Erin Austin: Hello ladies. Welcome to Hourly to Exit. You know, I am a lawyer and I feel some kind of way about contracts. So while I love talking about scaling today, I'm going to get into the weeds just a little bit. About contracts with a particular emphasis on services agreements. As an expert, I am going to argue that services agreements are the most important documents in your business.

Erin Austin: A contract for you know, at the basic level is an agreement between parties creating mutual obligations that are enforceable by law. So, simply put, it is an agreement between two or more parties about an exchange of value. You know, I'll do x, like I'll provide services, and you do y you pay me for the service.

Erin Austin: At the beginning of a business relationship, it's tempting to just to focus on moving forward with the project as soon as possible. As soon as that sale is made, we agree, we wanna cl, we wanna work together. we know what the number is, we know what the deliverable is, let's just go and no argument there.

Erin Austin: even we all want things to proceed, forward as quickly as possible. . But the problem comes if the contract and any lawyers, if there are any lawyers involved, if the contract is considered a hindrance instead of a helper. Because the truth is that when working with a new client are on a new project, both parties are making assumptions.

Erin Austin: And if we're skipping over the very important contract phase, we. In danger of relying on those unspoken assumptions being the same. And the only way we can know that those assumptions that we're each bringing to the table are the same or are at least compatible is by being explicit. And that means we need to very clearly set forth in writing, what the rights and obligations.

Erin Austin: both parties are that way. Everyone is on the same page as we move forward. So, you know, big fan of putting it in, writing a contract can be made orally, it can be made with a handshake it can be made, less formally, but in writing such as through email exchange. But I recommend against, all of those options.

Erin Austin: I realize that. Sometimes people dislike dealing with the contracts if they feel like it's gonna be full of legalese. You know, 10 words are used where one word would, would suffice. However, there is a way to strike a balance between. The excessive flourishes of her two fours and leaving everything to the party's memory of a conversation.

Erin Austin: So the best way to make sure we're on the same page is to spell it out. Literally discussions and negotiations may not cover every aspect of a relationship and that one issue that no one. Brought up during those conversations that just might be the one that goes off the rails in the future. And that's why it is so important to have it all in writing.

Erin Austin: In addition, as we'll, discuss later, there are some legal rights that actually cannot be agreed to orally. They have to be in writing, in order to be enforced. So rather than leave critical issues open, let's put them all down on paper and get everyone to sign off on the terms of the relationship.

Erin Austin: Nope. Speaking of relationships, let's put the legal definition of contract aside and just look at the plain English definition of agreement. Harmony in opinion or feeling. And when we think about the agreement as being in a harmony with our clients or with our contractors, hopefully that puts a, a more focus on the upside of contracts.

Erin Austin: You know, my goal is to get you to love contracts and to stop being in fear of the possibility that the contracts will somehow kill your deal. That the lawyers will come in at the last second. Bring in some contracts or some comments that will scare off the client. The fact is, it is very rare, extremely rare for the introduction of a contract or, the, having a few reasonable comments to kill a deal.

Erin Austin: I could tell you I've been doing this for a very, very long time, and I can say there's only one instance. A single instance I can think of where a client said absolutely no de comments, and let's just say it was one of the biggest companies in the world. And so anything less than that, , I'm just gonna, you're okay,

Erin Austin: So in a world where intellectual property is king, You cannot have a no contracts attitude. You cannot be afraid of negotiating. You know that attitude is not only outdated, but it is also counterproductive to building a business that is sustainable, scalable, and hopefully someday saleable. And that is for both parties.

Erin Austin: Protection contracts are not unilateral as they shouldn't be. If they're properly drafted, they spell out the terms of the relationship. And relationships are two ways, and there are benefits to both parties. So if you look at contracts in terms. Harmony in terms of relationship building. Then you will also see that they are the necessary components of building a business that you can grow and, not just in terms of revenue, but also in terms of.

Erin Austin: So to get you to love your, love, your contracts. I have seven reasons here to love your contracts and, you know, there's definitely more of them. But, these are in the, agreement, harmony, area. First, the contract helps to build trust and give peace of mind. Contracts show your clients that you care about their business, that you care about your business, that you're taking this transaction seriously, that you are a professional who can be trusted with their proprietary information.

Erin Austin: They may be sharing confidential information with you that you'll deliver on your promises. And the smaller that you are, the more important that the gravity of having written contracts is when working with corporate clients. If you take your, if you want them to take you seriously, then you need to take yourself seriously.

Erin Austin: And contracts is an indicator of that. Number two, a contract allows you to manage expectations. A written contract sets forth the terms between the parties with regards to their duties and responsibilities. It documents the expectations of each party and the terms that have been agreed to after what may have been extended discussions.

Erin Austin: You know, if you., salespeople who are different than people who are doing delivery, then there will always be a gap in there somewhere, and that gap is filled in with your contracts. You know, I am a huge fan of having operational terms and conditions, either attached to your version of a sales agreement.

Erin Austin: or, of a services agreement or if you're using your client's version of the services agreement to adding those operation, operational terms and conditions. So it brings clarity so the client understands this is how the business works, this is how delivery works, what the milestones will be, how acceptance, and rejection will happen.

Erin Austin: What will happen if something is rejected? you know, what to do if there's a dispute. All these things, are captured in your written agreement. And so that, that, makes sure that everyone's on the same page, managing those expectations. Number three, a contract helps you get paid. It tells the client the circumstances for payment.

Erin Austin: You know, when they become due, how things are payable. Will it be invoices or. Will things be automatically, you know, deducted from a credit card on file, what the milestones will be, how much will be due at every milestone? And of course, if there is a dispute, then having a written contract gives you a much cleaner path to enforcement.

Erin Austin: Yes, oral contract. Are enforceable, but if you don't have something in writing, then we get to that he said, she said in court, which you may lose. So make sure that you have that written agreement so that you can,the court can clearly see what the intent of the parties was by what's in writing as opposed to having to interpret the different memories of, of the two parties.

Erin Austin: and in terms of creating long-term, profit and building a business that can someday be, saleable recurring revenue and revenue visibility are key drivers of value in the event of an an eventual exit. And you need to have signed contracts for that. So in order to have, something where your client.

Erin Austin: Obligated to continue paying you on a recurring basis that would be recurring revenue. You would do that through a signed agreement that, permits you to continue to charge a credit card, like in the case of a subscription or a membership. and, for that and having multiple, agreements that may not be recurring revenue but are long-term engagements where you have revenue visibility.

Erin Austin: Those are things that would most typically be documented in a assigned agreement so that you can see. Okay. I. These three projects, they are continuing for the next 18 months. And this is the, the, revenue that they'll bring in that allows you to see in the future what will be coming in and make plans accordingly, whether it's in expenses or investments in in in team.

Erin Austin: Team. And and in the event that someone is looking at your business to purchase it, they'll be looking at that for that revenue visibility as. Number four. A contract helps to minimize disputes or problems. Of course, a contract can't guarantee that there'll be no disputes or problems. You know, in the real world, despite our best efforts, sometimes things go wrong and disputes arise with our clients.

Erin Austin: However, a properly drafted agreement will anticipate common. and provide a process for minimizing the fallout. It may be through, some sort of dispute avoidance process, like an internal escalation, system where if the people on the operations level aren't able to resolve something, that it goes up to their manager.

Erin Austin: So something where decision makers can head things off at the past before it escalates, any further. in the event it does escalate, to, you know, put to, you know, having to get lawyers involved. Then you can include mediation provisions. So at least we don't get courts involved, and so we wanna make sure that we are including provisions that.

Erin Austin: Will minimize the fallout of any misunderstandings. So that is something that a contract helps you with and and sometimes, you know, the contract can just prevent. Issues from arising at all. So if there's a question, for instance, about how a client can use a deliverable, well that should be spelled out in the agreement.

Erin Austin: Can you use it with subsidiaries? Can you make copies of it and, and use it with other team members that weren't our part of an original training? Those things that can be causes, of disputes in the future can be headed off at the path with a, with a, with a contract. Number five, a contract limits liability, things like disclaimers, indemnification, other methods of limiting liability.

Erin Austin: These must be agreed to in writing. So if despite our best efforts, a dispute does escalate to the point that it needs to be, handled through legal. Having disclaimers, having indemnification, having liability caps. These are all things that can limit the amount of exposure that you have, what your legal exposure is.

Erin Austin: And and if you, you know, we're all, I'm sure have seen in contracts where you have this type of limitation of liability language. Not only is it in writing, but it. Be in all caps, and by, by all caps, I mean the letter caps, the letters. because it is so important that, in order to have a disclaimer thing or a limitation of liability enforced by court, they wanna make sure that there's no way that anyone missed it.

Erin Austin: So, so that's why you'll see those things in all caps in your. Number six, A contract protects confidential information, so a contract defines what confidential information is it. Confidential information may or may not be just everything that we think is confidential. Just because we think it, is confidential, doesn't mean that it is appropriately protected through confidential, confidentiality provisions or an nda.

Erin Austin: And so we have these, agreements that will make it really explicit what is included in confidential information, what the exclusions are to confidential information. , what are the circumstances where disclosure would be appropriate, such as when we're working with, you know, financial advisors or legal advisors.

Erin Austin: Um, what are the restrictions on the use? I mean, we share it because we're going to use it, but we do wanna have clear boundaries about how it can be used, and then remedies for what happens when there is some sort of breach. these are things that we want to have in writing. . And then last, but most definitely not least, a contract protects your intellectual property.

Erin Austin: You know, intellectual property rights is one of the fundamental terms that will be addressed in your services agreements, and intellectual property ownership. It can be confusing. The rules regarding ownership are not intuitive and can be the opposite of what you think or what your client thinks, is or, or are the ownership rules in the absence of assigned agreement.

Erin Austin: You know, for instance, you know, your clients may believe they fully own a deliverable because they pay for it. And likewise, when you hire someone and you're the client and you receive a deliverable and you've paid for it, what rights do you have in that deliverable? So these are the things that signed agreements.

Erin Austin: Answer and in the absence of assigned agreement, you know, you might be unpleasantly surprised by what the default ownership rules are under intellectual property laws. So your expertise, your most valuable asset. , everything you do in your work has potential value as intellectual property. We wanna make sure you protect those assets.

Erin Austin: You need to protect them if you wanna monetize them, and therefore scale your business. And the value depends on clear ownership. So muddled ownership is almost as bad as no ownership. That's wh why contracts are so important. . You know, when you're working with a contractor or when you're providing services with a client, when you are an expert, both of those circumstances, intellectual property is being created and the default rules will apply unless we make, clear how we want ownership, use restrictions, to apply to those that, to those deliverable.

Erin Austin: we need to have those things set forth in our agreements. So not having agreements, does put you at risk of losing control of your expertise, of your valuable intellectual property. if you don't have those things clarified in writing in your contracts. So that brings us to the vital role of services agreements.

Erin Austin: Now, if you've worked with corporations as long as I have, then you have had a front row seat to the growth in the use of complex services agreements and the proliferation of the use of NDAs. You know, I still have a current client, B2B Professional Services company. I worked with them for about a decade, and when I first started working with them, the vast majority of their clients would just sign the quote.

Erin Austin: The client say, Hey, I need this service. And you know, my client would say, okay, we can do that. Here's the quote, and there will be a signature line on there. And their client would just sign it and send it back. Could you imagine that happening today? You know,, today the vast majority of their clients requires signature of the long form master services agreements.

Erin Austin: Likewise, you know, assigned N D A is pretty much, you know, required. Meet with people these days, like I can't even talk to you until you've signed an nda, and so that means you're signing agreements, you know, long before there's any revenue attached to it. You know, at least a dozen NDAs pass over my desk in any given month.

Erin Austin: And the reason for this, as of 2020, 90% of all assets in the s and p 500 are now intangible. 90% of the value in the s and p 500 are trivial to intangible assets that. Means they need these contracts to protect that the executives that you're working with, their job is to maximize and protect that value.

Erin Austin: That's why we are seeing 100 page MSAs and that ubiquitous n d a that, is required just to, to get on the phone. Four, our protect our most valuable assets, our expertise, our intellectual property to protect our clients' most valuable assets, their proprietary, , assets, their intellectual property in order to compete.

Erin Austin: In this 21st century environment, you have to have a baseline understanding and a comfort. With B2B professional services agreements, you have to have a baseline understanding and comfort with intellectual property rights that these agreements are specifically intended to protect. That is, again, the reason for the rise of these MSAs.

Erin Austin: The reason for the rise of the, of the nda. Is because of the increased value of intellectual property assets. So we cannot stick our heads in the sand about these anymore. I know that. a lot of people have spent their careers, without really understanding, intellectual property or services agreement.

Erin Austin: But if we want to build businesses that are sustainable, scalable, and hopefully someday saleable. We have to get in the practice of, caring for and feeding our expertise, which is our intellectual property. And that will be the key difference between building, you know, a short term income generator business, which is just kind of selling your time without creating assets versus one that is sustainable and wealth building.

Erin Austin: So in 2023, that is my mission, is to provide content and products for you in a way that is usable and implementable to make you. Feel confident about services, agreements, and about intellectual property. We're going to talk about the essential terms that you need, in your services agreements. We're gonna talk about how to negotiate agreements when you're presented one by a client or when you're presented one by a co, a subcontractor or a vendor, or a supplier, like a software company.

Erin Austin: and, , and the best practices about how to use contracts to move your business along the hourly to exit journey. I have a lot of, cool ideas about how they fit in along the entire customer journey, you know, not just at the sales end, but also the delivery. and what happens after delivery.

Erin Austin: Contracts play an important role on the entire lifecycle, that entire client lifecycle and customer journey. And so we're gonna talk about that as well. So looking forward to having you along for the ride, as always, a hundred percent. open to any, questions that you have. as I do more of these solo episodes, I actually want you to tell me, tell me what your questions are, tell me what your concerns are, and I will be able to address them.

Erin Austin: So, until then, be well.