By Ted Devine, CEO of TechInsurance

Developers thinking of starting their own business often envision a lean business model: finding clients through word-of-mouth recommendations, negotiating project requirements via email, and operating from a home office.

It’s a simple and efficient way to work for many technology professionals. With over 30,000 active clients, TechInsurance provides a good cross section of these technology professionals. In fact, as many as 75 percent of our clients work from home, and 63 percent are sole proprietors. But, the informality that enables professionals to be their own boss and set their own schedule can have a dark side, too: Without the infrastructure that larger businesses rely on, independent developers may be exposed to risks in ways they don’t realize. And those risks could turn into major revenue drains.

Ironically, the biggest risk factor for most IT professionals is client behavior. A miscommunication can lead to payment disputes, bad reviews, and even (in extreme cases) lawsuits. Luckily, independent developers can greatly reduce the chances that any of those happen to their business (without adopting corporate-style policies and procedures) by using three simple tools.

It’s no secret that written documentation can make or break a court case. What a lot of independent developers don’t realize, though, is that having certain documents and policies in writing can actually keep a problem from going to court in the first place.

For independent developers, these three can make a big difference:

1. Client contracts. About 84 percent of our customers use contracts for client relationships. These include documents that outline what a project will include, when it should be completed, and how much the client will pay. Although 84 percent is a healthy majority, it leaves 16 percent of small IT businesses without contracts. If you’re among the 16 percent, consider investing in a lawyer’s time to help you create boilerplate contracts for the most common services you provide. Doing so can save you a lot of time communicating with clients about what exactly you plan to do. Should you be threatened with legal action, contracts can also save you money by making it easier for your lawyer to defend you in court.
2. Client acceptance policy. It’s easy to think that, once you have a signed contract, you’re free and clear. But, requirements can change during the course of a project, deadlines can be adjusted, and the contract terms from day one might not apply on day 21. Having a policy for getting client signoff on all significant changes to a project (even if that policy is as simple as getting an affirmative response to an email) can prevent the types of unpleasant surprises (for clients) that trigger angry phone calls (to developers). About 63 percent of TechInsurance’s 30,000 clients currently use these, which means there’s plenty of room for improvement. If you’re among the 37 percent who lack a system for getting client approval, putting one in place can help you address minor problems before they become major headaches.
3. Client complaint resolution policy. Even when you do everything right, some people are going to complain. They might be dissatisfied with your work, frustrated with themselves for providing unclear requirements, or just difficult to please. Whatever the reason for the complaint, consider it a red flag and be ready to jump into action when you get one. Only 47 percent of our clients currently have such a policy in place. If you’re among the majority of businesses that lack a policy for resolving complaints, now is a good time to decide how to deal with unhappy clients so they don’t cause damage.

Figure 1: Chart detailing previous three points

The Real Cost of Unhappy Clients

It’s true that most unhappy clients won’t sue you over your work. And, if one does sue you for something frivolous, your business can likely get a court dismissal for $5,000 or less in legal fees. But, for independent developers, the real costs are more subtle. For example, if you rely on existing clients to spread your name or refer future clients to you, you could be out a major source of revenue when someone is unhappy with your work.

And, if you rely on repeat business, unhappy clients make it harder for you to bring in revenue.

The bottom line is that investing a little time and money in documenting client relationships upfront can yield big savings in time, money, and aggravation down the road.

About the Author

Ted Devine is the CEO of TechInsurance, an online insurance agency for small and micro tech businesses. For more information on current trends among technology professionals, see the latest TechInsurance Market Index (TIMI) report.