It happens at almost every start up I have worked with over the last decade--the emergence of a huge potential client who wants to pay a lot of money to use your technology. Sounds simple enough and could be a breakthrough event for the company, right? The Board gets all excited along with the founders-- "This could be the deal we have been waiting for!" Or it could be a disaster.
I call it the Wal-Mart Syndrome, but not to single out the world's largest retailer as the offender. Numerous large companies have been known to play the game. Here's how it goes:
The Large Potential Customer (LPC) is a known consumer of innovative technologies like yours. They approach your sales guy with a request for a demo. The demo goes great, the company asks for a proposal to get going immediately. Then the fun starts...
Your proposal/contract language is great, except for a few changes suggested by our Legal Department, the LPC says. Like giving them a copy of your source code so they can adapt it to their needs, but still supported by you with all upgrades in the future. (Note: this was a request made more than once among my portfolio companies.) And all changes you might make for us become our IP that cannot be used in your future versions of your software. The list of demands can go on and on, but end up making such a deal not very interesting.
My companies walked away from these deals, in spite of the potential to acquire a world-class client and get paid a lot of money. Truthfully, the long term cost was not worth the publicity. When we walked away from one such deal, a competitor walked right in and took the "prize". They are cursing that deal to this day, partly due to lost IP and partly due to the deal they signed required them to make any changes the client requested for up to 5 years from contract inception (without cost).
Having said all this, I have signed mega deals with world-class companies which were very successful for both parties. You just have to be very careful up front in choosing your partners....
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