No more free labor!

    How not to manage a client relationship.

    By Yair Flicker, as told to Fawn Fitter

    (FSB Magazine) -- When John Trupiano and I co-founded our software company Smartlogic Solutions in 2005, we were college students who knew a lot about writing code but nothing about running a tech consulting business. Then a client took advantage of our ignorance, which taught us some valuable - and expensive - lessons.

    This early client was a staffing agency that wanted to beef up its Web site with an online recruiting application. Its owners were impatient to get started, and John and I were enthusiastic about landing a big project, so we dived right in. When they began adding and removing features and asking us to do extra work, we quickly agreed. This was our first big account, and we wanted them to be happy. We kept sending invoices, but we allowed them to accumulate without requesting payment. And then one day they said, "This is taking too long and costing too much. We're not paying you a cent until it's done."

    They weren't clear about the meaning of "done," and at this point they owed us $12,000. Nothing in our computer science classes had prepared us for this. It took two months before they were willing to sit down with us and an additional week of meetings and phone calls to hammer out a detailed contract. By then we were so worried about cash flow and the reputation of our new company that we made our biggest mistake yet: agreeing not to bill for the additional time it would take to finish the project.

    We spent three weeks making all the final changes on their list - three weeks of working for free so that we would be paid for all the work we had already done. We presented the finished product and asked for our $12,000. The client replied that because it had taken us so long to build an application that met its requirements, it wasn't going to pay us in full. Its final offer was $4,000 - take it or leave it.

    We had a written agreement stating that the client would pay us in full if we met its conditions. I was furious! So I took them to court. To my shock, the judge said the staffing agency didn't have to pay us a cent because the contract was "subjective." We had done all that work for nothing and now had to pay a lawyer too.

    Belatedly John and I realized that we needed a process to protect ourselves from outcomes like this one. Today we help clients clarify their functionality, timeline and budget requirements. We put everything in writing well before we start coding, and we check our progress against the agreement at every step. That clarity is our added value. And it's working - we have better clients, bigger projects and more referrals. As a result, we passed $1 million in revenue last year. We want to satisfy our clients, but we're done working for free.