Proxy clients, Out-sourcing & Other Things That Sound Good But Aren`t

August 31, 2009
In the technology industry there are a few fairy tales, that sound like a great idea, listed here in their respective order of annoyance:
1. Proxy clients. While not as bad as some other items on this list, Proxy Clients are still a considerable headache for an IT company. These are accounts that were developed (from a business perspective) by a Broker and then handed to a Tech-shop tofelicitate. The Brokers, by and large,aren'ttoo fond of the Tech company speaking with the client directly and therefore prefer for the communication to go through them; therefore the title "Proxy Client". The Broker wants control over the relationship and the client wants a product, more often then not, thinking that the Broker is going to do the development themselves, the Tech Co. wants the billable hours and therefore this seems like an arrangement made in business heaven. Unfortunately it is anything but. Brokers tend to have very limited understanding of how technology works and therefore are not able to express to the clients why issues arise when they do, why extra development will cost extra dollars. The client in turn gets increasingly, and understandably,agitatedwith the whole transaction and the Tech company has to deal with the fallout on both ends. These issues could be resolved oh so easily if the Tech Shop could simply speak with the client directly.
2. Outsourcing... there have been so many articles written about outsourcing and why itdoesn'twork that its astonishing to see business owners consider this a viable option.
How its supposed to work: ABC Corporation has an IT need but are very price resistant. After chatting with a few local, reputable and established IT companies someone has the following idea "lets go to India / China / Mexico, etc. Its cheaper and I bet they can do it just as quick as the boys down the street". ABC Corp. then contacts one of thequintillioncompanies located in those areas of the world andultimatelyissues a payment. The Outsource IT Company completes the project under-budget and ahead of time frames and delivers a quality product that they are going to support. ABC Corporation is happy, and the upper management celebrates by slapping each-other on the back.
What actually happens: the Outsource IT company takes the payment, and either develops nothing at all, or stops halfway through and demands more money while holding ABC Corporation hostage using their own product as leverage. This process can occur several times in one project until ABC Co. finally realizes that this is the definition of a Sunk-CostFallacy and either withdraws the project all together or goes down the street to one of the firms they were dealing with before and pays twice or three times as much in total.
How to avoid the problem: don't deal with people that you cannot meet in person.
Complex & underfunded projects: While most Technology companies understand the fact that there are clients out there thatdon'thave large IT dedicated budgets, what is harder to understand is why these companies expect work to be done for free. Would an accountant do a corporate tax return without getting paid? Would a lawyer be interested in writing a shareholders agreement pro-bono? The answer is NO. In fact its N-O-O-O. The reason for this is that most business out there is For-Profit, which means that time isnt free and neither is the product. On a bit of a side note - the reason why this item wins the MostIrritatingThing Possible award isbecause most of these projects are complex time-intensive projects and the non-paying client states that the Tech Company would actually benefit because they can post the work on their Portfolio. By the same logic Ford should be giving out trucks for free because more of them would be on the road therefore increasing Ford'sviability. But they don't, and neither do we.
In conclusion, when there is an IT need consideration should be given to the following before quotes are requested: What is our budget like? Can we meet these people in Person at their offices? Are we dealing with the Developers directly or are we speaking to a Broker?

Considering that the impact of getting even one the above 3 wrong could mean thousands (if not more) of dollars wasted, theutmostduediligence

should beexercised at all times when dealing with Tech. Done right a Tech company would become its clients' best friend. Done wrong - it will act as avengefulEx-wifecomingafter the trust fund.

Daniel Lipovetsky
SWS Corporation
Director of Business Development