Editor’s note: Each week, Maynard Webb, former CEO of LiveOps and the former COO of eBay, will offer candid, practical, and sometimes surprising advice to entrepreneurs and founders. To submit a question, write to Webb at dearfounder@fastcompany.com.
Everyone wants customers with deep pockets and low expectations, but many of our customers have high expectations–then they want to haggle once the job has been done. How am I supposed to handle demanding customers who won’t pay? I was told that as a new business I need these clients to help create a market reputation. But when do you say, “Enough is enough?”–Founder of an IT consultancy
Dear Founder,
I fear you’ve been given some bad advice. Yes, of course, you do need customers to help you build a business and create a market, but paying customers owe you money for the services you provided. Of course, in the early days you may have beta customers who test your product for free, but that’s a separate category, and not what we are talking about here.
Now, it sounds to me like this isn’t something that has just happened overnight. You’ve gotten yourself into a bit of a pickle to have allowed this. So, here’s how I would get out of it.
The first step is to notify your customers that change is coming. This is your chance to tell them that it’s a new day; share what you’ve been experiencing and let them know that while you value all of your customers, you can no longer haggle. You must honor the contracts you have, and address (and aim to prevent) this situation in future contracts. That means that you should include terms for the time in which you expect to be paid, and penalties for not adhering to the terms. Also, include a clause that says customers that fail to pay on time will be expected to pay up front in the future.
Unfortunately, I’m reminded that victimized parties in bad situations usually hope things will get better. But from the outside looking in, generally, they won’t. Once you have people taking advantage of you, you need to break the cycle. It’s time to make a change: Educate customers on the behaviors you want, and let them know that you have strong principles, and live them.
Let’s take a moment to take a step back, though. You will gain confidence in what you are charging–and in claiming what you are rightfully owed–if you truly know market pricing and where you fit in. I recommend learning about the services and fee structures from the companies with the best reputation. Those are the places that command the highest fees, and then price your own services in accordance to where you fit in the market and the value that you bring. Have confidence in your value. As long as you are priced fairly for what you are delivering, you should not need to work with people who take advantage of you to help you create a reputation. (That’s not the reputation you want anyway!)
Break out of this bad situation. If you are delivering something of value and the demand for your service is there, it will work out fine.
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