Risk Vs. Revenue: Contracts as a Tool for Revenue

That's a great example of where contracts matter because you just drove a huge spike in trying to get that deal closed.
-David Ledgerwood

Welcome to the Contract Lens Podcast, brought to you by Malbek. In this podcast, we have conversations with contract management thought leaders and practitioners about everything contracts and its ecosystem. In today's episode, we are joined by David Ledgerwood, Managing Partner at Add1Zero and podcast host. David shares how to use the risk and reward you uncover in your contracts from a revenue point of view. He has been a Sales leader for over a decade, helping software and services companies grow revenue. He is an advocate of tech enablement and is a seasoned thought leader for revenue growth. So now it's time to relax, grab a glass of wine and let's talk contracts.

Hemanth:
David, thank you for being here. Now David, let's start with the services that you provide.

David:
Sure, sure. Company is Add1Zero and comes from my history of running sales, sort of early, early stage sales divisions for startups, sometimes being in the sort of third person at the table, like here, build sales, good luck. And what do we do discovered in that process of having to grow companies into the millions was there's a reasonably standard playbook. And this goes back far enough that I don't remember anybody talking about chief revenue officer back then, but now that's what people say and I think that makes a lot of sense to me. We built a company that could say, "All right, let's walk into someone else's company, provide what is essentially a chief revenue officer fractionally, also provide all of the RevOps, sales ops," people use different words for that but it's just basically run all the things and then provide sales enablement.

David:
That's a whole other piece there that typically disconnected in some way from the marketing materials and functions. Sales intelligence, so that we can look at and say, "All right, every sales call that happens is basically a customer interview." Think about it about from a lean startup perspective, you're interviewing customers all the time. What do we do with that information and feed that up and down the organization, so sales intelligence. And then closers as a service. Take every call and let's turn those into deals. And what's interesting to me then is from what you all provide is we very, very often have to deal with contracting. And in fact, that that's a huge piece of the back and forth touch points that happen on the close, on the on the sell side. I have a lot of things to say about people who do that tremendously well and tremendously poorly, so I see the need for your solutions.

Hemanth:
Yeah. That's awesome. From your perspective, what you've seen so far, do you think the companies are able to manage from the time they got the lead, all the way to the close and then post close? What percentage of them are ready to have a smooth operation from the lead to the close?

David:
Oh, none of them are. And that's the nature of, we intentionally walk into and look for companies. We are very interested in really early stage stuff. We're talking about companies that have not broken the six figure revenue mark yet or rather broken out of it. They haven't broken into the sevens. We find that interesting. That's a point where you could do that really rapid scale from over a couple years. Let's say you're 500,000, and then these are bootstrapped, small things. Very often pre-funding if they're ever going to get funding. Get that 500,000 to five million, maybe 10 million type of mark. And so we really want to take an operation that is nascent and scale it. By nature, you're talking about in our case, founders have figured out how to make sales up to a certain point that we have proved viability but that's about it.

David:
And now how do we take it out of the founder's head and make that into a scalable operation where it's no longer just, figure it out as you go. And then very often that will lead the way into having to scale and fix operations around finance, customer delivery, customer success, marketing, all the things there. What you really find is I think of revenue as that central sort of, if you're a hub and spoke, revenue's the hub, it drive everything. That's not to say we should be money hungry and break all the things just to score revenue. But if you don't have it, there's not really a whole lot to talk about in the business.

Hemanth:
No, that's very interesting. There was a myth that contract lifecycle management was only for big companies, the companies who are making $50 million, a $100 million in revenue and beyond, then you need a contract management system. That was a myth. From what you've seen with and without system, what would be the difference that you would be able to see some examples that you can give?

David:
Oh yeah, absolutely. You know what the worst thing is for us? For example, we use certain stacks and every company has a different stack that they want to work on from the revenue new perspective. It's easier for us to walk into companies and say, "Let's use Google Workspace, formerly Google Apps. Let's use HubSpot, let's use Slack." We work in companies of that ilk.

David:
However, most of them either before or after we're done are selling into mega scale, Fortune 500 types of things. And almost in every case, those companies are on Office 365, hopefully if not a previous version of that. And so what's the unifying sort of distribution method then is you're going to end up in some kind of a PDF that's going to be sent via some kind of an eSignature platform, kicked around, probably converted into some kind of Word document, legal makes red lines in Word, the CFO, they review it. There's just all kinds of stuff round and round and round. And you get back multiple copies of the thing. Then you need to manually push that back into your Google Doc or figure out, accept. It's a huge frictional point.

David:
Yes, you need that at every level. It would be brilliant for clients to be able to sort of say, "Hey, we're going to deploy this contract here. You can get into of the system. You can do all the things you need to do. There's version tracking, there's all that stuff and then we can finally agree on something and sign it." Contract lifecycle is huge, you're totally right. Because even if you're small, if you want to sell into big, you have to be able to play that game. And obviously you would hope that if you were to introduce a solution that they could play along with, for some reason they won't open a Google Doc at many enterprises. But maybe they would open some other sort of well respected system.

Hemanth:
Absolutely. It's interesting also, an organization of 10, 20, 30 people that will grow into 50 people, a 100 people, 70 more like that, it just keeps growing. But if you don't put the right infrastructure in place, then your growth is hindered, right?
David:
Oh, absolutely.

Hemanth:
The visibility is key. What you're signing to, who are the touch points and how fast you can close a particular deal. It's all about starting and getting the deal done as quickly as possible with the best terms under the circumstance, right?

David:
Yeah. You want to think about cash received. Particularly in a small company, and knowing that large companies maybe might drag you out to net 90, so you have a significant problem if you're starting to grow up into of these types of things. If you can carve off of that space that is the frictional cost there, your time to actual money in the bank is really what you're concerned about it. At that scale, you have to deliver things before you're paid for them many times, if you want to have larger clients. And I think I see that at the small company level a lot. Let's figure out how to carve 10 days off of that review cycle. Now that matters a lot because now the space of having to pay for things and the space of being delivered and paid for the things, we have to shrink that. But just all you're borrowing against is you're cash in the bank at that point and I think that's the place that makes a big difference.

Hemanth:
Sure. From their perspective, from the executives, the CEO, the CFO and others, do they see the need to move into the 21st century and how do to use some of the solutions in the middle office?

David:
That's the nice thing about working with small companies in general is that when we're thinking about cloud enable, it's not weird anymore that everything runs on point solutions and SaaS. Integrations being the biggest question there, is it does it play along with the other things that we use? And I think some of the solution buying perspectives are just SaaS can quickly become death by a thousand cuts where you kind of go, every one of these things I pay by the seed or I have a license and it's just ultimately, it's the same thing that happens, where you thought you don't have a cable bill anymore, but now you have 16 different streaming services that cost more than what your cable cost. You have to pay attention to that as you're building out the stack. But there's no question that I see a willingness to do that and certain point solutions make a lot of sense.

David:
And more than that, I think from the SaaS provision perspective, as a business you want to build something that rolls up a few point solutions so that people can kind of say, "Hey, that accomplishes a thing that I need across different areas and it integrates in the places that I need it to." I think that's really the buying consideration. And that's a good thing for a SaaS provider because you can kind of say which providers, which tangent providers or MSPs or solution providers or channels or referrals, how can I get up against that and say, "Hey, we integrate with that thing and that's the one that they recommend." I think this is a business development strategy for SaaS right in there.

Hemanth:
Sure. And one of the interesting things is if you don't have your system together, if you don't have a good solution together, it shows to your customers, customer's customer, how disorganized you may be. With that, definitely it's not just, contracting is not just an internal function. It's an external function.

David:
Yes.

Hemanth:
Do you agree with that?

David:
Oh, absolutely. Every touchpoint is a marketing touchpoint and the degree to which you make it easy to buy and even pleasurable to buy from and finish that with your customer. Look at, and I want people to resonate with if you're a CFO and you're buying things or you're legal and you're thinking about any solution that you put in place, understand that your frontline sales folks are out there pitching their heart out on your thing being so awesome and how dealing with you is better than dealing with a competitor.

David:
And if you throw a really high friction, nasty process into of there, you're going to require your salespeople to kind of hate on you in public to say, "Ugh, listen, it's going to be great after the fact, but we just need to get over this miserable setup process." And I've had that happen to me, even on the buy side and I go, "Ugh, that's terrible." Why? And you force your salespeople to sort of say, "Well, our solution is great and dealing with the delivery people is great but dealing with our finance and legal just kind of sucks and I'm sorry, I'll do my best." You don't like that. Don't make your salespeople do that.

David:
These are all touch points. And if that can be beautiful and smooth, I'll share some stories on the sell side where we have to get big companies to work with us. And many times as a smaller business, when you start to get into really selling Fortune 500, massive companies, they're not going to take your contract anyway, they're going to give you their contract. And they're going to say, "You're going to sign this." And so you have to go through the legal and financial and risk analysis review and kind of go, obviously I want to do business with this huge company. That's a big deal for us but they don't care about anything that I bring to the table. I'm going to use their statement of work. I'm going to use their contract. And now how do I analyze that on my side?

David:
You face that as you grow both sides and I've seen from the I'm selling to company X on your behalf. And I can say, and this is big stuff, Comcast, Facebook, Alibaba, international huge companies, Parker, you name it. And some of them have 60 page, eight point font, managed service agreement where send me your firstborn child and we'll pay you in a 120 days if we like you. And there's liquidated damages. And some of these companies are just awful to deal with and that leaves a bad taste in your mouth from the perspective that I know that brand. And so it's interesting, but look at that brand association. Here I have this miserable experience with your brand on it, as a business person, just trying to provide you with what you asked for. And here at home, I have this thing and it just sticks in my head. When we talk about marketing touch points, like all that stuff matters across channel.

David:
And on the flip side of it, having dealt with Facebook, you see Facebook kind of get dragged through the mud in the news and wherever you feel about that and their consumer stuff and they have too much power and there's a lot of things going on there. But I can tell you dealing with Facebook on the business side as a small business has been the best experience of all time that I have ever had in 20 years of doing with this. Their contracting was amazing. It went fast, they paid fast, they took care of us. And the whole point there is Facebook saying in their marketing materials, on the B2B side, we take care of your business. We help grow your local business. We provide the best local tools. We care about businesses.

David:
And they demonstrated that through the contracting process and their payment terms. And so that was really smart. And I drew that distinction on the sell side is, dealing with companies on the sell side and on the buy side, they had an opportunity to make an impact and they did it one way or another, good or bad. And there's endless examples of that. But that contracting lifecycle communicates what is it like to deal with this company? And how will it be to transact business with them?

Hemanth:
That's right. It's kind of, is it fair to say it's like dating before getting married? A prenuptial.

David:
It's like putting yourself out there, that's for sure. And you're saying, "Oh no, what have we done here? This is going to be horrible." And yes, businesses will face, small businesses face this. You want that logo on your website.

Hemanth:
That's right.

David:
You really want to do business with that big company. That is an amazing amount of credibility. And it's tough when they beat you down for the right to use their logo. Or the worst one where you go through all the miserable stuff and then you see in their contract, buried on page 35, is they're banning you from telling anyone that you ever worked with them. You get your net 120 terms and you can't tell anybody. And again, the good ones don't do that. And I think that that's really about brand and marketing and more than it's about contracting but you're using each tool and really thinking, what is the ethos of what we want to put out there to all the people that we work with?

David:
Contracts can do that too. There are really good ways to write. I see onerous clauses for noncompete and for non-solicitation and all these things, liquidated damages. And just these over the top legal things where you kind of go, hold on, what if we wrote that in a way that just said, "This is not a cool thing. Don't do that. If you want to do that, let's do it in writing and be cool." And really that accomplishes the same risk mitigation without sounding like this sort of legally overbearing gorilla. And that's a great example of where contracts matter because you just drove a huge spike in trying to get that deal closed.

Hemanth:
Yeah. That's very interesting that you said so many clauses, so many terms, it's so complex, 60 page, 90 page, I don't know, 50 page contracts. Now, the interesting topic that, the AI. The AI can help ease the pain a bit, sometimes a lot. It depends on how much of AI you want to use, how comfortable you are with AI. One thing that I've noticed is with the small companies, they don't have unlimited money to spend on the counsels, but at the same time, if you don't spend that money, if you don't have a good understanding of what you're committing to, then it's a major problem. You would be exposing the company through a big risk.

Hemanth:
Now, is it your experience that you've seen where the middle of the road is, yes. You have to use counsel with a solution. You would've learned some things, you want to apply that and some you may not want to apply. The learnings of history, that's what the AI would provide. As you go through the system, all the interactions, all the counterparty negotiations, the system will record and will be able to give recommendations. Have you seen anything where the CEOs and CFOs are able to recognize, yes, there is an investment to be made on the let's say contracting system but it will pay itself by instead of having the legal counsel review it for a 150 hours, you can reduce it to 10 hours. Saying these are the 10 provisions that I'm not comfortable with.

David:
I haven't but I think that's a very reasonable proposition as you grow. We're on the nascent edge now of where we can say, "Which things do I need human intelligence for and which things can I rely on and trust the machines to do so that your sales folks aren't reviewing contracts because you believe somehow that it's cheaper for them to do that." And we do, we try to say, because look legal is $450 an hour. Why don't we take a first pass at this because we know which things we've kicked out in the past. And we know which things are sort of tolerable or not. Hey, somebody get me a list of all our insurance coverages and match it one to one to this contract, to make sure that we have E and O. And there's all that stuff and machines can do that and AI particularly could do that.

David:
And so I think that that investment would make a lot of sense as you pick up volume and you kind of go, isn't the goal to be making more deals and not bogging down in administrative details that are repeatable risk? Risk mitigation is a good thing for everybody. We ought to be doing that but where can we reduce the burden of labor? And it makes a lot of sense to be able to say, "Look, I don't know, the clause that says where this thing is governed, whose laws are we following?" It's trivial for that to be processed and say, "Are you okay with this being in New York, having not opened this document?" And you go, "Sure. I'm okay with that because I'm going to make a million dollars if I have to travel to New York."

David:
Are you okay with arbitration? Are you okay with this and that? And I imagine that you guys could process an enormous amount of data because ultimately I have this theory that there was at one point a great lawyer in the sky that made the first agreement and everybody else just charges this money to change that one. Maybe now, the great lawyer in this guy will be AI.

David:
And I know we've done this manually over years and years and years of doing sales, we have the Frankenstein agreement that we bring along with us and say, "Okay, because there's been in aggregate seven different companies that spent $500 an hour on this piece of paper, we can be reasonably certain that we're starting with a thing that you don't need to pay for. Now, I can't provide you legal advice because we're not lawyers. However, chances are if you start with this and ask your lawyer, it'll cost you a grand instead of 50 grand." The same could be in place where you just sort of go, "Run this against what I understand to be my reasonable tolerance of risk and tell me where I should have human discernment come in and take a peek at that." That makes a tremendous amount of sense to me.

Hemanth:
Absolutely. It is so interesting when we started our company, our thought was contract lifecycle management is for everyone, not just the bigger companies, not just the like smaller or mid-size company, that's for very small companies. With five people, 10 people company who are just starting to get to million dollars in revenue. There, it's very interesting because AI can do with a system like ours, AI can do about 50%, 70% of the work. That way you don't have to redo it again and again. Because you would've gone to external counsel and gotten certain positions for the publicity, as you gave an example, for the payment term, governing law, any of these. Historically what you have accepted and that's in the system and AI is able to get that and then give you that perspective. If you had to advise someone on the ideal system, ideal solution that you would like to see, so what would that be, part of the top three things that you would like to see that kind of solution?

David:
I would want to make collaboration amongst departments on both sides very, very, very easy. You'd be surprised how hard it is to get anybody to sign up for a new system of anything. And so as simple as possible to open something that looks very familiar to all different ilks, in a browser and just say, "Let's collaborate on this thing and know that it tracks and it's clear that it tracks." And I think understanding all those user personas is really important. I would definitely want to say, "How do I set risk tolerances for which things I'm willing to accept or not." And understand the training data effectively. Now I'm a geek so I understand AI, but figure out in a way to say, "Listen, you can be sure that we will scan these documents and find out any pitfalls for you." I think those are very important things that we could lean on.

David:
And ultimately suggestion would be great. I don't know where the state of the art is on that, but gosh, as a revenue professional. I would love to be able to say, "If you were to phrase this in this other acceptable way, you've achieved the same risk tolerance without having to have this onerous, bizarre, liquidated damages thing that makes you sound like a jerk." Salespeople just want to close, so I think in the same way that a Grammarly might be able to sort of go, "You can say that better." Ultimately the legalese, you can achieve the same thing without having to say it in the worst possible way that makes your brand look stupid.

Hemanth:
No, that's perfect, David. Believe it or not, those are some of the design principles with which we built our system. Collaboration is the key. And the second one is the doing the same task. You don't have to do it again and again, AI will be there to help. And the third one is the negotiation while negotiating and other things, coming up with the just in time recommendations, giving you that recommendation.

David:
Well, I'll have you know that I didn't even read the marketing white paper and I'm glad that I came up with those things. That means the positioning is well designed, so congratulations.

Hemanth:
And the needs, those are the needs of today. If you have to compress the deals and you want to reduce the risk and at the same time, get it signed as quickly as possible, with no friction to the external world, you will have to get your internal act together. Those are the building blocks.

David:
Absolutely. And the number four is obviously that integration point. I'm running on some kind of financial system, ERP, QuickBooks Online, what have you. My bill pay systems integrate properly. My CRM integrates properly. Maybe I have a project management system and everybody who on the delivery team needs to know what's in an SOW automatically. There's all kinds of stuff that you could say, "How exactly do I put this now executed document in front of the people that need to do things with it?" Because it needs to turn into a billable event and a billable schedule and a delivery schedule. And what did we agree to? Are there any terms out of the normal packages that we have changed in order to get that deal done?

David:
You really care on the delivery and customer experience side that whoever does, let's say onboarding call X, knows exactly which things were negotiated that way. The only way to do that now is to go through and make a recording for the onboarding team from sales. Well, if they do that, they're not making deals. They're not on the phone. And then you make a mistake and your delivery people get on the phone with a client who's onboarding. They go, "I already had this conversation with sales. How come you guys don't know that?" Huge stuff that you can accomplish really with that integrated point. And it all comes back to the contract.

Hemanth:
Yeah. No, the integration is a great, great thing. You said integration and collaboration. Think of having Slack. Within Slack, you want to be able to collaborate on the contracting system so bringing that enterprise altogether, but to the place where they're comfortable with it. If they're comfortable with Slack, so be it. That integration point. Not just the collaboration part. Bringing that to the place where you are. That's something that we all thrive for. Integration, as you said, is key.

David:
Absolutely. Get those AIs to automatically build that contract, send that invoice out right away. Oh, that would be nice. You know why? Because that drives faster commissions and we like that too.

Hemanth:
Exactly. Exactly. By the way, that day is very close. Very close and fully automated end to end of course with there is that big thing where legal can be 100% automated, no. Humans.

David:
We all wish.

Hemanth:
Lawyers are absolutely required. They are very important function because what you're accepting and not accepting, AI can do only to that extent but it's not going to replace that job.

David:
Yeah. And that's not the way that anybody should think about AI. I think that zeitgeist is incorrect. It's like the robots are going to replace, no, the robots are going to let you use your brain so you don't have to do a bunch of garbage. It's going to surface the thing that you really should be thinking about and we really need your expertise on. Not, how do I process this Word document that somebody sent me in a different format? And gee, why didn't it track the revisions and the red lines from the last guy who did it? That stuff wastes an inordinate amount of time and sometimes it's billable. You don't want to be paying for that. And when you do that calculation, it's pretty much a no brainer around that.

Hemanth:
Yeah. Thank you so much, David, it was such an insightful conversation. We learned a lot from you. Anything else that you would like to tell our viewers from your perspective?

David:
Well, first I hope all of the viewers are booking enormous contracts, such that they need to start thinking about this problem. If you aren't sending out any deals, then you probably don't have this problem. First thing I wish for you is great deal volume. If anything I'm saying resonates with people and you are a business that is driven by a founder somewhere in the six figures and you don't know how to get to the mid sevens, that is the place that we enjoy working. Add1Zero is our company, A-D-D numeral one Z-E-R-O.co. And I am David (Ledge) Ledgerwood on LinkedIn. I post all kinds of fun tidbits and videos and podcasts. You could check out the Leaders of B2B podcast, where I am one of the hosts and we interview B2B executives and founders just about their journey and finding out best practices and things like that. Lots of fun stuff, always happy to share insights and learn about new, fantastic opportunities for business process excellence.

Hemanth:
Yeah. Thank you, David.

David:
Thanks.

Hemanth:
Have a great day.

David:
You too.