Tag: tech

When we think about value, we think about the cost we pay for something. However, that’s a very shortsighted definition. We probably only consider cost as defining value because most of the things we buy are defined this way. For instance, when we go to a grocery store, we look at two brands of cheese, and the cheaper one is the better value. It doesn’t matter much which is the better quality cheese, it simply matters which is the cheaper cheese. As consumers, we typically only consider the cost. To me, the definition of value is far more complicated.

Buying Vacuum Cleaners

Twenty years ago, when I would buy a vacuum cleaner, I only considered cost when purchasing. The cheapest vacuum was the best value and the one I would purchase. But time and time again, I found that my value vacuum cleaner would stop working after about a year. So, I’d go back to the store and buy another one. I was paying about $100 per year to purchase vacuum cleaners. Note that now my value definition has a time element. After several years, I considered buying a Dyson vacuum cleaner. It was four times as expensive, but I had hoped it would do a better job than the $100 vacuum cleaners and that it would last longer. And today, 15 years later, I still have that same Dyson vacuum cleaner. If it were to break today, I would have spent $400 over 15 years for my vacuum. That’s a substantially better value than before!

Value of Technology

The cost of computer technology is very similar. You can buy the $300 laptop and expect to replace it next year, or you can buy a MacBook and have it for 10 years. But custom software is a little more difficult to directly compare since the price tag isn’t as clearly defined. What I’ve found is that when customers purchase consulting services or software development services based solely on the cost of those services, they often find that the price tag explodes over the lifespan of the product due to poor development. When you find the developer with the lowest cost, he probably has the least experience. He will take longer to accomplish the work since he’s bound to run into more snags than an experienced developer. He’s also likely to overlook things that a senior developer wouldn’t. These issues will result in additional costs during the lifetime of the application to fix in addition to lost time and productivity from your software users.

Conclusion

Paying for custom technology services is more like buying a vacuum than it is purchasing a block of cheese from the grocery store. The true value of those technology services will be defined not by cost alone, but by how long those services solve your technology problems.

Recently, a fellow small business owner asked me how I handle billing. For a small business, money is often one of the biggest concerns. Without a steady flow of cash, you can’t meet your business objectives or your personal financial requirements. As a small business, you have to determine when to bill and how to bill. Even worse, you have to define how you deal with delinquent payments – which can kill your business.

When To Start Billing?

The first question to answer is when do you start billing? This is particularly true if you’re billing by the hour. Does the clock start ticking at your first meeting? After the project requirements are defined? After the project is complete? For my business, anything after the initial project meeting is billed to the customer. I think it’s important for a customer to understand that project planning, requirements gathering, and any other tasks completed before any actual code is developed is an integral part of the development lifecycle. I typically bill the first of the month after any billable hours have accrued. I’ve found that the longer you wait, the more the bill increases. Then, you risk the customer suffering from sticker shock when you finally send the bill after months of work.

Late Payments?

When I started my business, I was so pleased to have customers that I didn’t worry about late payments. I assumed that my customers respected me enough to pay me on time. I was incredibly wrong. What I’ve found instead is that many companies will put me at the bottom of the list of payees. Why is that? Well, I think it’s pretty simple. The customer knows they have to pay their lease on time or risk eviction. They know when they fail to pay their internet bill, they won’t be able to perform their mission. What happens when they don’t pay you? Likely nothing. Additionally, they know you don’t have a collections branch and are unlikely to use a collections agent. Thus, they have absolutely no reason to worry about when they pay you. I have learned to include verbiage in my contracts defining payment terms. I give customers a 5 day grace period, and after that the customer is charged a late fee. Additionally, all the customer’s projects are paused until payment is received. If you continue to work, you end up months behind on payment and continuing to work for free.

What About Equity?

I’ve had many ‘customers’ offer to pay me in equity. I do the work and they will give me a percentage of the revenue generated by the software. I have a very simple answer for this kind of relationship. No. While an individual may think that their idea will generate millions, they rarely do. Even worse, you’ve now wasted time developing software that you will never be paid for. The original ‘customer’ lost nothing. You lost countless billable hours to a project that will never be profitable.

Conclusion

Money is the lifeblood of any business. What I’ve learned is that it’s imperative to have clearly defined payment terms and procedures for your business. When you fail to make those terms clear to customers, you will quickly find that your business struggles to get by and that you are spending more time nagging customers to pay than you do performing your business’s objectives.