Often the first step for startups engaging with larger clients is a pilot project for their product or service. Pilots can be a great step for startups to play in the big league. It gives startups an opportunity to implement, integrate and get feedback from a large brand or industry partner for a fixed period of time, with the view to them becoming a paid-up customer at the close of the pilot.
Dealing with large corporates can be intimidating. Here are our tips on what you need to cover off when putting in place your pilot.
who drafts the pilot agreement?
Ideally, you would draft your own pilot agreement. That way, you can ensure the agreement best protects your risks. But your client may have a template that it wants to use. If this is the case, use this guide to help spot issues with that template.
what form should the pilot agreement take?
Often a pilot agreement is not a stand-alone agreement. Many startups use a full agreement for the use of their product or service, but include a section covering the pilot period with an easy out for each party at the end of that period. If you put a full agreement in place to start with, it means that you can easily transition to an ongoing agreement without the need to relitigate the terms.
That said, often there is time pressure to get the pilot up and running, and in this case, a simple letter of agreement can be used to put in place the key terms. If you take this approach, it’s a good idea to set out in that letter a process for how you and the client will agree ongoing terms if the pilot is a success.
A letter of agreement is easy to put in place. Include the key terms you need, sign the letter, and then get your client to counter-sign it too. Voila!
what should you cover off?
Here are some of the key details you need to consider:
- kick-off requirements
- what does the pilot cover? g. the services and products are supplied (these may be attached in a schedule)
- pilot success criteria (and what happens next if the pilot succeeds)
- who can use your service or product, and why
- intellectual property
- risk and liability
- fees and payment terms
- governing law
Pilots can run for whatever period you and your client agree, e.g. from 30 days to 12 months or longer, and they can include an option to extend.
Make sure you clearly set out when the pilot starts and how long it goes for. You should also set out whether either party can cut short or extend the pilot, for what reasons and on what notice.
More complex pilots may have distinct phases, such as discovery, pilot, implementation, and closeout. If your pilot has phases like this, make sure you clearly describe them, including what tasks each party must perform during those phases.
Are any technical requirements, information, documents, or actions needed from the client? For example, do you need any user data to deliver your service or product?
If so, you should set out what the client must supply to you and oblige the client to ensure your use of whatever the client supplies (e.g. user data) complies with applicable laws (e.g. privacy law).
what does the pilot agreement cover?
You should clearly describe what you will do and provide during the pilot. If there is any uncertainty about what will be provided, think about having a list of items that are out of scope.
pilot success criteria
Your key goal for the pilot should be to secure a long-term and happy client.
Often, the client will want to decide whether the pilot is a success (or not) so that they control whether they continue with the product or service. This can create uncertainty for startups.
Instead, try to agree objective criteria in advance to measure the success of the pilot. And, if those criteria are met, the client should automatically convert into an ongoing customer.
If your pilot agreement sets out that your client will convert automatically to an ongoing client, make sure you have in place the Ts & Cs for that ongoing arrangement in advance. If those Ts & Cs are not agreed, you may struggle to enforce the ongoing relationship.
who can use your service or product, and why
Be clear about who can use your service or product – for example, is it only the employees or personnel of the client, or a set number of them? What can the client do with any data produced by the service or product?
Include clear statements of who can use the service or product, and for what purpose, so that you ensure anyone or any purpose not listed is not covered by the pilot.
feedback on the pilot
For many startups, it’s not just about scoring a new client, it’s about getting feedback on how the service or product performs. If you want feedback, make sure you include a requirement on the customer to regularly provide that feedback for you and that you own, and are able to use, that feedback for any purpose.
In any arrangement where you are making your IP available to a client or potential client, it’s important to make sure that you continue to own all of that IP, including any tweaks you make to the service and product during the arrangement and any new ideas related to that service or product.
Read the IP clauses carefully to make sure you are protected. We would expect the IP clauses to cover that:
- you own all intellectual property you bring to the pilot (being the service or product), or develop during the pilot
- an exception to you owning everything may be any client-specific skin or branding – just make sure this is described narrowly and you aren’t “giving away” anything you might need to use in the future.
If you are using a client’s template for the product, read it carefully and look out for phrases that might mean you are transferring your IP to the client, e.g. assigning or transferring IP, references to joint title or ownership, references to perpetual and irrevocable rights for the client to use your IP.
risk and liability
Pilots can be provided as is where is (without any quality commitment) where it is being done for low or no cost. How much you are being paid for the pilot should dictate the extent to which you provide warranties or other quality commitments for the pilot. Typically, the less money you are getting for the pilot, the fewer commitments you should make.
You should also make sure your liability is limited (i.e. you are not responsible for any liability or loss suffered by the other party, or you are liable only up to an agreed amount). Again, how much you are being paid should directly link to your liability level – the less you are paid, the less your liability should be
fees and payment terms
If you are being paid for the pilot, make sure you include what you are being paid and when. Ideally, you want to be paid in advance or at regular intervals. If the pilot goes longer than a month, be careful about agreeing to payment at the end of the pilot or being paid a big chunk at the end of the project as it could cause cashflow problems and create more risk for you (e.g. what if you don’t get paid?).
If you are being paid in arrears, think about having a clause allowing you to charge interest for late payments.
If the client is getting any access to sensitive information, make sure you include a confidentiality clause to prevent the client from using that IP and information.
We hope that this gives you confidence in approaching your next pilot agreement. If you want a review of an agreement that has been put in front of you, or help developing your own pilot agreement, get in touch. You can also explore our other startup resources.