Why you will have to fire your first client

Congratulations you just signed your first large client.  Adding that big name to your corporate site and issuing the press release will feel good. Enjoy it. You earned it.

You will have the fire them at some point, and if you are succeeding it will likely be sooner than later.

The reasons will likely go something like this:

• You gave them a price that is way too low
• You promised them way more support and attention than you can actually deliver at scale
• You agreed to virtually every enhancement request they needed or more likely they wanted

All if this is fine actually, as long as you have chosen somewhat wisely. Here is what you will get out of signing that client:

• A big name to use in your sales pitch
• Revenue
• Confidence
• Validation 

These items are not to be undervalued or trivialized, however the value equation will likely get turned on it’s head as the relationship and organization grow. That being said signing the first big client is what can lead to your next big client and then the next and so on and so forth.

Knowing that this will likely occur be careful about how you structure that first contract. Avoid a handful of pitfalls:

1.  Commit to a lengthy term without the ability to revisit pricing. The desire to lock them into a lengthy contract will be hard to resist and can seem like you are locking them up which is never a bad thing, right? Well it can be if there is no provision to increase the fees in the future.

 2. No separation ability for your organization. Corporations may try to insert language that provides the ability for the client to cancel the contract with notice but not provide the reciprocal right. Insist on having it in the contract.

 3. Give this large client any veto power over the direction of your product or business.  This one seems obvious but  I have seen an early contract that actually gave them the right to veto future deals (above and beyond non-compete clauses) which was a real problem as future rounds of funding were being contemplated.

4. Agree to a set of requirements that your organization isn’t mature enough to support. Most frequently these requirements will be found in the security section of a contract. Get all of the details spelled out in terms of what security hurdles you will be required to clear (especially important for regulated industries). These requirements commonly extend past pure IT / Technology issues but include process items such as DR and BC plans, hiring processes and SOPs, etc. Ensure that any provision written into the contract can be met.

If the economics of supporting an early client don’t make sense anymore make the decision early and address it simply.

While it is easy to see the situation as a failing one half step to the left and it can seem like an indication of growth and maturity. Hopefully it won’t happen to you but if it does you will be in good company.