Running and scaling a software company - Client Types.

Running and scaling a software company - Client Types.

Posted by Paweł Małkowiak on February 18, 2019

Everyone who dreams about starting their own software company needs to answer this question: I know how to build stuff, but where am I going to find my (first) clients?

I’m not going to share a guide to finding clients here. I’m not in the position to give people advice about it. I want to share my observations of the different client types who approach software companies - to be more precise, the client types you better avoid.

I’m not sure whether the more you grow, the fewer such clients approach, you manage to build mechanisms that block them, or you gain more experience and learn how to talk with such clients.

I feel that we’ve been dealing with a relatively high number of such 'cliche clients' in our early days. Another possible explanation is that at some point such clients no longer bother you that much since the people you want to do business with are in your sales funnel too.

Before listing my three least favourite types of clients, I want to note that I think some of them can still be transformed into leads. The question is: will the contract benefit you as well the client or just a client?

1. The mysterious client.

A common way to validate your startup idea is discussing it with others. The more you talk, the more your idea can be challenged and improved. It also gives you more information about possible competition. It can even help you find a partner or a customer. I’ve always thought that’s the most sensible way of founding a startup - or any other business, to be honest. It turned out a lot of people feel exactly the opposite.

Here’s an exaggerated representation of the conversation I’ve had many times ([M] Me, [C] Customer):

  • [C] Hello, I have an idea, and I would like to talk about it as I am looking for a tech partner.
  • [M] Hi - sure, we can help you with that. What do you have in mind?
  • [C] Well, it is like an Uber for Crypto. But I can’t tell you any more details.
  • [M] Ok, I will keep everything confidential, but I need some information.
  • [C] Of course! I am sending you an NDA. Please sign it so we can talk.

Well, nothing wrong until this point, an NDA is a pretty standard thing, and it’s understandable to protect a business idea. Then the situation develops...

  • [M] I am looking at the NDA, and it says I need to pay you $500k for any single wrongdoing... I’m pretty sure our contract will not be worth that much, can we think about a more rational number?
  • [C] (conversation begins to chill) What do you have in mind? $500k is not a significant number if you think how much the idea is worth.

I can add a few more things here: rage, theft accusations, and swearing included. I understand the need to protect your ideas, but if the client starts the cooperation with a trust level equaling zero and is convinced everybody wants to steal from them - no NDAs will change that attitude. Collaborating on simple tasks will become a nightmare.

And then you hear this:

  • [C] Well, I want you to sign this $500k NDA, but I don’t have money to pay you for the work - can it be equity?

:)

2. Treat everything as due yesterday - except the money.

We may laugh a little about the first client, but this second type can cause severe damage. Cashflow is crucial at every point for a service company. Developer salaries, equipment, office - all of that generates substantial costs, and lack of money can let you to bankruptcy in just a moment. The brutal truth is that in the early days, a software company is two invoices from going down.

If the client is not paying, is late with the payment or continuously tries to find ways to postpone the transfer - in my mind, that’s the biggest red flag there can be and a sign to quit any cooperation with the client. As painful as it can be - it will be always less painful than finding out there is no money to pay your staff with by the end of a month.

3. Undecided client.

Sometimes you read an e-mail or answer a phone call that seems to be perfect. The client knows what they want, has an idea about the price, and has structures and processes in place to handle your team. There is only one ‘but’ - it all needs to happen now.

Such a conversation seems so right and tempting at the beginning of running your own company that you may rush into it - you call friendly agencies to ask if they have anybody spare to join you ASAP, move some of the developers from internal projects, and neglect other (possibly important!) leads. Once you have it all or most of it in place, contact goes silent.

Well… it happens - you think. But after a few weeks the same client calls, gives you a decent excuse and the situation happens all over, including the going silent part.

I don’t think there is a way to defend from such client. The difference between an experienced salesman and a newbie, is the latter is so excited about everything that they may go through a number of such cycles before giving up on such client.

At Solidstudio we had the pleasure of working with great clients. Sometimes with ok ones. We managed to cut off not paying customers and avoid signing deals with cagey ones. I believe trust is the most critical value in a business and not having it with the client will prevent you from building a meaningful and lasting relationship that works for both parties.

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