In the world of design and construction, it is ultimately relationships that create success or failure in your business. Selecting the right client to work with is paramount to the long-term sustainability of your company.
Let’s look at a typical client lifecycle and discuss the important factors of consideration.
If you ask most companies, they are looking to grow. What most companies really mean is that they are looking for the right clients to grow with. Three aspects that can be used to determine if they are the right fit are:
- Relationship
- Risk management
- Financial strength
Relationships are important. How we get an opportunity to talk with a new prospect often plays into the strength of our relationships. If we have one of our existing key clients refer us to a prospect, we can expect that the ‘fit’ will be a good one. A typical referral is saying, “I think you two will work great together, so I want to make this introduction.”
Whether through referral or not, it is important during the process of working with new prospects that we find out if there is chemistry between the owners, if the values of the companies are in line and if there are common and realistic expectations. Ultimately, will this be a partnership where there is common interest and trust? Another step in this due process is to conduct some client research. Are they litigious? Have they already burned the bridges of your competitors? Do they pay on time? You get the picture. To not value and put emphasis on this process is to acknowledge that there is no such thing as a bad client. If you have been in business for a while, you know this is not true.
Risk management transfer between parties is a very important aspect of the relationship in the design and construction industries because of the subcontractor relationships that naturally exist. The first area to consider related to this is the subcontractor agreement that must exist and be signed. This agreement should clarify the relationship and expectations between the two parties. Related to insurance and liability; it should be written fairly and ultimately, and each company should be responsible for its own work. Keep in mind that any certificate of insurance with specific wording must be backed up by a signed contract in place. Specific to architects and engineers and other industries that provide more of a service solution, it is important that the contract requires any subcontracted work to maintain professional liability for the true duration of any perceived potential liability.
A second consideration related to risk is the ratio of potential risk relative to potential revenue, short- and long-term. Tim Schauer, president and CEO of MacKay Sposito, illustrates this point well.
“With any new client or new line of work we carefully weigh the potential risk or liability and obviously contrast that against the first project’s revenue, but more significantly [we consider] the potential for a long-term win-win client relationship and then make the best long-term business decision about engaging in that work,” said Schauer. “If you don’t consider the long-term potential as well, you may not get past the first opportunity.”
Finally, it is important that however great the relationship and opportunity is, addressing a new client’s ability to pay can be tricky. If it is not possible to objectively determine financial strength, at a minimum, have a candid discussion about expectations related to payment and timing. Then remember to execute the contract which clearly defines the relationship and documents the expectations.
Good luck and have fun continuing to build your business by engaging with the right clients that turn out to be valued long-term partners.
Tony Johnson is an accredited advisor in insurance and can be reached at Davidson & Associates Insurance, 360.514.9550 or Tony@Davidsoninsurance.com.
