I'm a new company providing sass. A company wants to buy exclusive rights to it.

I'm a part-time web-developer with zero business experience. I'm not in Ireland, but I don't think that matters much.


I've been in on off talks with a company for around eight months, and they now want to buy exclusive rights to use my web software, in their particular sector of the market. They also want me to commit six months to working with them to customise it to their liking, and this would mean two weeks in another city each month. (I'm fine with that, I like the city.)


Their sector has always been my main target and my goal was to make this software an industry requirement and be able to sell it at an affordable price. By giving them exclusivity, I am shutting out literally hundreds of potential clients, though few are as large as this one.


I spent four years developing this in my free time and quit my job last summer to go all in on this, get the software finished, and then start selling. I've burnt through most of my savings at this point in doing so.

This business is reputable, and I know one of the owners from a long time ago. They mentioned an upfront payment and a monthly.. No figures were discussed but I made it clear, in a friendly and in a state of shock way, that the opportunity costs involved in this would make it very expensive. They thankfully seem totally aware of this and said they already discussed it with the other owners.


How do I value such a thing? I already had $1k/month in mind for what I'd be charging them.. I'm leaning towards five figures a month here, but my mind gets severely frazzled when I try to think about it. I can still sell to another large sector in the market so that takes down the potential from this company quite a lot.

Any advice appreciated.

Deleted User

Deleted User wrote: »

I'm a part-time web-developer with zero business experience. I'm not in Ireland, but I don't think that matters much.


I've been in on off talks with a company for around eight months, and they now want to buy exclusive rights to use my web software, in their particular sector of the market. They also want me to commit six months to working with them to customise it to their liking, and this would mean two weeks in another city each month. (I'm fine with that, I like the city.)


Their sector has always been my main target and my goal was to make this software an industry requirement and be able to sell it at an affordable price. By giving them exclusivity, I am shutting out literally hundreds of potential clients, though few are as large as this one.


I spent four years developing this in my free time and quit my job last summer to go all in on this, get the software finished, and then start selling. I've burnt through most of my savings at this point in doing so.

This business is reputable, and I know one of the owners from a long time ago. They mentioned an upfront payment and a monthly.. No figures were discussed but I made it clear, in a friendly and in a state of shock way, that the opportunity costs involved in this would make it very expensive. They thankfully seem totally aware of this and said they already discussed it with the other owners.


How do I value such a thing? I already had $1k/month in mind for what I'd be charging them.. I'm leaning towards five figures a month here, but my mind gets severely frazzled when I try to think about it. I can still sell to another large sector in the market so that takes down the potential from this company quite a lot.

Any advice appreciated.

You might want to make a detailed calculation of what you can make by not giving out exclusivity to these guys per year and going to the whole market.

Try and figure out also how much this is worth to this company per year. Probably if they are established they are able to generate more value out of it then you.

With these two numbers you are going to know what amount you are happy with charging them upfront and then over the six month period to make it worth your while (also considering your only dealing with one company instead of loads of clients which makes your life easier).
With their number you have to put yourself in their shoes and figure out what is an attractive price for them that makes this a profitable deal.

If you can also sell this to other sectors later then thats also a consideration and an upside for you.

You being comfortable with the decision you make here is going to come down to the amount of work you doing forecasting numbers and spreadsheets. Sit down for a few hours and calculate everything, then things will become a lot clearer to you.

amcalester

Can you have 2 fees?

One for regular usage and another that guarantees exclusivity.

Deleted User

Deleted User wrote: »

You might want to make a detailed calculation of what you can make by not giving out exclusivity to these guys per year and going to the whole market.

Try and figure out also how much this is worth to this company per year. Probably if they are established they are able to generate more value out of it then you.

With these two numbers you are going to know what amount you are happy with charging them upfront and then over the six month period to make it worth your while (also considering your only dealing with one company instead of loads of clients which makes your life easier).
With their number you have to put yourself in their shoes and figure out what is an attractive price for them that makes this a profitable deal.

If you can also sell this to other sectors later then thats also a consideration and an upside for you.

You being comfortable with the decision you make here is going to come down to the amount of work you doing forecasting numbers and spreadsheets. Sit down for a few hours and calculate everything, then things will become a lot clearer to you.

I'm going to work on that calculation today. I guess exclusivity would be a percentage of that since as you say, I'd be dealing with one company and I'd be getting that income straight away.

While their business is very successful and I know for a fact is expanding, I'm not fully convinced they can afford what I would consider a fair price to pay for exclusivity. It's one software service vs. extra employees who would generate direct income, whereas my service can't be directly tied to a large increase in revenue. Or maybe it can. The way they spoke implied that they thought this would become central to their business.

amcalester wrote: »

Can you have 2 fees?

One for regular usage and another that guarantees exclusivity.

Yeah, I think I need a few figures.

Monthly. Exclusivity. Initial six months work. Expenses being in another city.

Soulsun

700 per day for 6 month contract
15k upfront lump

Soulsun

Soulsun wrote: »

700 per day for 6 month contract
15k upfront lump

What about ongoing monthly to be the only company using it? I'm only interested in the monthly stuff really.

listermint

For me you have developed something clearly valuable that your original intention was to set out and develop for the wider sector.

So no I wouldn't be offering exclusivity.

What you could offer them is a fixed period of time where you can develop it more tailored for their needs at a monthly rate. What this will allow you do is to customise it with direct input from an industry customer thus enhancing the offering for a future wider as audience. Say 1 year or 18 months. After which you are free to continue to selling it.

I would not be handing over something such as this as SAAS based industry specific software can be a real money spinner.

If this does not suit them then continue to offer your standard rate and go find more customers.


I've seen this type of start up grow into multiple million dollar businesses. And it's easily sellable given the right sales team.

If you believe in it you should probably start seeking out a business and definitely sales orientated partner

corcaigh1

Deleted User wrote: »

I'm a part-time web-developer with zero business experience. I'm not in Ireland, but I don't think that matters much.


I've been in on off talks with a company for around eight months, and they now want to buy exclusive rights to use my web software, in their particular sector of the market. They also want me to commit six months to working with them to customise it to their liking, and this would mean two weeks in another city each month. (I'm fine with that, I like the city.)


Their sector has always been my main target and my goal was to make this software an industry requirement and be able to sell it at an affordable price. By giving them exclusivity, I am shutting out literally hundreds of potential clients, though few are as large as this one.


I spent four years developing this in my free time and quit my job last summer to go all in on this, get the software finished, and then start selling. I've burnt through most of my savings at this point in doing so.

This business is reputable, and I know one of the owners from a long time ago. They mentioned an upfront payment and a monthly.. No figures were discussed but I made it clear, in a friendly and in a state of shock way, that the opportunity costs involved in this would make it very expensive. They thankfully seem totally aware of this and said they already discussed it with the other owners.


How do I value such a thing? I already had $1k/month in mind for what I'd be charging them.. I'm leaning towards five figures a month here, but my mind gets severely frazzled when I try to think about it. I can still sell to another large sector in the market so that takes down the potential from this company quite a lot.

Any advice appreciated.

You would be mad to hand over exclusive rights unless there is an offer in place that you can retire on, don't do it. Your product could make a lot of money going forward if marketed well. You built the product and its SAAS so charge them based on that model imo...

gargargar

First off, congratulations! Sounds like you are off to a great start.

In relation to your question, if you offer them exclusivity you will more or less become a contractor to them. There may be little interest if you want to sell the business later.

Maybe you can fork the code from the base and agree exclusivity on the features that you build together for the next six months? That gives them some comfort that other competitors would not get the benefit of their suggestions, but you gain a valuable client. If it was me I would look to come to some accommodation.

listermint

gargargar wrote: »

First off, congratulations! Sounds like you are off to a great start.

In relation to your question, if you offer them exclusivity you will more or less become a contractor to them. There may be little interest if you want to sell the business later.

Maybe you can fork the code from the base and agree exclusivity on the features that you build together for the next six months? That gives them some comfort that other competitors would not get the benefit of their suggestions, but you gain a valuable client. If it was me I would look to come to some accommodation.

I was thinking the same myself solid suggestion.


One thing to remember OP and oft forgotten, Make sure you are designing this with an eye on Scale, and most definitely with a Mobile first approach. Whilst it may not appear like it today that the end consumer would even need the solution off desk. They will quickly require much of the functionality in mobile format.

I say Scale as alot of developers can get caught out with the singular company mindset. You should be scoping Single large shared databases for a multi jurisdiction customer base and the code should match that.

Also consider API access as part of scale requirements.

Raging_Ninja

Soulsun wrote: »

700 per day for 6 month contract
15k upfront lump

Lol talk about selling off a potentially huge business for peanuts.

Some great replies here, everyone. I'll write up a proper reply to each one tomorrow.

I'm still having some trouble working through any thought process on this, but thanks for some very good advice so far.

Deleted User

Deleted User wrote: »

Some great replies here, everyone. I'll write up a proper reply to each one tomorrow.

But none of them have any idea about the numbers, so in reality they are guessing at what you need to do. Don't get confused with people advising you on what to do on your company who have no concept of the revenue or real market potential. Sure its all well meaning stuff, but its no way to value your company.
Someone telling you theres no way you should give away exclusivity when they know nothing about what your doing....theres simply no basis for it, other then emotion. Exclusivity may or may not be the most profitable route for you.

As I said the numbers are your friend here and that is the only place you'll find clarity on how to move forward and understand what your business is actually worth. If your not good on the numbers side of things hire someone to prepare them and then ask for their stone cold advice on the options.

boege

OP
I licence technology for a living. I am not legally qualified but do use legal advisers on the agreements I negotiate.

Your approach here is broadly as follows:

You first decision is to give exclusivity in a particular market area (normally called field of use) and the territory may be global (all markets) or restricted (only certain markets). A non-exclusive licence will limit the company investing in the product.

You second decision is how to value the work you have done. This is very tricky as there are many valuation models:
- total investment to date (look for a multiple of this back over the life of the product.)
- opportunity cost (how much could you make if you did it yourself)
- benchmark deals that are similar and have been published

A rule of thumb is to take 25% of the profit they make but the calculate this back to a royalty on net sales of all products sold. You can include a licence fee payment (a once off payment on signing of the deal) and you can include milestone payments. You also need to include annual minimum licence payments as well as termination clauses if they are not diligently commercializing the technology. You also need auditing rights built into the licence agreement, so that you can check the accuracy of their calculations.

Most of all the company needs to prepare and present you with a business plan showing sales forecasts they believe they can make, as this forms the basis of any licence agreement negotiation.

On software copyright licensing, my advice is front-load the deal (get more in the early years) as companies often develop out licensed software and then terminate the licence.

You also need a licencing expert to draft a good licence agreement - look up the Licensing Executive Society (I am not a member)

tookotook

Why not give them access to a private instance of the service?

And not only charge them for the service, but hosting, monitoring, and the headaches of maintaining two separate code bases.

What are the reasons they want exclusivity? If they are after your IP then let them acquire you for big bucks.

Small update, everyone.

I've offered them temporary exclusivity on a separate codebase, but with no payment for feature requests as I want everything I code to be a part of the general product. I said I'd give them timelines on things they require, and they can provide input, but I won't risk any IP issues by accepting money.

The exclusivity I've offered is country specific, which they asked for previously, and they must provide a list of companies I can't deal with. The price of temporary exclusivity will be based around whatever list they may provide.
I think the list of companies is very important since a non-competitor today could start a new service and become a competitor of theirs in the future, and I don't want to deal with that.


I sent that, and a starting figure for a base monthly fee, a few days ago and I haven't received a reply yet. I am feeling fairly optimistic about things moving forward, and I've really cut down on my exposure to legal risk.

If it falls through, or they've misjudged the value of the product so much that the deal can't happen on my end, I'm not particularly worried. I've been in contact with other businesses not in their sector and have sales meetings happening soon on that end anyways.

Deal still hasn't been done. They're basically mucking around and while I understand they're very busy at this time of year, it's taken a frankly ridiculous amount of time to meet them again, hammer out some more details, and finally get a list of companies in this country I can't deal with.

I gave them a price per month last week based on that and no replies. Not worried about that speed and am still hoping but will be crushed at blowing my life savings waiting on them if it doesn't work out. Rookie error trusting their enthusiasm but even rookies get deals done I hope.

tookotook

I don't know why you'd let them dictate who your customers are? What benefit is that to you. If I were you I'd take that list and try and attract those very people to your service. In any case I'd expect more than a rolling monthly contract that they can break at anytime. It needs to be an enterprise deal, on a yearly contract at the very least. Don't go creating them a private instance of your service without a long term commitment from them. It's not cheap and you'll need to maintain both codebases. Keep focused on the product increasing and communicating it's value.

tookotook

tookotook wrote: »

I don't know why you'd let them dictate who your customers are? What benefit is that to you. If I were you I'd take that list and try and attract those very people to your service. In any case I'd expect more than a rolling monthly contract that they can break at anytime. It needs to be an enterprise deal, on a yearly contract at the very least. Don't go creating them a private instance of your service without a long term commitment from them. It's not cheap and you'll need to maintain both codebases. Keep focused on the product increasing and communicating it's value.

I'll try to answer in the general order of your post.


By narrowing it down to their specific competitors, it leaves a lot of companies in this country that I can approach.

Basically, I want a deal like this that can set me up with a healthy revenue stream so I can hire a local salesperson to pursue those businesses while I try to network and establish a presence in nearby countries. Without a good revenue stream, I have to go back to work part-time and pursue businesses in my free-time.

The companies on their list are mostly in another city. I don't have the funds to really go after them since I've blown pretty much all my savings by now.

It will be something like a yearly contract or ideally two to three. Their customers will be using this software daily so it's not something they will be able to just drop. They'll become very invested in it very quickly as they want to hire people to create content on it.

It will be a private instance but that's not an issue. Server costs won't go over $100/month for them anyway and I'm fine with two codebases if it means a good deal.

I've lost motivation and dedication at the moment. Until I know what's happening with them, I feel stuck in limbo and it's really weighing on me. I mostly regret even starting this whole thing right now and just need something to happen to snap me out of this period. I was going to set up a new site with another guy with lots of connections in the restaurant business here but he broke his leg a few weeks ago.. I just feel like my life is on pause waiting on other people.

Raging_Ninja

If they are dragging their feet have you thought about telling them that you're eventually going to go to a general release regardless? Might shake then into making a decision regarding exclusivity. I've seen corporates drag out making a decision for years and who needs that when launching a business.

These delays in getting a decision are coming at a not-insignificant opportunity cost to your income stream.

jimmycrackcorm

Have you any idea of what the value is to them to get exclusivity? Also work out a professional cost base of they were to have to go out and get it developed themselves.

Bear in mind that competitors could also look at developing something equivalent.

Pussyhands

Mate, I wouldn't worry about the life savings being blown. You had a big company ask for exclusivity on a software so it's clearly great!

Give them a deadline of 2 weeks to schedule something to show they are interested.

modmuffin

Interesting thread

Seems like you need to bring them to a decision,i would suggest you let them know that othrr companies in their sectoe have expressed an interest in your sodtware, give them 30 days to make a decision at which point if they want to keep the option on your product they start to pay a retainer

Hi everyone, sorry I didn't reply. Basically try to ignore this topic when things aren't going how I'd like.. It's been a real headwreck.

They finally responded to my exclusivity quote. They said it was out of reach but they still want to use the service and had a lot of detail in the email, including flying me to their main office for a few days next week to get this all started.

I was expecting a counter-offer on the exclusivity so they're either done with that notion or are thinking I could lower it in person, which is a possibility. I'm happy with having it or not having it at this point.


Thanks again for the advice and comments. Looks like things are finally getting there.

Gloomtastic!

Deleted User wrote: »

Hi everyone, sorry I didn't reply. Basically try to ignore this topic when things aren't going how I'd like.. It's been a real headwreck.

They finally responded to my exclusivity quote. They said it was out of reach but they still want to use the service and had a lot of detail in the email, including flying me to their main office for a few days next week to get this all started.

I was expecting a counter-offer on the exclusivity so they're either done with that notion or are thinking I could lower it in person, which is a possibility. I'm happy with having it or not having it at this point.


Thanks again for the advice and comments. Looks like things are finally getting there.

They might be waiting till you're face to face before they start negotiating hence why they're flying you over. Prepare yourself for that. If they don't, then maybe you could bring the subject up while you are there. Prepare yourself for that as well.

The flights are booked and some final details have been ironed out on a call. Pretty excited.

This thread can be let finish if exclusivity doesn't happen. I'd be willing to take around 60% of what i proposed to them as that would let me focus on it full-time again and hire a salesperson for other segments of the market. Without it, I'll have to keep working full-time and delay that hire for a while.

sysprogrammer

Always thought you had the best username on boards. works even better as I browse text only.

Good Luck with the meeting, we are all looking forward to hearing about it.

Great achievement.

Well we had three days of intensely detailed meetings and we are now further from a deal than before.

Their request for a final phase of deployment would require a move to 100% uptime instead of 99.99% and the difference in complexity and cost is enormous for that. Under the currently agreed price structure, I could end up losing money. They also want to take payments via the services and while I can do that, it's more work and added liability.

One of them got me drunk to test the waters and called my offer of exclusivity "ridiculous" and made a counter-offer. So they want me to create a system to take in hundreds of thousands of dollars every month, and I host, secure, and be financially liable for it, AND make it exclusive for $5k/month, not even enough to hire a good programmer to help. I asked him to really think about what he had just said and he couldn't defend it.

Having sat through the meetings, I'm glad they turned down the offer I gave them. There's still hope but they're going to have to get very creative. Meanwhile, I'm moving on.

tookotook

Tell them you need 20k upfront to build those features, and for that, they will get exclusivity for a year. You will also bill them 5k monthly for the service.
I don't get the 100% uptime, there's no such thing. Investigate moving your app to Kubernetes, that will give you automated failover, scaling etc. out of the box. Then set up monitoring with Prometheus, and hook into a service like Pagerduty that will alert you to any failures.

It looks to me like they are messing you around.
Keep building your product.

Raging_Ninja

tookotook wrote: »

Tell them you need 20k upfront to build those features, and for that, they will get exclusivity for a year. You will also bill them 5k monthly for the service.
I don't get the 100% uptime, there's no such thing. Investigate moving your app to Kubernetes, that will give you automated failover, scaling etc. out of the box. Then set up monitoring with Prometheus, and hook into a service like Pagerduty that will alert you to any failures.

It looks to me like they are messing you around.
Keep building your product.

Christ, you're telling him to give his product away for practically nothing. It's even worse than the fella on page 1 who said to quote 700 per day and 15k up front.

It might be worth that if there was no exclusivity clause, so that the OP could at least get more customers on board and grow his business, but barely.

tookotook

Raging_Ninja wrote: »

Christ, you're telling him to give his product away for practically nothing. It's even worse than the fella on page 1 who said to quote 700 per day and 15k up front.

It might be worth that if there was no exclusivity clause so that the OP could at least get more customers on board and grow his business, but barely.

I don't see you coming up with any ideas.

Bottom line, OP needs to get paid upfront to build the features the client wants.
They also want exclusivity, and not across the board but a handful of companies they have identified. Get them to pay for the features by offering them the exclusivity for a year, OP can integrate the features into his product and go after companies that are not on the list.
By all means, he should get as much money as he can.