Investors v Buyers: The Dogs That Didn’t Bark
Last week I wrote about contract lock-in and the damage it can do to customer retention. The service degrades, the customer stews, and the customer leaves the moment the contract allows it.
But there's another side to this. Lock-in doesn't just affect the customers you already have. It can cost you customers you never win in the first place.
The fact is that some businesses are naturally sticky. The classic example is payroll. Once a company gets past a certain size, it becomes almost pathologically nervous about payroll going wrong. And the riskiest moment in any payroll service is the switchover from one provider to another. Payroll is, in fact, the only service I have come across where customers routinely run the old provider and the new one in parallel – sometimes for a couple of months – just to make absolutely sure nothing breaks.
If you are selling something as inherently sticky as payroll, you don't need contract lock-in. The customer is already locked in – the nature of the service has done the work for you.
But here's the thing. A lot of naturally sticky businesses still insist on contractual lock-in anyway. Why? Because of the Excel spreadsheet.
Investors – VCs, PE firms – love annuity revenue. And there's nothing like a column of contracted recurring revenue to make a business look attractive in a funding round. So the business locks its customers in, the Excel looks great, and everyone's happy.
But the Excel spreadsheet doesn't show you the dogs that didn't bark. It doesn't capture the prospective customers who got to the contract stage, saw the lock-in terms, and backed away. It doesn't quantify the deals that died because the main individual on the buyer-side decided that the personal risk wasn't worth it.
As I've written elsewhere, one of the most powerful forces in any B2B buying decision is loss aversion – the buyer's fear of getting it wrong. Lock-in amplifies that fear. The longer the commitment, the greater the perceived downside of making a mistake. If your product is sticky, then the lock-in terms add risk to the buyer's decision without adding any real protection for you. You get the downside, and no additional upside.
The moral: if your product is sticky, let it do the work. Drop the lock-in (or maybe just reduce it to an initial 12 months), and use it as a selling point: "we don't lock you in – we just make sure our service is so good you never want to leave."
2nd June 2026