How Startups Build Successful Enterprise Partnerships — Part 2
Note: This is Part Two in a series to help startups build enduring enterprise partnerships. (Part One is here)
Finding the Golden Ticket
When the phrase ‘It’s worth its weight in gold!’ is thrown around conversation, we usually denote the subject as something of immense value — rare wines, exotic collectors’ items, absurdly expensive printer ink, etc. When startups sell their product and/or service to large enterprises, there exists a document so valuable and fundamental to the success and commitment of the deal, it is truly worth its weight in gold. This document is the elusive, powerful Master Services Agreement. In enterprise land, we use the clandestine nickname: ‘MSA’.
An MSA is in its essence an umbrella contract — a formal agreement between two parties which governs all future contracts. It can also be called a PSA (Professional Services Agreement) or some other derivation. It is often provided by a large enterprise company (i.e., a Fortune 500) when they wish to officially bring on board a new vendor or strategic partner, including a startup.
The MSA document is unassuming at first glance, containing jargon like confidentiality terms, indemnity clauses, insurance minimums, etc. To a startup entrepreneur, it might be initially perceived as administrative paperwork, not something to kneel down and be in awe of its glory. But in reality, the MSA is the ‘golden ticket’ to the chocolate factory — a document that can catapult a rag-tag startup to a financially successful and sustainable business, courtesy of their blue-chip client.
But in reality, the MSA is the ‘golden ticket’ to the chocolate factory — a document that can catapult a rag-tag startup to a financially successful and sustainable business, courtesy of their blue-chip client.
Recently, I was having coffee with a highly talented and energetic startup founder, and he mentioned that he had landed four independent enterprise deals in the past year, all with multi-billion dollar healthcare companies. Excited, I responded “Wow, that’s awesome! So you were able to land 4 MSAs in a single year?” He replied, “What’s an MSA?” After a short pause, I responded (frankly), “Dude, I think you might be confusing ‘deal’ with sponsorship money or words of affirmation from an enterprise employee. I would be cautious to overhype any opportunity as a deal until you have an MSA in place. MSAs are the precursors to deals. Deals are legally binding commitments from both you and the enterprise. Without one, the enterprise doesn’t have to commit anything to you.”
The power of the MSA is its underlying structure — Without one, there are no legal foundations to create SOWs (Statements of Work), contracts where you agree to your services, timeline, your point of contact(s), and most importantly, your fees (a.k.a. revenue). Even if an executive LOVES your product and/or service and becomes an evangelist internally within their enterprise, it is indefinite lip service until an MSA is approved. But with an MSA in hand, you are now one of the privileged few that can give an SOW to a willing client, knowing that they can get it approved. You become an official vendor of the enterprise, which allows you to immediately negotiate deal-specific terms. You also don’t have to repeat lengthy negotiations on nuanced contractual issues (payment terms, warranties, dispute resolution, IP, etc.) saving significant time and effort. These issues are already approved in the umbrella MSA.
MSAs also provide other unique privileges. One important privilege (depending on the specific MSA language) is approval to leverage the enterprise brand and logo for specific purposes, including listing them as an official client. I cannot help but notice countless startups leveraging the logos of household name companies on their websites heavily without official approval, simply because they have an enterprise point of contact who likes their product and has circled it around with other colleagues. This places the startup at legal risk for brand infringement. Or, just as bad, it could irritate the enterprise, killing the relationship before it begins. They need legal permission from the MSA before conducting this action.
Another benefit of the MSA is it gives you access to a specific enterprise employee who can manage your procurement issues. Having direct access to this resource can help with any glitches, delays and/or concerns you have with your contract as you begin your enterprise relationship. We cannot stress enough the importance of a strong relationship with the dedicated procurement employee that manages your MSA. They could become your best friend (i.e. expediting your contract through the system) or worst enemy (i.e. deprioritizing future contracts from moving forward)!
In summary, when we teach startups how to engage large enterprise partners for business development, we tell them to focus on the prize — land the MSA. The MSA is your admission letter to your first choice school, your key to the mansion, or your golden ticket to the factory. Although we cannot guarantee that once you enter any of these places that the experience will be flooded with opportunities (we hope it will!), but without an MSA, you can be sure that you’ll be standing outside the factory gates while those with the golden ticket waltz right in.
Originally published at elevarco.com.