Like everyone else, I've made mistakes. I've learned from them, both about how to run a small business and more than a little about myself. My most serious mistakes have always involved trust — trusting the wrong people or not trusting my employees enough. This column is about trusting the wrong people.
It is easy, in the early days of the relationship with a big new customer to think everything is going to work out just fine for everyone. So how did I end up with a client owing me $150,000 they had no intention of paying — and later couldn't pay if they wanted to?
It happened because I trusted them and didn't appreciate the inequity that exists between a tiny business (mine) and a $20-million-a-year business (them). When the relationship ended, I had a contract that specified what I'd be paid for specific work I did, when I would be vested with stock options, and what fees and ownership rights each party was entitled to if the relationship ended. I was also supposed to receive a share of future profits from specific projects.
Nearly a year and $20,000 in lawyer fees later, my attorney stopped returning my calls. Two additional months passed before my lawyer told me he'd left private practice and that I needed to find someone else to represent me. At that same moment, a major investor foreclosed on the company that owed me the $150,000 and that was that. Did I mention I had about a million dollars in stock options in the dead company?
While $150,000 is a lot of money, it was a payment for work I'd already done and had no ongoing expenses tied to it. I got over it. (That is, until I start thinking about it again and fly into another rage over the CEO who stole my money!)
My loss was nothing compared to some of the company's other vendors, at least one of whom was owed so much money that he ended up losing his house when he didn't get paid.
In retrospect, I realized my relationship with the company soured when they started having serious cash-flow issues and decided, wrongly as it turned out, that they could do what my company did for less money in-house. When that failed, the money problems grew worse and the downward spiral accelerated.
What mistakes did I make and what did I learn from them?
1. I let the customer get too far behind on payments. The termination fee and future percentages were lost, but there was $25,000 already owed me when the break occurred.
2. I trusted two people at the company that I shouldn't have. One I knew about and went into the deal with my eyes open. What I learned was that as long as the other guy needed my company everything was fine, but things turned quickly after he decided he didn't need me any longer.
3. I didn't take legal action quickly enough. When things are going well, a contract can spell out the day-to-day rules of the relationship between the two parties. But, when things go bad, the contract may not be worth a thing. If legal action is needed, take it quickly. Don't delay.
4. I realize my small business' limitations. I'm now more aware of potential inequities between my business and the businesses I am working with. As a small business, I may not have the resources necessary to fight for my rights — even when they are fully described in a signed agreement. If the other company is much larger, they have legal resources I can't afford.
5. Sometimes it's best to just walk away. As it turned out, I could have saved $20,000 and a considerable amount of time and trouble by realizing the money was a lost cause at the beginning.
6. Recommendations for attorneys should be scrutinized. My attorney came highly recommended by someone I trust who had used him in the past. I was too trusting in his assurances, which strung me along until the guy disappeared. In a similar situation, I'd never put up with the delays this guy used to increase his billable hours and keep me hanging until it was too late.
7. Big companies mostly pay, small companies may not. Big, successful companies may be difficult to do business with, something that needs to be factored into what you charge them. But they usually pay their bills. Eventually. The client who cost me so much money was relatively small, and relatively new, and I did not understand how shaky their finances were.
Obviously, this was an expensive learning experience and one I hope you never experience. In some ways it couldn't be helped, but there were still things I could have done to reduce my losses and the pain associated with them. And, thanks to what I've learned, I've not had similar problems in the years since. Hopefully, you can learn from my experience, or at least take a little comfort from someone who's had the same sorts of problems you've had.
Article Resource: http://www.microsoft.com/smallbusiness/
