Non-Disclosure Agreements (NDAs) are legal documents that help protect any confidential information that is outlined in them. As a startup founder or executive, you may be wondering whether or not you should use an NDA with SaaS customers. The answer is not a simple yes or no, as it depends on various factors, including the kind of customers that you sell to, the information that you present to these customers during the selling process, and the information they have access to while they are customers of yours. All of these things need to be considered when you’re thinking about the type of information you are trying to protect. Let’s have a look at the benefits and drawbacks of using an NDA with customers when you should use them, and when it just doesn’t make commercial sense to put one in front of a customer.
Using an NDA with SaaS customers
One of the main benefits of using an NDA with customers is that it can help protect your confidential information. While you’re jumping through the hoops of procurement, especially with a large enterprise SaaS sale there is a lot of information that may be asked for. This information is not something that a typical private company would expose. This can include financial information, customer testimonies/references, tech architecture, data processors, and other proprietary data. By requiring customers to sign an NDA, you can ensure that they are legally bound to keep your information confidential, at least for the timeframe covered by the NDA. This can prevent competitors from gaining access to valuable information, and protect your business from potential legal disputes. As you can imagine, most enterprise customers are not just entertaining your product as a solution. They are probably talking to multiple software service companies and you don’t want to have your company’s private information shared.
Another benefit of using an NDA with SaaS customers is that it can help establish trust with your customers. This is especially true if you use an MNDA – a mutual non-disclosure agreement. By demonstrating that you take the protection of your confidential information seriously, you can build a reputation for being a trustworthy and reliable partner when solving their tech needs. This can be especially important for businesses that looking to sign SaaS contracts that deal with sensitive or confidential information, such as those in the healthcare, legal, or financial industries but it’s also generally important for startups that are trying to build a reputation as a trustworthy solution in their space.
Drawbacks of using an NDA with customers
There are always going to be some drawbacks with every decision you make as you’re growing your startup, using an NDA with customers is another example of this. One potential issue is that some customers may be hesitant to sign an NDA, as they may be concerned that it limits their ability to share information with others. This can be especially true for customers who are in the process of evaluating different vendors or suppliers, as they may want to be able to share information with others in their organization before making a decision. This is a hard thing to swallow. You want to make sure that there is freedom for your customer to move forward with discussions while still protecting yourself. It comes down to the level of data that you’re sharing.
The other thing to be aware of here is the potential for communicating to a customer that you’re difficult to work with and things will be hampered by ongoing paperwork. This leads to another potential drawback of using an NDA with customers is that it can create additional administrative work. This can include drafting the agreement, reviewing and negotiating terms, and tracking who has signed the agreement. This might not seem like a significant issue but when you’re working on tight sales deadlines anything that pushes out timelines is not useful at all.
What to think about when deciding whether to use an NDA with SaaS customers
When deciding whether to use an NDA with customers, there are several things to consider. These include:
The type of information you are trying to protect: If you are dealing with sensitive or proprietary information, such as tech stack, financial information, founder information, or customer lists, an NDA may be appropriate. However, if the information is already publicly available or not particularly sensitive, an NDA may not be necessary. Thinking about what you can make public as early as possible is useful.
The type of industry your SaaS company operates in Some industries, such as healthcare or finance, may have legal requirements for protecting confidential information. In these cases, an NDA may be required by law, if not just considered best practice. In other industries, such as retail or hospitality, an NDA may be less common.
The size and complexity of who you’re selling to: For mid-market customers using an NDA may not be necessary. However, for larger enterprise businesses with a lot of hoops in the procurement cycle, an NDA may be a more practical way to protect confidential information.
The potential risks and benefits of using an NDA: Before deciding whether to use an NDA, it’s important to weigh the potential risks and benefits. This can include considering the potential impact on customer relationships, slowing down the sales cycle, the costs and administrative burden of using an NDA, and the likelihood of legal disputes.
The what’s what of NDAs for SaaS customers
Whether or not to use an NDA with customers is a decision that’s very dependent on the data involved, the risk profile of your startup, and the customer that you’re selling to. While NDAs can help protect confidential information and build trust with customers, they can also create a lot of administrative work (which no one likes), drag things out longer, create a bad experience for customers, and may be seen as a barrier to collaboration. Ultimately, it’s up to your startup and your risk profile to weigh the potential risks and benefits and decide whether or not you sent that email, ‘Hey, can you sign this NDA?”.