Please Wait a Moment
X
30 November 2022 ·

A downturn - the right time to invest in better contracting

 

Topics:

Inflation. Investment collapse. Recession. Layoffs. For a blessed generation of knowledge workers entering the tech-enabled economy, such events have been mainly abstract concepts or contingencies to plan for, or historical conditions to learn from, rather than a daily reality.  But in 2022, nothing is certain anymore—not even the modernization of contracts and legal processes that recently swept in an endless wave of investors’ overconfidence, optimism, and hype.

No need to rehash all the startling figures, but one year’s dropoff of 53 percent in venture funding between the third quarter of 2022 and Q3 of 2021, according to Crunchbase,1 tells its own story. In the wider tech ecosystem, layoffs have swiftly arrived across the board, from startups right up to mega-cap2 titans like Stripe and Meta (both San Francisco area tech corporations.)3

Nevertheless, this downturn is ripe for investing in better contracting processes.  Businesses still need to sign contracts, perhaps more than ever. Contracts are the lenses through which we recognize revenue.  And, as we all know, without contracts we close no deals, hire no employees, and strike no partnerships. If growth has gotten harder, then growth with contracts that add delay and friction is verging on the impossible.

We address all challenges with contracts -- from making templates readable, well-designed,4 and accessible -- to creating automated workflows that allow for contracts to be agreed upon scale review (executing and managing routine contracts at scale). But,  instead of competing with other legal or legally-adjacent processes for attention, contract investment must also fight it out with every other business department.

So, the big question becomes, with increasing pressure to manage the contracting process more quickly and with everyone looking for efficiencies during this downturn time, how do we justify investing time, people, and money in contracts?

Furthermore, when it comes down to Contract Lifecycle Management (CLM) versus Customer Relationship Management (CRM), how do legal and business teams answer the big question in this huge and complex macroeconomic climate?  

Understanding contracts’ impact

We all know that contracts affect lots of different teams in business. But in practice, most stakeholders only get a glimpse of the end-to-end process—generating the first draft, doing a quick review, or moving quickly to use an eSignature platform5 to sign something.

This means that an intensely manual process, often involving 15-20 individual steps, can go mostly unseen and escape the glare of operations teams who would never usually stand for something so inefficient that it affects revenue.

Design for signing – two pain points

To get down to the nitty gritty, two pain points of poor contracting can overly impact revenue collection, ensuing growth rates, and bottom lines.

The first pain point is the contract template itself. If it’s a sales contract, ask yourself, is everything about the contract written and designed to surface value as quickly as possible? This includes formatting, design, and language, as well as all commercial advertising issues.

If the value being offered by the proposed partnership is not obvious right from the beginning, the potential for risk and delay increases. In such a situation, each side might only surface key details of the value exchange, but when the contract reaches procurement, redlines often start flying into the data. When it comes to value gained, late-stage misalignment is a recipe for the delay in the deal cycle, painful in any business, but deadly in this economic climate.

Automate the admin scale6

The second pain point is the process itself. Contracts must be agreed upon at scale, quickly but efficiently, if a business is to grow.  At the same time, contracts can’t just be waved through the contracting process without guardrails. The potential consequences of a binding agreement are just too great.

Keep this in mind:  the job of assessing that risk7 must land somewhere.  If technology and automation are off the table, then that landing zone is invariably the legal team. Of all the stakeholders touched by contracts, lawyers are almost always the best suited to assess contract terms and evaluate risk. If your business is successful, then your contract volumes should increase from month to month—eventually maxing out your lawyer.

When that happens, you might need to convince your business to hire another lawyer—never cheap and getting more expensive by the day. Best of luck convincing the business that one more lawyer is more urgent than two more salespeople or two more engineers.

Unarguable data

As with most business processes, if you have reliable data, you will find it hard to resist an argument for investing in contracts. At my organization, Funnel, the previous contract process involved 17 separate steps for people in the commercial team, and the legal team had to review 100% of the contracts.

We reduced that percentage to 11 or 12% by implementing an automated contract workflow through Juro that allows sales teams to self-serve in completing the key commercial details.  The remaining workflow is generated from watertight templates. This strategy is great for the legal team because they can focus on high-value strategic work rather than routine contracts, and the admin can still scale, without adding headcount.

It’s hard to imagine how you could justify rolling back this process in search of some short-term cash savings. The negative impact due to time wasted, deals delayed or lost, and headcount needed—just to push paper around—would vastly outweigh any savings.

If you hire one full-time, qualified attorney just to handle contracts, it’s hard to imagine the fully loaded cost being less than $100,000. Automating that pain with better processes, for our company, seemed like a no-brainer when the economy was buoyant - now, it’s irresistible.

Similarly, post-signature, the cost of missing key obligations8 in your contracts can be eye-watering. Juro customers often use the platform for storing vendor contracts and tracking key obligations.  One customer came on board after being hit by a $1.2 million auto-renewal clause that hadn’t been tracked. The cost of implementing contract controls and defined workflows pale in comparison.

From nice-to-have to must-have

To recap: if you want to grow, you’re going to need to sign more contracts with your customers, partners, and employees; and if you want to sign more contracts, the automated admin scale must land somewhere. It can land an expensive headcount, or it can be addressed cheaply through template design and automation.

Finally, the question is not “can you afford to invest in contracting?” But rather, with lots of headcount off the table, can you afford not to?

END NOTES

  1. Global VC Pullback Is Dramatic In Q3 2022  Crunchbase News Oct 6, 2022. Gené Teare.
  2. mega-cap means (broadly defined) U.S. $200 billion or more market value
  3. Layoff tracker: Mass layoffs by tech companies big and small hit the Bay Area   ABC7 News Nov 14, 2022. Pamela Parker and Lindsey Feingold
  4. What is legal design in 2023?  Juro article, Nov 21, 2022
  5. Electronic signature platform definition -- See Investopedia article
  6. The Admin Scale tool - definition: 
  7. What is risk appetite? Juro article, Nov 25, 2022
  8. What is a contractual obligation, Juro article, Oct 17, 2022

ABOUT FUNNEL

Funnel is a SaaS platform that helps marketing teams become more data-driven. Funnel is headquartered in Stockholm, with offices in Boston, and in October 2021 raised $66m in pre-IPO financing.

About Juro

Juro is the all-in-one contract automation platform that enables all teams to streamline the creation, execution and management of routine contracts at scale, powering more than 700,000 contracts for 6000+ companies in 85+ countries.

Authors
Victoria Sörving & Richard Mabey
Related topics

More resources