Frictionless Contracting - Otto Hanson

Made with speech-to-text software, so a few words may be off.

0:00You're listening to the Contract Heroes Podcast, your one-stop shop for all things contract management. And now here are your hosts, Marc and Pepe. Hello everybody, and welcome to another episode of the Contract Hero Podcast, and we have a good one right now. We have Otto Hanson. He is the CEO of TermScout, and we're still on the World CC Americas, and it's so great to have you on the show, Otto. Hey, thanks guys. Really excited to be here. So Otto, can you tell us a little bit about TermScout? Like what it's all about? Yeah. Uh, TermScout is all about making contracts simple and useful, and what we do essentially is, uh, really two things. We help buyers of services analyze incoming third-party contracts and make smarter, faster decisions about whether or not those contracts meet their requirements and how they compare to market. And for sellers of services, we do two things on that side of the house as well. First, we benchmark contracts.

1:03Uh, if you're s- if you're a seller, in particular software IT vendors, uh, we're big believers that your paper is the most fit-for-purpose instrument to do business on, and the fastest way to get the deal done is likely on your paper, but that's, that only works if your paper, if your contract is reasonable. So what we help sellers do is, one, benchmark their contracts against market and understand how do we compare to our competitors, how do we compare to other companies out there, how do we compare to negotiated contracts to what buyers are actually agreeing to. And we've got some really significant services in that respect to help people understand how they stack up. We use that to help companies make their contracts great, and once we've done that work and a company has a great contract, then it's all about proving that that contract is great to that company's customers, uh, so that they can convince those customers to sign that paper because they've done the work to make it reasonable and they've thought about the customer's needs and they've thought about how they're fitting into the marketplace. Yeah, and I, I think it's such a, a unique perspective that you're bringing to the market.

2:06You know, there's really nobody else out here that's, that's doing this for, for these organizations, especially, you know, on the, the certification side. And I, I think all of us in B2B, either in sales or just in this world, have, have gone through a process where they've tried to work with a vendor, but their, their contract was just very non-favorable to them. And, and we all know how much longer those can drag out if there's a redlining process that needs to happen and a back and forth. And you know, I, I think you're bringing to light here a lot of things to make, um, publishers see that, you know, there's a better way to do this. A- and making it favorable for your customers not only makes them happier, but it's gonna make them wanna stick around longer and, and want other people to, to do business with you as well. Yeah. I couldn't agree more. There is a, a, a real value to just getting relationships off on the right foot and showing customers that you're working hard to take care of them. Even if your contract maybe doesn't meet every single requirement for every single customer, it means a lot to customers that you put the work in to try, and that you didn't hand them a contract that when they opened it, their lawyer said, "Whoa.

3:13This is egregious. It's offensive." And that gets negotiations off on the wrong foot, to your good point, and, and often causes sort of equally egregious responses or counteroffers, right? And um, and that's what we're trying to avoid. Right, and I mean, especially with like SAS companies, they, they want to have a long-term relationship with their customers, and it's not good, like the first approach is having like a draconian contract, right? So this is like a very, very, very, very cool way, and I loved a term that, that you just said a couple of minutes ago. It's like how you can build a click and accept contract, right? So, so, so, so you can use reasonable terms, because maybe you- y- we, we talk a lot about auto- automation of processes, internal processes, but at the end, when you go to the substance, to what's inside the contracts, or what's like the manual of this commercial relationship, it all goes on, on the, on the clauses and the terms that, that, that you're agreeing with, with your counterparty. Yeah. There's no doubt about it, and we think the holy grail of contracting is frictionless contracting. Right. And we think what that looks like is what we call informed click accept.

4:25'Cause we have click accept contracting today. We do it every day when we open our iPhone and download a new app, and we blindly click accept somebody's terms and conditions. But businesses can't really do that. Right. Right? We have fiduciary duties and legal departments looking over our shoulders, and w- we have to be a lot more cautious. We have to read those contracts as businesses. And so at TermScout what we're trying to do is say, "Hey, how can we inform you? How can we ensure that you, you are getting what you need out of that, quickly, immediately, and confirm that it meets your requirements, confirm that it fits the market so that you can still click accept?" So it's adding that laye- layer of information, of transparency, to the contracting process so that software vendors can get to a place where business happens on a click accept basis, just like app vendors in the B2C space enjoy today. Yeah. And, and Otto, do you have, you know, maybe a high level kind of a case study on, on somebody that you've helped and, and what type of, um, benefit they've seen from, from working with your team? Yeah.

5:29A, a good case study I think is Freshworks. Uh, Freshworks is a large CRM vendor, and when they first started working with us probably two years ago, their con- we had reviewed their contract for them, and that gave it a less than favorable rating from the perspective of their customer. And they weren't happy with that, and they weren't happy seeing that there was market data to support that finding. So they went to work and started benchmarking their contract against other CRM vendors, against other top tech companies, and started to make changes to their contract to make it now one of the most customer-friendly contracts in TermScout's platform, and the most customer-friendly contract among all CRMs on TermScout's platform. So they did the work to make their contract really, really reasonable. Then what we did was we certified it. We certify it as Customer favorable, that's a certification that we offer to elite contracts, contracts, vendor contracts that truly are exceptionally good for customers.

6:28And so we, we certified it as such, and then we published a lot of data sup- showing Freshworks' customers why we were able to certify it. Well, because it has a secondary cap on liability covering data security claims, for example, something that only 3% of vendors offer. Uh, it has f- favorable liability provisions and so on and so forth. We have rich, deep data on these contracts that we review and certify, and so we publish that information. We can show Freshworks customers that their contract is in the top, I can't remember exactly what it is, 6 or 7% of all vendor contracts we've ever, we've ever reviewed. So we publish that information, and Freshworks' sales team is able to point to that when they're closing deals with their customers. So when the customer of Freshworks says, "Hey, we're so excited to work with you. Here's our contract," their sales people come back and say, "We're really sorry, but we've actually done all, a lot of work to make our contract reasonable and fair to you. Here's all the market data.

7:24Here's the third-party analysis to support it. And guess what? Our contract also happens to be the one that's fit for purpose for this transaction because- Mm... it covers all the things that we as the vendor need it to cover for this particular type of transaction." So long story short, fast-forward to today, Freshworks has observed between 30 and 40% reductions in the number of counterparties that either push customer paper on the vendor or redline Freshworks' paper. It's a phenomenal success story. It really is. You know, it's, it, it, it's one of the easiest, lowest hanging fruit solutions on the market to reduce, uh, negotiations on the sell side of the house. Yeah, and, uh, you know, I think it's great. And, and like I said, it's so, so unique and such an interesting, um... I dunno if it's perspective or the way that the data is gathered. Uh, it's, again, it's just something that nobody else is really doing right now. And, you know, I, I have to ask, how, how did you get into this space? I mean, where did the idea to start this type of- What's the story?

8:22... venture? Yeah. Yeah. Yeah, exactly. Well, the story is I was working as a corporate attorney in a law firm in Denver, and a client of mine came to me and said, "Otto, I want you to make our contract as aggressive as humanly possible." "I want you to gouge our customer's eyes out." It was a B2C app. And I said, "Why? Why would you wanna do that?" And he said, "Well, we just looked at the data, and we realized that no one ever actually reads the thing. You know, they don't actually scroll down. We can see that they're not reading it, but they click accept every time." So he said, "So why wouldn't we make it, if everyone's just gonna mindlessly and blindly accept our contract, why wouldn't we make it we win, they lose?" And he was right. That was, that is the rational thing to do in that scenario. I couldn't think of a rational response other than it didn't really feel very good. Like, it felt a bit amoral. Um, and then when I zoomed out and looked at, I was doing a lot of B2B transactions in the law firm, and when I started to look at the software licensing deals I was doing in the B2B space, what I realized is the same thing is happening with businesses as well.

9:27Maybe not quite as egregious as that, but the absence of market data, the absence of an authority or a shared understanding what's market, incentivizes that type of opportunism that I saw in that one client. And I started to zoom out and say, "Wow, the world we live in today is one where these information asymmetries and this lack of market data are incenting so much opportunism that most of the negotiations I'm doing and charging quite a bit of money for are the result of those two things." And it seemed obvious to me that there was a way to introduce market data and transparency into the contracting process and what the world needed. What I was googling and searching and hoping I would find was a neutral independent arbiter of contracts, someone who could sit in the middle of contracting transactions and say, "This is what's market. This is how this contract compares to market. I don't have a horse in this race. We're objective and we're neutral, but this, these are the facts about this particular contract and how it stacks up." Mm-hmm, mm-hmm.

10:25And, and how do you see what TermScout is doing integrating or working with, you know, all the CLM vendors that, that are here at the show? We wanna work with CLMs. Uh, we want to provide our offerings, so we're, we're releasing our first AI only contract review product that will do some really unique things that no one else can do in the market to date. Uh, we're releasing that in January. Okay. It's a perfect possible solution for any CLM vendor that is interested in piping in third-party AI capabilities into their platform, for example, in an app or marketplace type environment. Uh, we are, uh, you know, we don't wanna be a CLM. We, we don't touch workflow. We don't touch repository. Like, those are, those are big pearly problems that we, uh, we're, uh, not well-equipped to solve and don't wanna solve. But we, you know, the things that we solve, we solve really well. We're a point solution, and we would love to work with CLMs and offer that solution to CLM users through those platforms. That's awesome.

11:25And can you tell us a little bit on, uh, what are you doing with the World CC, uh, with the alliance that you have there? Yeah, so we partnered with World CC to offer all World CC members a free upgraded account on the TermScout platform. So currently, we have a free product. We have a freemium product on our platform. Anybody can go on and access what's called the verified public database. It's a database of verified, at TermScout means contracts that have gone through not just an AI review but also been verified by humans on our team. So we've got a verified public database of more than 1,000 contracts where you have deep data and analytics on these contracts. And they're, they're the standard online contracts for companies like Salesforce and Microsoft and Google and Oracle and, you know, on down the list. Anybody can go on and access those, those contracts today for free using a couple of tools, a limited set of tools on our platform. Our Scout plan is our introductory offering.

12:23It's normally $99 a month, and we're offering it for free for 12 months for all World CC members as part of our partnership with them. In exchange, World CC is helping us get the word out about the platform and get the word out about the market data and what we're doing as a company, and it's, it's been a beautiful partnership, and we're, we're having a ton of fun here. We've had a lot of activity and buzz around the booth in the event yesterday, so it's been really good. That's great. That's great, Otto. We really appreciate you stopping by to have this conversation. Uh, I think you guys are doing something really schcool- cool at, at TermScout, so thanks for stopping by. And, um, you know, who knows? Maybe we'll bump into each other again. I hope we do, John. Thank you for having me. All right.