'Yellow pad' sessions for securing enterprise agreements faster

Have you found yourself feeling like a helpless bystander when your lawyer and a counterparty go tit for tat on seemingly unimportant 'gotcha' points while you watch the legal $ fees click over like an over-caffeinated gas station pump meter?

If you are tasked with securing large enterprise agreements that typically involve a comprehensive statement of work and professional services agreement, then I am sure you have. If you sell anything to large enterprise then you will eventually meet procurement and legal. Over two decades ago I was taught by world-class negotiators at EDS (Now HP Enterprise) how to avoid getting stuck in the final stages of the contract - It is called the 'Yellow pad' session.

The term comes from the yellow pad previously used by lawyers to record case notes - The color made the notes stand out from any other case files. In the enterprise sales context, it refers to a specific meeting where both sides meet to discuss key contract points at a high level, without getting caught up in language drafting.

The Yellow Pad process

Objective: To come to an agreement on key terms such that 'non-negotiables' can be surfaced early and points of compromise can get to an 'in principle' agreement before legal costs are incurred.

Timing: When you are down-selected to the shortlist and the counterparty wants to get to contract. Before you involve the lawyers you want to get the business stakeholders to agree on the core objectives/points. It is important to remember that for most organizations the lawyers are there for two things:

1) Ensure that the contract commits each party to intended obligations.

2) The risks for each party are recognized/minimized/mitigated

A common misconception is that lawyers are there to make decisions on whether a company assumes risk - Generally speaking this is incorrect. Lawyers are experts in risk identification and quantifying potential impact - This information is given to the business executives who decide whether or not to assume the risk. A good example is non-performance penalties: A customer may request 2X the contract value in the event of non-performance. The decision to do this or not is a business decision, not legal.

Forum/attendees: The meeting is convened between business/technical stakeholders from both sides - It is critical that no lawyers are involved, otherwise you get information asymmetry or it devolves into a contract drafting session.

Pre-requisites: The participants from your side should have a list of your standard terms with a plain-language explanation of why each term is important and any room for negotiation that you have.

You should also have a negotiation strategy laid out with gives/gets and your negotiation ranges for any variable like prices/payment terms etc.

The format: You should start at the top of your agreement (or theirs as the case may be) and work through each point as quickly as possible. When you get to an impasse (Eg. They want 'termination for convenience' and you can't give that), then you should explain your rationale and then put it in the parking lot for discussion at the end. It is important to maintain positive momentum in these sessions and for it to be experienced as a joint problem-solving exercise, rather than an adversarial negotiation.

Conclusion: At the end you will have some sticking points and if time allows you should address them unless you need to involve additional stakeholders.

The yellow pad session serves several purposes:

Relationship Building: It allows both sides to get to know each other better, establishing rapport and trust.

Issue Identification: You can identify and list key issues that need to be addressed in the formal agreement.

Idea Generation: It provides a platform for brainstorming solutions or alternative proposals.

Priority Setting: Both sides can gauge what is most important to each other, helping to set the agenda for formal negotiations.

Flexibility: The informal setting allows for greater flexibility in exploring options without the pressure of immediate commitment.

Risk Mitigation: By discussing openly, both sides can identify potential deal-breakers early on, saving time and effort.?

Issue identification is a biggie – I recall a negotiation with the U.S. Olympic Committee who wanted a huge discount.? In a nutshell, it went like this:

Them:? We need a 70% discount because we are the U.S. OC and therefore a very valuable customer.

Me:? I understand.? We would value being able to list you as a customer and there would certainly be some consideration available for a case study, press release, logo use etc.

Them:? Oh no.? We charge millions for the use of our logo, so you can’t have any of that.

Me:? I see.? I must be missing something – What is the value exchange here?? In return for a discount, what do we get?

Them:? Us as a customer.

Me:? The door is on the left.? Mind your head on the way out.

I really look forward to these sessions - They are an opportunity to collaborate and get creative around problem-solving. Done well, they dramatically reduce time in contract negotiations and unstick issues. I have found that when lawyers get caught on a sticking point I can go back to my customer counterpart and have them unstick it due to the good faith bargaining we had established during the Yellow Pad session.

A final thought: The very best enterprise sales professionals are those who are comfortable with their MSA/PSA etc and can have cogent conversations at the C-Level to gain agreement. It is a level of acumen required to be a multi-year multi-million dollar producer. The quickest way to do that is have your in-house counsel create a contract cheat sheet and educate the team on the whys and wherefores....