If you’re a fledgling software company like us, you know how many ways potential clients, relatives, and partners want to get you to consult for free. But if you’re going to be a viable company that can pay bills and hires quality people, you have to say no so that you can say yes when the real clients come along.
While it’s tempting to try to serve every lead that comes in, don’t. You’re awesome at what you do– charge appropriately for it. Don’t sell by being the cheapest game in town– unless you are Walmart or competing in a commodity market. If you’re bootstrapping your software development by doing enterprise consulting, here are some techniques that work for us and might benefit you:
Require a token of $750 or so to begin consulting
Sure, give them 15 minutes to discuss their needs. But don’t let them drag it out into some hour-long free consulting session under the guise that they want to get to know you, qualify your abilities, pull in other people, or whatever. If $1,000 to start is a big deal for them, just imagine the headache you’ll have trying to ask for $10,000, after you’ve spent all this time on them. This is called the “sunk cost” phenomenon in finance, or what I call the “bad girlfriend problem”, where you’ve put in so much time already, it’s hard to be rational. This trick is super effective and gets folks qualified in minutes.
You can offer the money to be credited back towards the project if they’d like. Or call it an assessment. Your time is valuable.
We’re not the cheapest game in town
I want you to memorize these 7 words. If the prospect talks about someone else being cheaper, don’t discourage them. If they think they can get a quality heart surgeon to operate on their child at 50% off, then let them try. Their company is their baby, so if you want to do it right the first time, you have to pay for expertise. And while the hourly rate or project fee might appear “high”, what they’re really paying for is your years of experience.
Half now, half later
Not only must you get a signed contract, but you need a deposit to start work. The trick is a good way to mentally commit the client to work with you and treat this seriously. If it’s not a Fortune 500 company, then you’ll need to get something down. You don’t pay your employees or your rent based on promises (though it does happen with startups), so don’t let them do that to you. We have been burned many times here in the oddest of ways– the company goes bankrupt midway through the project, the project sponsor is fired, they change their mind, whatever.
Hence the title of this post– In God we trust, all others pay cash. As a software company, you must keep enough working capital to be able to service current and future clients. Perhaps one of the biggest hidden killers of startups is success. Yes, you can be so successful that you run out of money. The concept of working capital is that you might have to spend $10k of resources now to be able to collect $20k in 90 days. But if you’re growing quickly, that’s a lot of money you’re having to put in now.
Take on Pro Bono work cautiously
Pro bono is just Latin for “free”. Unless you really believe in the cause or they have viable operations, don’t do it. All of us have friends trying to start non-profits– great ideas, but no resources. So the promise is that if the venture is successful, then they’ll be able to pay you all this money, make introductions to important people, or whatever. Don’t go for Siren’s Song. Not saying it can’t work.
Our company got its start via pro bono work almost 4 years ago. Grameen Foundation is a multi-billion dollar non-profit that invented microfinance, creates jobs worldwide, and helps eradicate poverty. We managed their Google AdWords, rehosted their site, and called in some favors to help them out. In return, we got access to some senior people that became great clients. The folks who are on the boards of major non-profits are often super-connected, and we made a name for ourselves as PPC experts, which then transitioned into Facebook marketing experts.
Fire 80% of your clients
Why? Because you’re not properly serving the 20% of them that are paying your bills. If you’re a growing company, the clients that were a great fit a year ago aren’t the kind of clients you’d love to have now. I took an entrepreneurship class at Southern Methodist University from Jerry White in my undergrad days. He taught me that you “bootstrap” your new business venture by taking on small clients to get your name out. Then use a few small clients to be able to help you get some medium-sized clients. And then you’re ready to try some big clients. If you go for the big clients at the start, you might not be able to convince them to choose you and you might not be ready.
Intrapreneurs to Entrepreneurs
In our case, we ran an internal consulting group at Yahoo! that served many big clients. That’s called intrapreneurship, since you’re effectively running your own company inside another company, but bear neither the risk nor the reward. It’s a great middle step to take if you want to transition from employee to successful business owner.
If you’re the founder of your company, there are many hats you must wear– many of them are areas that you have no experience in. But hey, that’s what entrepreneurship is about. But among these duties, you really have only 2 things to worry about– finding great people and keeping the money coming in. All the other functions you can delegate to some degree. And #2 (keeping the money coming in) is often the hardest.
Yet in a start-up, we are ALL in sales, even if we pan off the “dirty work” to some hired sales reps. ABC– Always Be Closing.
There has never been a better time in the history of the planet to start a business– the low cost of entry, plenty of talent, and access to capital.
How is your business faring? Let me know at http://www.facebook.com/DennisYuContent.