Introduction
I’m starting a new series called Back to the Basics — about the small contract details that quietly break startups.
I see this all the time when working with founders, especially now that AI tools are helping generate contracts in seconds — sometimes without anyone checking what’s actually inside them.
𝘠𝘰𝘶𝘳 𝘉𝟤𝘉 𝘳𝘦𝘷𝘦𝘯𝘶𝘦 𝘮𝘪𝘨𝘩𝘵 𝘯𝘰𝘵 𝘣𝘦 𝘢𝘴 “𝘭𝘰𝘤𝘬𝘦𝘥 𝘪𝘯” 𝘢𝘴 𝘺𝘰𝘶 𝘵𝘩𝘪𝘯𝘬.
If your company sells long-term B2B contracts and you show investors your Annual Recurring Revenue (ARR) to prove steady income — read this carefully.
One small sentence could be making your numbers meaningless:
“𝘛𝘩𝘪𝘴 𝘈𝘨𝘳𝘦𝘦𝘮𝘦𝘯𝘵 𝘮𝘢𝘺 𝘣𝘦 𝘵𝘦𝘳𝘮𝘪𝘯𝘢𝘵𝘦𝘥 𝘣𝘺 𝘦𝘪𝘵𝘩𝘦𝘳 𝘱𝘢𝘳𝘵𝘺 𝘢𝘵 𝘢𝘯𝘺 𝘵𝘪𝘮𝘦, 𝘧𝘰𝘳 𝘢𝘯𝘺 𝘳𝘦𝘢𝘴𝘰𝘯, 𝘸𝘪𝘵𝘩 𝟥𝟢 𝘥𝘢𝘺𝘴’ 𝘯𝘰𝘵𝘪𝘤𝘦.”
That’s what lawyers call a termination for convenience clause.
And it means:
1. Your “12-month” client deal can actually end tomorrow.
2. Your ARR isn’t guaranteed.
3. Your investor pitch might be built on sand.
Real Example
A Lisbon-based SaaS company signed a €250,000 annual deal with a corporate client.
The investor deck proudly listed that revenue as “locked.”
Six months in, the client exercised the termination-for-convenience clause.
The deal ended. The client left. The startup lost its biggest account — and had to explain to investors why “annual recurring revenue” wasn’t actually recurring.
How To Fix It
If you rely on long-term revenue, make sure your contracts actually reflect that.
✅ Set a minimum commitment period (for example, 6 or 12 months).
✅ Let clients cancel only after that period, or for specific reasons (like performance issues).
✅ If you offer flexibility, make the limits clear — longer notice, clear KPIs, or milestones.
Termination for convenience is fine — 𝘸𝘩𝘦𝘯 𝘺𝘰𝘶𝘳 𝘣𝘶𝘴𝘪𝘯𝘦𝘴𝘴 𝘮𝘰𝘥𝘦𝘭 𝘥𝘦𝘱𝘦𝘯𝘥𝘴 𝘰𝘯 𝘧𝘭𝘦𝘹𝘪𝘣𝘪𝘭𝘪𝘵𝘺.
But if you promise investors or partners “locked” revenue, your contracts need to be locked too.
