LF: This situation offers two choices. If you agree to pay more in order to get the right to negotiate, you have less money, but you can better manage your risk. If you choose to keep your rate and not negotiate, you have more money but more risk.

Which of these options do you want to take?

In my mind, that’s not legal’s decision to make, but instead something you should raise with your business team. We support the business on these deals but for most companies, it’s ultimately their decision.

If the business is looking to you to make a decision, or you’re in a joint role that places this under your responsibilities, then you’ve got to evaluate the risk, by using the ‘formula’ LIKELIHOOD x IMPACT.

Look at the kinds of changes you’re going to receive, crunch the numbers, and think - is the increase in price worth the risk you’re going to take on through contract negotiation?

Q: What’s one thing that smaller players often forget or don’t leverage enough?

LF: The human element - treating the lawyer like a person and showing kindness goes a long way. We get used to demonizing these big company lawyers because it feels like they’re against us.

And we’re taking that emotion and responding with it, but the reality is they’re just doing their jobs. Kindness for these big company lawyers will go a long way.

It's such an easy thing to do - it doesn’t cost anything. And the lack of kindness can have negative impacts, including slowing the deal down and leading to the counterparty’s lawyer avoiding you and your company.

Q: If you know that a big vendor is stonewalling you when reviewing T&Cs, would you skip that negotiation stage? And if so, how do you define your limits?

LF: Economic business evaluation is important - what intelligence do you have? They say they won’t negotiate, but do they actually?

This is where I rally my team to help me understand the patterns and practices of the counterparty. I ask my team to reach out to their counterparties at the big vendor to see if they can gain some insight into this.

In a lot of cases, we’ll receive back some ideas about what changes they might make.

Don’t take the blunt force option. Find subtle ways to make your point and persuade the counterparty

Q: Do you recommend documenting the risks you’ve had with a particular contract, and if so, how?

LF: I am fine documenting facts, but I generally avoid documenting a deal’s legal risk. First, it will be speculative. We just don’t know.

There’s also a risk to acknowledging a specific risk and accepting it anyway. If by some chance you’re facing litigation or dispute down the line, that document can become a risk in and of itself.

Q: What advice would you give a scrappy startup negotiating against a large company, where the startup is unable to make any progress on the counterparty’s form agreement?

LF: Don’t take the blunt force option. Find subtle ways to make your point and persuade the counterparty. Use all your best EQ techniques, your “never split the difference” strategy.

Become a great negotiator by recognising that this isn’t about industry-standards and fairness - this is about how to convince the counterparty that agreeing to your terms is in their best interest. It’s a different scenario, so go into it with a different mindset.

This is a chapter from our quarterly, community-led publication, The Bundle. Download volume two, issue #1 for the latest need-to-know insights, by and for scaleup lawyers.