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:
I'm considering doing the following:
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?
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.
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.
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.