Technology moves faster than any contract can follow. Three real-life examples of why you have to renegotiate your contracts.

I’m an entrepreneur and an engineer, and I’m proud of it. I love doing things, and I hate administering things. I’m a pragmatist moving fast, not a perfectionist discussing details multiple times. That’s why lawyers are my natural enemies.

Yet even as an entrepreneur, I have to deal with lawyers regularly. At Yonder, the company I co-founded, we’re selling B2B SaaS. So naturally, we have lengthy, complicated, and sometimes messy contracts with our customers.

As time passes, things don’t get easier. Just last week, I spent a whole hour explaining the legacy elements of a 10-year contract that was set up 5 years ago to the procurement team of one of our long-time customers.

As great as long-term contracts are for entrepreneurs, the world doesn’t stop changing just because a contract describes a reality long past. And as much as you like to keep the contractual relationship running for as long as possible, sometimes there is no way around renegotiating your old contracts.

Let’s look into some real-life examples that make contract renegotiation necessary.

Reason 1: Change of Team

If you’re selling to enterprise customers, you’re rarely selling your service to the entire organization from day one. The typical approach is land-and-expand; you start selling to one department or team within the organization, and try to upsell to further departments at a later stage.

Imagine you’ve sold your product to an airline’s compliance department, rolling it out across the entire flight crew a few years later. When that happens, it’s not just the point of contact that needs updating in the contract: The scope of work, the SLAs, and several other provisions all come back to the negotiating table. Try convincing flight operations that the original scope still works for them when it was drafted by a compliance team with little understanding of what flight ops actually do.

The reverse happens just as often. With another customer, we closed the deal with flight operations first, only to expand into ground operations at a later stage. Same discussions, different direction.

And if that wouldn’t be enough, you can even experience a change of key persons within the same department: If a new head of compliance joins your customer’s organization, he might have completely different ideas about how to use your product (or not).

Reason 2: Change of Financial Situation

We founded Yonder in 2015, a time when the upturn was still in full swing. Nobody knew what a Coronavirus was, and nobody imagined there would be a full-blown war in Europe or that the Strait of Hormuz would ever be closed.

All three events had a profound effect on aviation, one of our core markets. Do you think you can defend your pre-COVID pricing into the second half of the 2020s? Do you think the survival of your airline customers is god-given when jet fuel prices double?

Sometimes, reality is ugly. Sometimes, you have the choice of losing a contract due to changes in the macroeconomic situation, or of renegotiating a contract before it comes due to save at least some of your revenue.

It’s not just your customers who feel the economic pressure and want to renegotiate. It’s the same for you: Server costs have increased dramatically, foreign exchange rates have changed materially, just to name a few reasons for renegotiation.

Reason 3: Change of Technology

Last week, I didn’t just explain the legacy elements of a 10-year contract that was set up 5 years ago to a long-time customer; I also reviewed the contract template for one of our prospects in the final stage before contract signature.

That contract had a whole set of clauses on compliance with the EU AI Act.

I grinned. Technology has changed so dramatically in those five years since we set up that 10-year contract I mentioned above that even the EU had enough time to enact new technology regulation. 

Conclusion

I have to finish with a rant on lawyers again. Lawyers are perfectionists, and they want to define every little detail in verbose text. When they have done so, they need their peers and superiors to review it. And how could you review a contract without adding your own two cents? That’s why reviews can take weeks or even months before you can finally sign the contract.

Within those weeks or months, your SaaS product might already have improved from what is described in the statement of work section in the contract.

Fast-forward five or even ten years. The contract will no longer describe your current product or the current technology regulations in place.

What do we learn from this? Paper is patient. You can write whatever you want into the statement of work section of a B2B SaaS contract; technology and your product will change faster than you can update any contract.

And should you ever get into an agreement on a clause in a well-aged contract: Sit back, grin, and ask if the customer wants you to redeploy that software version from 2021 to be in line with the signed contract.