Most consultants take on clients because they believe they can help them. They want to do the best job they can and form long-term relationships with the client for mutual assured success. Most clients work with consultants to round out the skill set of the organization, improve operations, fix a problem and/or learn new skills. Most clients (at least I like to think so) don’t go into relationships with any service provider or vendor with the intent to get as much as they can without paying the bill. Unfortunately on occasion, businesses run into unethical clients who take and don’t give (i.e., pay).

 

These clients range from the intentional rip-off artists to the inexperienced control freaks that don’t have the expertise or resources that consultants and other vendors provide, but want to control every aspect of the project and by doing so prevent any forward momentum or deliverables from being generated. Here are a couple of examples.

 

The first company was a service firm with a product idea. The company needed guidance on how to design and develop the product and business plan, and someone with credentials to be part of the team to make connections and provide business and other skills lacking in the organization. As time passed, the consultant eventually agreed to take a partial ownership with the company founder (and another then-consultant) in lieu of fees, with the proviso that the founder had to execute all agreements and follow through to getting a deal closed. Everyone would win. A major international firm was interested in becoming the client and fronting some initial funds. Another major international firm was committed to acquiring the product, doing the development and buying the company before even a first prototype was developed.

 

“Euphoric” would be the most accurate description of the entire team’s feelings. They had one step left to execute: receiving Board of Director approval of the deal from the potential customer. The proposal was at the preliminary board committee and they were ready to make a recommendation to execute…as long as the key people (the founder and two consultants/equity holders) would agree to work for them for at least two years after the deal was executed.

 

Everyone agreed easily to such a deal. One of the consultants/equity holders failed to deliver on the components that were required to finalize ownership. The founder and the remaining consultant/equity holder agreed to pick up the other deliverables redid the agreements and proceeded with the negotiations and agreements. The lawyer prepared the documents and they went to the client company.

 

Days went by where the consultant was waiting to hear that the deal had been approved. The lawyer waited too. There was no word for almost two weeks … then came a call from the founder. Could the consultant meet with the founder for lunch to discuss the business?

 

Over lunch the founder informed the consultant that the call had come in almost 10 days before, but she (the founder) decided not to return the call. (This is good time to say this was a multi-million dollar deal; eight figures at least!) Also, the founder stated that she hadn’t signed the documents to finalize the operational agreement changes, etc. She had decided it was “too stressful” to proceed. The consultant was willing to take on the full load of executing the deal and let the founder continue to financially benefit at the originally agreed levels, if she would just sign the papers that would let the consultant do the deal. The founder walked away from the deal and the business.

 

The deal died. The money was left on the table. The consultant was left with a substantial investment of hours to compensated for … remember the proviso: The business had to execute and deliver the deal before the consultant fees went away. When the founder failed to execute the deal and continue the company, the fees from services became payable. Needless to say they weren’t paid and the founder was highly offended that the consultant would expect to be paid. After all, as she put it, “I gave the consultant part of the business.” What she gave the consultant was a life lesson in unethical business practices.

 

Example two is of a technology startup company for a software product and service. The founder hired several experienced service providers: attorneys, a CFO, a controller, strategy/business funding and software programming. These firms signed regular agreements to provide services with invoices due upon receipt. All the providers were use to working with startups, so a late payment was to be expected occasionally. No payments to any vendors and a total tab of several hundred thousand dollars, plus a client that stopped returning calls and would not take advice on how to proceed and get funding left the vendors no choice. They began trying to collect funds owed. Two of the vendors turned the client over to collection. The software vendor shut down access to the development environment, website and the software product. The software startup was dead in the water without the ability to execute legal agreements (no lawyer), no finance or business experts to fill out the experience levels and no product to demo or launch. The company essentially was back to an idea and a dream AND major debt.

 

Two very different companies who ultimately suffered from the same malady: Founders who didn’t understand business and didn’t keep commitments. However, just because the founders failed the businesses didn’t have to, but they did due to a failure and an unwillingness to make good on commitments. (Another consideration in these situations is that both founders continued to drive new cars, travel, buy new toys like big-screen TVs, and other items that essentially demonstrated that the founders had the funds to make good on the debt, but chose not to, giving them a bad image and reputation to display in the community to say the least.)

 

Leaving your vendors without payment is a form of theft, by taking products and services and make legal commitments, then walking away from the deals, whether for personal reasons or otherwise. Whether a start-up or an established company, make sure the funds are available AND that the founder/company will act ethically in dealing with vendors. Make sure you are getting at least some of the project funds along the way. If you are the software firm, look for 30% to 50% of payment of the estimate up front. If you are in the law, financial or other similar type of service, work against a retainer.

 

Oh and the final piece of advice: If your instincts tell you to be wary, then follow those instincts. You will lose less money and time by increasing your level of caution in dealing with new clients and waiting to see if they walk the walk, as well as talk a good game.

 

© 2010 F.O.C.U.S. Resource Inc.

Author: Lea A. Strickland, MBA CMA CFM CBM GMC All Rights Reserved.

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