11 Buyer Warning Signs IT Service Firms Should Watch Out For - Part 1

By Tom "Bald Dog" Varjan


Have you ever heard of the Beria paradigm? It states you first find people whom you don't like, fabricate various criminal acts, pin them on the poor bastards and then execute them for the fabricated crimes.

The idea originates from Lavrentiy Beria, an exceptionally cruel secret police chief under the bloodthirsty communist tyrant, Joseph Stalin.

As the longest-serving - 12 years - police chief, he terrorised both Russia and the whole Eastern Europe.

He loved bragging about his cunning ability to fabricate criminal acts innocent people and have them executed.

His favourite phrase of braggadocio was, "Show me the man and I'll show you the crime."

No amount of innocence and evidence had a shred of chance against Beria's expertise of crime fabrication.

Among others, he was the mastermind behind the Katyn massacre in 1939 where the Soviet army executed some 22,000 Polish military officers.

He stayed in power until Nikita Khrushchev's 1953 coup d'etat, when good ol' Nikita had him executed.

Legend has it that before receiving the fatal shot in the forehead from General Pavel Batitsky, Baria pleaded for his life on his knees wailing uncontrollably.

Interestingly that was a fairly common behaviour of extremely cruel people like interior minister Nikolai Yezhov and many other bloodthirsty monsters.

Apart from the executions, business development and projects work for boutique IT service firms can feel very similar.

Firm leaders make a commitment that they will carefully screen clients in the future but when the next elusive prospect shows up in their sales funnels, then any client is good enough no amount of money is too small to accept.

So, then the project team members have to walk on eggshells not to make waves and subserviently accept everything clients say or do.

In this article, we address 11 buyer red flags, but in your operation, you may have more, fewer, more or different ones.

So, let's see how in the name of the holy sausage can bad clients wreak havoc on your firm and its profitability.

Buyer Warning Sign #1: "How Much?" Is Their First Question

On the surface, this is a bad question, and there is a good chance that prospects who ask it are worth dumping as quickly as possible, it's also an opportunity to answer it and then asking the next question.

When buyers ask my rate, I often tell them that is most certainly higher than their accountants' rates and most probably higher than their attorneys' rates.

At this point, most buyers start huffing and puffing how that can be, but then I ask them how much new business their accountants or attorneys have ever brought to them.

And they say, "None".

Then I remind them that since they expect my strategy and sales copy to generate millions of dollars of new business down the road, so I should be paid more than the accountants or lawyers.

A few of them calm down at this point and realise I'm right. But most of them bugger off. Well, good riddance.

How can you avoid this "evil question"?

With better differentiation.

Knowing that buyers some 60% of the buying decision is based on what buyers read in your written materials, you have plenty of opportunities to create the desired perception in your buyers' minds.

I believe every boutique IT service firm should have a white paper on how find, screen, engage and work with a firm in your industry.

So, let's say...

Firm: Custom software development firm.

Target market: Funeral homes (you can say my gravedigger days are still haunting me).

White paper: Smart funeral director's guide to finding, screening, engaging and working with the right custom software development firm.

From this report, readers learn:

A white paper like this does two things:

  1. It informs buyers how to evaluate IT services in the right context and based on the right criteria.

  2. It gently but firmly indoctrinates buyers to your way of thinking.

Yes, I know the word "indoctrinate" has a negative connotation, but let's get over it. We're not doing anything evil here. We simply start drawing the line in the sand and lay down the ground rules of working with you.

Once you've engaged the buyer and managed to steer the conversation from the price, ask buyers about their afflictions and aspirations.

Ask them in the S.M.A.R.T.S. (Specific, Measurable, Achievable, Relevant, Time-bound and Shared) context.

A few words about the "Achievable" part. It's achievable with higher than average (based on industry averages) focus and attention. It's a stretch goal not an pipedream. It's possible to achieve but it takes more than the typical "business as usual" approach.

Good byers love talking about their both problems and, especially, opportunities.

And accomplishments phrased in the S.M.A.R.T.S. context can be easily quantified.

Accomplishments like...

Here are four good questions you can ask.

  1. Where would you like to be in terms of the S.M.A.R.T.S. context?

  2. Where are you right now?

  3. How much money is left on the table by letting this problem fester? Or by ignoring this opportunity?

  4. (Optional) How much money are you willing to invest to solve this problem?

As for #4, I only state my MEL (Minimum Engagement Value) but don't ask about the budget. In my experience, as buyers recognise the full magnitude of the problem, the budget usually expands.

Yes, some buyers ask for the Sun and the Moon on ridiculously low budget, but they can and should be ignored and dumped as quickly as possible.

Buyer Warning Sign #2: Sharpen Your Pencil "Discount Seekers"

In most cases, these buyers are incompetent nincompoops who know right from the start that they don't have the intellectual wherewithal to turn your contribution into hefty pay-offs.

And this is why they regard IT as a necessary evil not as a tool to improve individual and organisation-wide performance.

Real businesspeople treat IT as an investment and they anticipate good returns.

They also know that they get what they pay for.

But these buyers are downright cheapskates. They seem to know the price of everything but the value of nothing.

The reality is that only a very few business leaders are strategic enough to comprehend the concept of investment.

Roughly 90% of them are "tactical leaders. They can think "nuts and bolts" but hopeless at the "big picture".

Roughly 9% of them are "strategic" leaders. They can think "big picture" (strategy) all day but hopeless at the "nuts and bolts" (tactics, implementation).

Roughly 1% are both tactical and strategic leaders. They know how to set strategy and how to execute on it. Hence, they can relate both to investments and returns on investments.

I usually tell my clients that about 0.5-2% of the market is suitable for perfect clients. And since only about 3% of the leads are ready to buy at the moment of contact, there are not too many quality buyers are lurking out there.

The other big difference between perfect buyers and the rest.

Perfect buyers recognise the importance of IT in their firms, but the rest of the buyers, regard IT as a necessary evil, and they try to pay for it as little as possible.

The minority of the non-perfect buyers can be educated about the importance of IT and as they learn, their perception of IT, hence IT's value, changes.

But the majority of non-perfect buyers are about as hopeless as a broken-hearted teenage girl, and the best bet is to dump them.

Also, by the time buyers are ready to meet you, they've done their due diligence, so they know about your industry's prices.

But...

Perfect buyers have taken the top-range prices as the basis of comparison, while all the other buyers' comparison basis comes from the bottom range.

Perfect buyers know that custom software development's going rates are around...

...and they don't get a heart attack when they hear your prices.

Non-perfect buyers have studied the bottom price range of the industry and they hope they can haggle the $75 hourly rate down to $30 per hour as they ask you to create something like Facebook or Twitter for under $10,000.

So, you just have to know when to invest time to educate buyers and when to dump them right away.

Oh, and let's remember that discount-hunters are pretty demanding in other areas too. They are notorious for shrinking deadlines and expanding project scopes and payment terms.

And if you get the idea into your head that a buyer is a jerk, but you can rectify his flaws during the project, then forget about it.

If the relationship starts out on the wrong foot, it continues on the "wronger" foot.

If in doubt, kick 'em out.

Buyer Warning Sign #3: "Type A" Control Freaks

Control freaks try to control others in different ways.

Some are egomaniacs and love bragging about how successful they are. But we also know that truly successful people never brag about their accomplishments.

A good example is the buyer, or later, client, who says, "Actually, I'm a very good programmer, and if I had the time, I would do it myself."

That alone sounds rather idiotic.

Some of them try to micromanage you. In the words of the 80's Police song...

"Every breath you take,
Every move you make,
Every bond you break,
Every step you take,
I'll be watching you."

Those nutcases demand detailed activity reports from you broken down to 15-minute chunks.

Some others suffer from Munchausen syndrome. It's a factitious mental disorder in which people act as if they were physically or mentally ill when, in fact, they are not. But they do it hoping this behaviour would garner sympathy from others.

Many years ago, I had a buyer who was addicted to porn.

We got on a call to get the details about his firm and the project, but he kept talking about his addiction and why he refused to seek professional help.

Well, until one day a female programmer walked into his office while he was busy masturbating.

Then the shit seriously hit the fan. Some 60% of his staff packed up and left the firm.

Anyway, I decided not to accept him as a new client because I had a bad feeling about the whole situation.

I don't know if he's got himself cured, but even if he did, it seemed to me that he loved talking about his addiction just a bit too much and I wasn't too keen on hearing it.

So, what to do with control freaks? Some experts say, you try to work around their idiosyncrasies and then they can become tolerable clients.

And that's fine if you work at a large "high-volume, low-margin" IT firm.

But in the boutique world, where you do "low-volume, high-margin" work, you have to select every client pretty carefully.

Some clients are not ready to receive boutique experience. And you shouldn't try to ram it down their throats. There are plenty of IT service firms that follow the "high-volume, low-margin" factory model, and those firms are good enough for those self-righteous knuckleheads.

There is one point though.

If you want to make a habit of dumping inappropriate buyers, you need to have a kick-arse lead generation system.

Sadly, if you have a shortage of sales leads, then you're forced to accept any idiot as a client.

Regardless of whether or not you work with less than perfect clients, beef up your communication.

It means create a document called "Client Communication" and send it to your new clients.

Project related communication should be with the project manager and people-related communication should be with the account manager.

Remember, project managers manage projects and account managers manage relationships. The former is a left-brained, cerebral process, whereas the latter is a right-brained, empathy-driven process.

I recommend clients weekly briefing calls. After the call, the recording of the calls and the minutes are distributed to all team members.

Between meetings, the account manager can handle all the communication.

Nevertheless, in your agreements, make sure you specify the kind of access clients have to you and a response time that you're willing to commit to.

Of course, being a boutique firm, you have to offer more access than a factory type IT service firm, but you still can limit access.

And when it comes to response time, be more responsive to responsive clients and be less responsive to less responsive clients.

And when a client whose response time can be 3-4 days demands that you respond to his phone call 24/7, then you'd better read the riot act before this unacceptable situation gets even worse.

Buyer Warning Sign #4: They Turn You Into A Commoditize Fungible Vendor

It's perfectly acceptable when buyers say they want to scan the horizon to see what's available in your industry. Of course, we can't expect people to engage us without checking the competition.

Only gangsters and politicians do that when they award lucrative contracts to their brownnosers. Mind you, instead of "and", maybe I should use "/" because gangsters and politicians are more or less the same group. And I'm not even sure which word the public finds more acceptable.

So, a certain level of checking the market is fine, but when buyers overdo it, it's an obvious sign that they're looking for the lowest bidder.

Every industry looks like the Gaussian bell curve. At the nose end, you have the market leaders, in the middle, the mediocre bunch and at the end, the losers.

But the terms, winner, mediocre bunch and loser depend on your selection criteria.

Let's look at retail...

For a quantity-conscious price-shopper, Walmart is the undisputed winner. For a quality-conscious value-shopper, Walmart is a disaster zone to be avoided at any cost.

And the more time buyers spend checking the market, the more of your competitors they will check. As a result, they establish some going rates in their minds.

The problem is that buyers are likely to do their due diligence among the "carefully-priced" mediocre bunch of your industry and then when they bump into you, they get excited about your differentiation, including higher quality. But then they get shocked when they hear that the higher quality comes at a higher price.

But by this point, buyers have already commoditised your industry, and expect "reasonable" prices. What "reasonable" means in this context is highly debatable.

The bottom-achingly ugly reality is that most buyers don't know how to compare IT services, and end up comparing apples to oranges.

"ABX firm must be more established, hence reputable than XYZ firm, because it has offices all over the world."

Exactly. One head office in Bangladesh, a dot com web domain and mailboxes in the world's 20 biggest cities. And a small army of $2 per hour "IT consultants" and "software engineers".

Most of them don't speak English and none of them understands the business climate of the country where they are hawking their expertise to.

So, buyer base their selection on the wrong criteria.

According to a 2008 study of Global Fortune 1000 recruiters by the Wellesley Group and Broderick & Co., the four most valuable skills professionals bring to the table on the top of their core skills are...

  1. Subject matter expertise in the buyer's industry (43%)

  2. Hands-on industrial experience in the buyer's industry (23%)

  3. Solid understanding of the buyer's business (13%)

  4. Collaborative work style (13#)

And the last two criteria on the list are price (#11 - 1%) and physical location (#12 - 1%)

Yet, what do most buyers check?

Criteria like existing relationship (3%) or firm's history (1%)

All in all, most buyers don't have the faintest fart of an idea how to conduct due diligence on your industry. They keep using the wrong criteria and that perverted selection process can lose you great clients.

So, what can be done?

As a seller, it's your job to educate your buyers about the right selection criteria.

Knowing that buyers read about seven pieces of content, create content for every stage of the buying decision.

Lots of IT service firms create arbitrary content pieces (whatever topics they can find cheap content writers for) and post them on their websites in no particular order.

And since there is no specific order, buyers are aimlessly roaming your website and reading information out of sequence.

They need guidance, as to what to read first and next and next. This is how you can build up the value of your services in their minds and dig your way out of the commodity trap.

Buyer Warning Sign #5: They Extensively Hire From Fiverr, Upwork Or Other Low-Profile Portals

There are many clients who have out-tasked some basic tasks to Fiverr or Upwork, and that's acceptable. But watch out for buyers who do major outsourcing to those platforms.

But what's the difference between out-tasking and outsourcing.

Out-tasking is all about getting one single task done once.

In out-tasking, an independent service provider is contracted to perform one single short-term task. For instance, you hire someone to clean your bathtub. One simple task done once.

In outsourcing, an independent service provider is contracted to perform specific business functions. For instance, you hire someone to keep your home clean. A set of tasks performed repeatedly.

So, if you're a custom software development firm and a buyer says, "Our software developer has just got a job and left Upwork, so we want to replace him as quickly as possible", then you know what to do.

Maybe you can ask a few bold questions and see if the buyer can handle them.

For instance, you can state you MEL (Minimum Engagement Value).

Why?

Because even if your firm is at the low end of pricing (south of $100 per hour), and your buyer is used to $25 per hour, your price presents a massive sticker shock. Even a heart attack.

Granted, there are a few great, value-conscious buyers on Upwork, but 95% of them are ruthless discount hunters looking for the cheapest deals.

The reality is that when it comes to needle-moving initiatives (that are expected to make significant improvement), then Upwork is very seldom the best option.

Smart buyers agree with John Ruskin (Common Sense vs. Nonsense)...

"It's unwise to pay too much, but it is worse to pay too little. When you pay too much, you lose a little money - that's all. When you pay too little, you sometimes lose everything, because the thing you bought was incapable of doing it was bought to do. The common law of business balance prohibits paying a little and getting a lot - it can't be done. If you deal with the lowest bidder, it is well to add something for the risk you run. And if you do that, you will have enough to pay for something better."

If it is a truly mission-critical engagement, then price is not a major factor. In four decades of skydiving, I've never met people price-shopping their gear, especially their canopies.

In my experience, petty buyers with petty businesses set petty selection criteria. See buyer warning sign #4.

Based on Pareto's 80/20 rule, it's fair to say that 80% (or more) buyers come to you with idiotic selection criteria.

Criteria that are almost 100% tactical and almost 0% strategic. So, before you engage buyers in sales conversations, make sure you've taken the opportunity to educate them about the selection criteria.

Re-read buyer warning sign #2 and that most buyers are tactical people with zero or very little understanding of strategy.

Buyers buy the same way they sell. Buyers who buy on price sell on price. So, by accepting work from cheapskates, you're likely to land a gig with a business that sells some cheap crap of dubious quality.

And if your client gets involved in some shady activities, you are guilty by association. Just think about how Arthur Andersen went down with Enron in 2001. Mind you, Arthur Andersen was really guilty of cooking Enron's books from two angles. Both accounting and auditing.

The other problem with cheapskate buyers is that cheapness goes hand-in-hand with instant gratification. Quoting the 1989 Queen song from The Miracle album, I Want It All...

"I want it all, I want it all, I want it all and I want it now."

... cheapskate buyers want it all, want it now and want it at the lowest possible price. They want to see Earth-shattering improvements by yesterday.

But the world doesn't work that way.

---

So, these were the first five of the 11 buyer warning signs.

Read them, think if and how they apply to your firm and then I post the other six in a few days.

In the meantime, be good, be safe and have a great 2021.

It's all well and good, but to apply it all, you need to know how your target market perceives your firm.

Is it a fungible IT vendor or a respected IT authority?

It's the market that hangs your brand around your neck based on the outside perception of your firm.

But you can also influence the outside perception by tweaking your firm's inside reality, that is, your culture, by consciously transforming your firm from vendor to authority.

In this peddler quiz, you can check whether your firm is more of a fungible IT vendor or a respected IT authority.

In the meantime, don't sell harder. Market smarter and your business will be better off for it.

Attribution: "This article was written by Tom "Bald Dog" Varjan who helps privately held information technology companies to develop high leverage client acquisition systems and business development teams in order to sell their products and services to premium clients at premium fees and prices. Visit Tom's website at http://www.varjan.com.