This article was based upon episode #11, please watch the complete episode here.

 

“The only thing worse than no contract is a bad contract.” — Jess McCarter

It is already given that when you are in the business industry, you will meet many different clients along the way. If you’ve been following our previous client horror stories, you’re well aware that there are several types of terrible clients. 

Some horrible clients show their real colors right away during the initial encounter, while others initially put on a phony face and then let their demons take over once they get to work. Sometimes you’ll encounter very opinionated clients, making it challenging to work with them. Finally, because they are egoistic, dishonest, and prideful, the most demanding clients to work with are renowned and already have a name in the business industry. 

However, despite having distinct bad habits, they all have one thing in common: they all go after small businesses. You might come to wonder why small businesses are being targeted. 

The explanation is simple: small businesses are opportunistic, and they seize every opportunity to grow their business. When a spiteful, wealthy, and famous client learns that a small business is eager for a big client, he will try to take advantage of the situation and try to exploit the small company. 

This is exactly what occurred to today’s sharer, Jess McCarter. On the other hand, Jess might have easily averted such a nightmare if he had spent enough time completing his research before accepting the project. 

With that, make sure to stick around since you should be cautious of plenty of red flags that Jess will mention and a series of lessons on becoming wise in choosing a client and the importance of due diligence.

During the early days of Jess’ business, their company was just getting started on providing application development services called Sagebit. Jess had been working on their products for over two years, but the issue was that they were too early for the internet market. 

Youtube was still in its early stages of development, as were other social media sites. This was why Jess and his team were waiting for the market to catch up, and they were anxious to get back into development to pay their bills and have a regular income.

Jess started developing their small products and also made short-term contracts for companies. They were doing one-time projects like web scraping and a one-off project to build a website. Jess and his team also cut their teeth in Ruby on full-stack development because it was still a brand new trend. They also did a one-day project making small full-stack web applications for several clients. 

While the company was trying its best to make some developments, Jess headed to the East Coast to look for some big clients. Jess was living on the East Coast even though the company was located in Indianapolis. That is why he can wander around the East Coast, hoping to catch some big fish. 

Then one day, he met his classmate back when he was still in Dartmouth college. This person told Jess that he referred him and his team to one of his big clients. This was the first red flag of Jess’ client-horror story, and this is also the part where due diligence comes in.

Red Flag # 1

Sometimes, we tend to get biased with referrals because of our pre-assurance from our friend and their client. It creates a thought that the client is okay to work with since your friend is in the company. 

However, it’s important to do due diligence in research and know more about the client, scope of work, management style, and work environment to avoid biased choices. 

1.Check the background of your client first.

Due diligence can be as simple as reviewing your client’s credentials, such as researching their net worth, doing a background check on their biography, or even reading online articles about their lives to gauge their attitude. Sometimes people overlook doing a spot check because it’s commonly perceived as a complicated, lengthy, and time-consuming procedure. Due diligence simply entails asking someone you know who has worked with your soon-to-be client about his management style. 

Inquire if your potential client pays his bills on time, has a pleasant demeanor, and anything else that comes to mind. For example, suppose you’re in the real estate business, and your buyer says they’ll make an all-cash offer. Due diligence simply entails requesting confirmation that all the money has been prepared to avoid issues when transacting. Also, it doesn’t have to be a full-fledged background check or in-depth meeting with your client about their past and finances. It’s enough to conduct your own short research to acquire information so that you may function securely and confidently. 

Jess neglected to look into the company’s history since, first and foremost, his friend was still working on this client. Second, the client owned a large corporation, and Jess was searching for a large client at the moment. Third, the client looked fantastic on paper and is well-known. The client is a math and music genius who rose to prominence in New York. Because he is renowned and they run a large firm, Jess instantly assumes that his friend’s customer is well-funded and has a positive outlook. 

This was Jess’ mistake because if only he had asked his friend how long he had worked with that particular client, how big is their contract, what is the scope of his project with him, and how is the client when it comes to paying the bills, he would have prevented the tragedy before it happened.

If Jess had asked these questions, he would have known that his friend was still on his second month with this client, and he already had one missed payment. Also, Jess’ friend was doing wireframes for the client. This means that his friend is only doing a minor project with this client because wireframes are simply just doing an incomplete website. If you do the math, you can immediately tell that this client is broke or abusive. But since Jess didn’t ask, he wasn’t able to prepare for the storm.

Jess’ friend told him that it was a shopping project built in early 2005 – 2007. Because the client wants his website to be an all-account website, the concept was fairly ambitious. 

The client wanted to compile a list of purchases across numerous websites from everyone who would go internet shopping and then put everything into a single big site. He intended his website to be the “one great site” where online shoppers wouldn’t have to go back to each and every website they visited to double-check their purchases. 

His website will become a single login that will house all of the items people purchased online from various sources in one location. This project was incredibly complicated to achieve during those years. It even took Google several years until they rolled out a single login website. 

However, Jess couldn’t think that way because they were so excited about having a big client after searching for so long. Jess also believed that the company had enough money and workforce because the client is famous and owns a huge company. 

2. Don’t be so eager to accept a project. Always revisit the fundamentals.

Jess was so eager to find a big client that he forgot the fundamentals and protocols before accepting a project. “The only thing worse than no contract is a bad contract.” There is no obligation or pressure when things get worse if you don’t have a contract with your client, though it could still bring a lot of damage to your career. 

However, having a bad contract is far worse because there might be scenarios where you don’t want to work anymore, but because you signed an agreement that forces you to work, you cannot do anything but finish the project. Jess had a bad contract with this client, but he didn’t realize it yet because he was overwhelmed at that time. So, without fully considering everything, Jess leaped to the second red flag that he made.

Red Flag # 2

When they signed a contract with a customer, Jess had always demanded a deposit. Jess had solid legal counsel when it came to setting up arrangements, but this client was unique. Jess understands that defining the cost of an overall project requires having the whole scope of the project. 

Because it was for a large company, Jess expected the coverage to be extensive. They did not include it yet on their invoice during their first official meeting with the client because it was still their first meeting. During their second meeting with their client, Jess attempted to determine the extent of their job to calculate the total cost and begin adding it to their invoice. 

During those meetings,” Jess said, “we came to a point where we needed to flip the flag, much as a New York taxi driver had to start running the meter.” However, the client doesn’t seem to want the meter to start running. He wanted as many meetings as possible, and the themes were becoming increasingly broad. 

The client was really splendid, and in those meetings, they talked about ideas and potential projects. Jess was constantly impressed with how this client’s mind worked, but the problem was it was all over the place. It became difficult for Jess to catch up with how the client thinks. Jess wanted them to focus on the project’s initial scope and other crucial matters for product development, such as the design phase, the concept of MVP, and other things. Jess tried to steer the conversation, but the client wanted to talk about world problems. 

Red Flag # 3

That should’ve been a warning sign for Jess when they couldn’t get an actual good scope on their contract. Not knowing how massive the project would be might end up a problem for you in the future. The client won’t have any issues with it because he’s the one who will decide on the scope. However, you can’t estimate the time and money you need for the project in your case. 

For instance, you expected that the project’s scope is small because your client is still developing. You only prepared a small team, and your budget was only adequate for a three-month project. Still, you subsequently discovered that the project was much larger than you anticipated and that your preparations needed to be treble. The client wouldn’t complain, and it will be you who will be under undue pressure due to your inaccurate assessment and failure to foresee the scope adequately.

Jess decided to move forward even though they couldn’t get a good grasp of the scope. They guessed the estimation and talked about a monthly burn rate because they assumed that the project would be massive. Jess and his team started having brainstorming sessions and started working on the project. After one month of working with the client, they sent their first invoice. There were no problems with the payment because they got paid immediately. Jess received a considerable amount of money, which inspired them,even more, to ramp up development to this client’s company. 

Right out of nowhere, the client asked Jess if he could look for an extra developer to help them with their project. If Jess weren’t preoccupied with the project, he would have noticed that it was deja-vu all over again. The client was looking for another developer, kind of like his friend was asked to look for another developer. Jess didn’t realize this because he thought that he isn’t the one who will charge the new developer, and he was making more money. Jess said yes to the client and started looking for a new developer.

3.Due diligence will save you from potential trouble

Jess could have done a bit more due diligence since he could have questioned his buddy, who recommended him to the client things like “How many of your debts have been paid?” Is it true that you’re still getting paid after the first several months?” If he did, Jess would have known that the client hadn’t paid his friend’s last payment because the money had gone to Jess and his team. They both were in the middle of a fundraising plan, and now it’s Jess’ turn to be the one who doesn’t get paid while the next round of developers receives their payment on the first month.

Their client was totally broke, and Jess already realized that. But even so, his client was still increasing the scope of his project and spending more money than ever. Jess was just sitting there attending all the meetings while looking at more people roped on the fundraising scheme. 

Jess suddenly realized something, like an alarm bell waking him up to reality, and decided to end the relationship with this client. Jess said to himself, “Wait a second. We’ve had a contract agreement with this client to do all the primary development on this project yet he’s already interviewing new developers to hire during their meeting sessions.” 

Jess felt disrespected because the client wasn’t honoring the exclusivity of their contract. If the client were looking for a replacement, he wouldn’t have brought Jess and his team to his meeting, hiring new developers. The client was clearly implying to take Jess and his team off the grid. Jess added, “We have an exclusive development deal and if this client doesn’t honor the terms of their contract, are we going to run into some problems with payment?” These realizations made Jess realize that he has to do something about it.

Jess admitted that the project wasn’t successful as of that moment. Jess and his team are still brainstorming for names because the client’s product still has no name. They turned on their laptops and did lookups in the DNS. They were also trying their best to find available domain names, and the client asked them to register hundreds of domain names under Jess’ account. Jess now has a lot of domains. 

This wasn’t bad because having a lot of domain names was a big deal during those days. He could sell any of those domains like gold. Jess and his team managed to auction off almost all the domain names they created to cover the costs. 

Jess said, “When the person who wants to see you in person all the time, who is doing the hiring in front of you, who is doing fundraising calls in front of you, and he suddenly doesn’t want to see you in person, that’s that’s the end of the line, the end is there.” 

Jess was really shocked, and when the client called him, he said to his client, “You know I’m around the corner grabbing a coffee, I was just in your office and we could’ve talked about the second bill. I will just come right back.” The client hesitated and didn’t want Jess to go to his office, and he said, “No, let’s do this on the phone.

4.If you want someone to answer your calls, let them know if the conversation is good or bad news.

In the future, if ever you want to call your employees, give them a heads up on what you are going to say so that they can prepare themselves. 

Some people have traumas with the phrase “Let’s have a call.” It might mean something wrong is going to happen. The horror of “Let’s have a call” is now being stereotyped as something terrible, which is why it is time to end that and normalize putting context on what the call is all about. You can either give a one-line subject such as “I am about to fire you” or “I would like to commend you on something” so that they won’t overthink. Don’t be like Jess’ client who left him hanging on what their call was all about.

After Jess called the client to inform him about meeting in person, he received the most awaited call from his client. The client fired them over the phone and told Jess they weren’t going to get paid and that they can go ahead and file a lawsuit. The phone call ended, and Jess was in utter surprise. 

Jess, later on, found out that the founder didn’t have any packing funds anymore. The client’s company also has only one investor, and it wasn’t even an institutional investor. The worst part was that the client was already using family money. Jess and this client were close to being friends, so he couldn’t do anything about it in the end. 

5.A personal relationship must not interfere with business relationships.

Don’t get me wrong; you can still be friends with your clients and coworkers. However, it would help if you were friends with them after establishing all the business stuff. This is because personal relationships and working on a proceeding business will eventually become a recipe for disaster. 

For instance, you have a personal relationship with your coworker, and he did something wrong that might get you involved as well. If you don’t tell the truth, all of you will get fired. Because you’re friends with this coworker, you are now facing a dilemma, which is not supposed to be that difficult if you don’t include personal relationships while doing business. 

Jess didn’t fight his client, and instead, he and his team started to look for the upside right away. Jess didn’t go crazy on his client and didn’t sue him because he didn’t want to burn any bridges. 

Jess still acknowledges his client and still believes he has the potential to do something great. He just needs a budget to make all of his brilliant ideas come true. Plus, this client has a strong connection with the tech industry, so soon, when technology becomes more advanced, he will surely rise back. 

Jess hoped that someday when this guy arises from rock bottom, he would remember them and reciprocate for what he did. Besides, it was not entirely their client’s fault because they too have made bad decisions because of their desire to have a big client. They failed to do some due diligence and a lot more mistakes which led to their client-horror story. 

Jess made the best decision of his life that day because his hopes came true. Jess believed that their previous client would rise back from rock bottom. Fortunately, after several years, he landed a CTO position in a very well-funded private social network. Their previous client then brought Jess and his company to this huge private social network and told them, “I’m the CTO of this company and they’re going to be doing some outsourcing. I know you guys are still active in that space and this time, the project is very well-capitalized.” 

Surprisingly, their previous client did something that they didn’t, which was doing some due diligence. He showed Jess, who capitalized on their project, and told them the overall income of this private social network. 

Their previous client told Jess to make a good pitch for his company to land the project. He didn’t promise to help them throughout since Jess needs to talk to the company owner. But the previous client pledged that he would become their advocate and speak honestly about the quality of Jess’ works, that he can also testify how thoughtful and hardworking Jess and his team were to solidify their pitch. 

Jess successfully pitched a project, and they were now assigned to a much larger contract. They were able to double their developer size and had huge money on their backs. This was their previous client’s way to redeem things and payback for the troubles that he caused to Jess and his team. 

This story is unique from the rest of the client-horror stories that we’ve had because there is redemption and a happy ending. 

Jess made a wise choice not to make any beef with his talented and brilliant client because Jess knew that he could become someone great. 

And that would be the end of this crazy story, and I hope you have learned all the lessons from Jess’ story and apply them to your own business lives. The main highlight of this story is the importance of due diligence. For your next client, make sure to do some due diligence first to avoid having a horrible experience with a client. Of course, try to retain the bridge if it would do you good in the future and be quick to burn down the ones that could harm you in all sorts of ways.

This article was based upon episode #11, please watch the complete episode here.