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Bending over: How to sell your software to large companies
Posted on: 2010-04-16 18:00:00
This post also appears, with my permission, on A Smart Bear, with additional editorial comments by Jason Cohen, founder of Smart Bear Software.

For a micro-ISV, selling to businesses can be more lucrative than selling to consumers. Instead of making a few dollars per sale and hoping for thousands of sales, you sell to only a few customers, and charge much higher rates. But the rates are high for a reason. It takes more time and money to sell to businesses.

Legal Issues

Consumers rarely read software license agreements. Most corporate customers don't read them either, but some have legal departments that must approve any agreement that the company makes, no matter how small. Your EULA will be examined with the same fervor as a billion dollar acquisition.

The license agreement's primary purpose, then, is to get past the customer's legal team quickly, because they stand between you and a sale. It helps if it is fair and well balanced at the start. That way, if they add crazy one-sided terms, you can negotiate without sounding unreasonable.

Some terms that you may be asked for:

  • "If you go out of business, we get all of your source code." The request is common. The customer sees it as an insurance policy in case a smaller supplier disappears, and the assurance it provides may be so important that they are unwilling to drop it. Source code escrow services will hold on to your source code for a fee (hint: get the buyer to pay). Opt for a more informal arrangement if they don't specifically ask for this service.
  • "If someone sues us over your product, you have to pay our legal costs." Indemnification is also a standard clause that is difficult to get removed. If you can't stomache any risk of personal bankruptcy, incorporating your micro-ISV is a must.
  • Support details. Are you going to be providing free technical support for this product in perpetuity? I hope not.
  • "What happens if the product is defective?" It's only fair to offer a full refund if the customer is not satisfied.

A good software license agreement that you can re-use in a variety of situations can cost anywhere from $1000 to $5000. It pays to shop around.

The procurement process

Quotations

A quotation looks just like an invoice, except that it has an expiry date. Sixty days ought to be long enough for the client to make a decision, even if the whole department goes on consecutive vacations.

Evaluation Version

The purchasing process can take a long time, so you might be asked to provide an evaluation version while the details of the sale are worked out. It's a great idea, because after the buyer incorporates your product into their processes, they aren't going walk away from the deal easily. However, it is unclear whether the customer acknowledges any of your license terms during the evaluation period. The product should have a time limited expiry and other technical measures to ensure compliance.

Purchase orders

You and your buyer have patiently waited for five months for the company's legal team review your license. Now, the signed copies have been faxed (yes, faxed!) back and forth. At last, they'll click on that Paypal button on your order page...

Think again. Once a large business has agreed to buy your product, you are expected to send it to them for free. They do not have to pay you a dime until they feel like it. Instead, they will send a purchase order.

The good news is that purchase orders are a legally binding promise to pay you, after all of the terms have been fulfilled. Here is a diagram to illustrate the procedure:


Click to Edit on WebSequenceDiagrams.com

If you are lucky, they will use PDF files for the purchase order and invoice. But you will probably have to send and receive some more faxes.

"Please read this 100 page document about our invoicing process.."

Sometimes, after everything is agreed, you'll be asked to perform some kind of insanely complex invoicing procedure. The instructions are laced with stern, upper case warnings that if the invoice doesn't follow the proper format, lacks item category labels (found in document B), or is submitted during the wrong hours, it will be ignored.

If you have priced your product appropriately it will be worth it to spend a few hours to learn their codes and procedures. If the price is too low, you can try your luck and (politely) ask if there are any other options. (Do not mention why!)

"We will release the funds after you provide your US social security number.."

US customers will sometimes ask for a Taxpayer Identification Number (TIN). If you are not a US taxpayer, you don't need one. Once you point this out, they may be okay with it, or they will ask you to fill out a US form W-8BEN and send it to them. The form is scary because it states that your "income" will be subject to a 40% withholding tax. Don't worry: the purchase price is not "an amount subject to withholding", and sellers do not need to start doing US taxes (if they aren't already). Some US businesses feel that they must keep this form on file for all suppliers, and it's easier to comply than argue. Here's some more information.

"We only pay using Bankers' Scrolls made from papyrus"

Many companies have a policy against using Paypal. It's best to use an old fashioned check if you can. You can suggest, but never insist on a method of payment. Money is money! Some international customers only use bank transfers. If so, call your bank for the information that you need to provide them, and expect about $30 of the payment to go to fees.

Resellers

Imagine you are asked to buy some software from, say Adobe.

  1. You go to their web site,
  2. try to find the link to buy,
  3. figure out how to pay,
  4. get to the checkout page,
  5. then stop and search Google for "adobe coupon codes",
  6. go back to step 1
  7. keep refreshing your email for the link,
  8. download the software.
  9. Keep of record of the receipt somewhere.

Now imagine you have to do this for 1000 different items, at 1000 different web sites. It gets to be a very large job. Some companies have outsourced their procurement to resellers.

A reseller is simply an intermediary who pays you and provides the software to their client. It's also their job to ask for a discount, but there is no need to provide one. They have been told to acquire your product, and have already been paid a fee as a percentage of your price.

Keep smiling

Selling to big companies can be frustrating. Throughout the process, it is important to stay professional and pleasant. Sometimes, it may appear that your customer is trying to screw you. Even if they are, is your job to be jovial, point it out, and assume that it is a simple oversight. It makes no business sense to throw money away because of a rude email.

Further reading

Here are some of my favourite blogs on the software biz:

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Bob Foster

2010-04-19 09:17:30
If you think it's rough selling to businesses, try selling to the federal government, or any of its agencies. There's a reason a hammer costs taxpayers thousands of dollars. Hammer cost: $2.00. Filling out forms and negotiating contract: $20,000. Quantity: 1.

Jason Cohen

2010-04-19 11:36:27
Great content, and thanks for the mention at the end.

I'm spreading it on Twitter.

Griffin Boyce

2010-04-19 15:48:19
Wow, such excellent and concise information on this! I am taking notes over here =)

@Bob, hehe good point. With the government, maybe it would be worth it to have a standard price increase for those things?

Email
steve.hanov@gmail.com

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