Doing Business With Friends.

I have a lot of clients that have become good friends. I like that. There are a few folks that I have been working with so long, and so much respect and trust has been built up that we can’t help but becoming friends. If they travel to Seattle to visit their servers at our facility I’m happy to take them to dinner. In some cases I even invite them out to my house. In exceptional cases, I even let them drive my old Jaguar!** While Jaguar drives are not listed in our services, friendship and trust certainly is. You can’t stay in business as long as we have without that kind of attachment to our clients.

I was reminded recently though that trust and friendship needs to work in both directions and when that bond breaks, it is very difficult to deal with, and painful to recover from.

I’ll refrain from naming any names, and relate this story as simply as possible. In this case, this client was a friend before they became a client. They became a client in 2002 when we acquired a competitor. Over the years I got to know them even better, and did my best to make their experience as a d.f customer a positive experience. The services they purchased from us were highly specialized and bandwidth-intensive, and I made it a point to dedicate technical staff to their account, and make myself available at a moment’s notice when they needed me. They had my cell phone #s, my iChat handle, etc. That level of access was available, and it was used. In 2003 they had some financial difficulty and in order to help them out I suggested an exchange of services – we’d barter the base hosting in exchange for some of their product. They would still need to pay for bandwidth (because that had a cost on our end too.) I know this would really help them out.

Unfortunately, due to some internal miscommunication among their staff at the time, we never did get their product, at least not at the equivalent level in trade as we expected. It was no big deal from our perspective because we really didn’t *need* it, so I just shrugged it off. Meanwhile, their bandwidth usage went through the roof, as they added a new component to their service that quadrupled their bandwidth usage.

About six months later, one of the billing staff came to me and let me know that this client had not paid a single invoice in many, many months. They also had not returned any emails or phone calls. I found that troubling. I asked her to keep me in the loop. Eventually they did answer a phone call and replied to inquiries about the billing with “We made a deal with Chuck.” I informed billing that yes, we had made a deal, but it did not release them from their bandwidth liabilities… I reviewed the statements, and they were correct. I informed billing that I’d talk to the client and get it sorted out. Together with our Sales dept. I contacted the client and reminded them that they were still liable for the bandwidth charges, and that our barter was never lived up to on their end as well. The client cried poverty and told us they could not afford the services, but that they had some new sources of income that they were expecting any moment. (I bowed out at that point – I work in the tech side of the business and leave the money handling to the professionals in sales and billing.) Eventually they worked out a payment plan that would cover their base monthly cost, and chip away at the back debt – which by now had grown to many thousand dollars.

What bothered me most was not the debt, or the obviously shaky financial position of the client, so much as the fact that their bandwidth needs and usage just kept growing and growing. It is an all-too-common Internet story… the web-based business that sinks itself in cost long before it can pay for those costs. I really didn’t want d.f to be left holding the bag. But last year they switched to an even MORE bandwidth-intensive technology and promoted it heavily. The server they were on crumbled under the load, and we spent weeks troubleshooting and attempting to resolve their issues. Eventually we threw the highest-spec hardware we could find at the problem and it solved it – technically at least. All we did however was enable them to use even more bandwidth, digging themselves deeper.

Meanwhile, the payment plan was not going well. They were consistently late, and frequently just plain absent with the payments… even though we had whittled them down to pennies on the dollar. Of course, with their bandwidth usage through the roof those pennies were doing nothing to backfill the gigantic financial hole being created weekly. Their monthly usage was measured in $thousand and their quarterly payments were measured in $hundred. Plus, they were never on-time with payment. This was not good. The debt grew to where it started being very visible on the balance sheet. The proverbial sore thumb. Our CEO, who is probably the most fiscally responsible human being on the planet (one of the reasons why digital.forest is a survivor in an industry strewn with dead) started riding the Sales & Billing departments very hard to get this client and their debt sorted out ASAP.

Nine months ago, we shut them off a week after their payment deadline passed. The response was shock & fury. They made life miserable for the sales and billing staff dealing with their account status, and I felt very much in the middle. They were 180+ days behind on one payment and 7 days behind on another, but somehow they were angry with us? Thrust into the middle, I spoke to my friend, the owner of this business, and he provided a credit card number, which I passed to billing. They charged both the previous and current payment on the card, and we turned their site back on. I thought all was well at that point. Apparently not. The owner went ballistic as he assumed only one payment would be charged. His response was to unilaterally revoke their side of the barter deal he and I had worked out, so that now we had no use of their product. Mind you, it was no big deal to us, as it had limited value to us, but it was symbolically a huge shift in the relationship between the two entities.

The subsequent quarter went by quietly, and they continued to accrue significant bandwidth debt, while making no effort to pay it down. It appeared to all concerned that this company had finally received the major source of financing that they mentioned earlier so we at d.f assumed that they’d make some moves to start dealing with that debt – which by now measured over $10,000. They had money, they were certainly and conspicuously spending money, just none of it was flowing our way. We wished to avoid the drama of the last payment deadline, so I gently made reminders for over a week beforehand to ensure they didn’t miss it. Payment arrived at the last possible moment, and it was the minimum amount. No extra towards the debt. Our CEO had enough, no more reminders, no more payment plan, no more mister nice guy. I was told to stay out.

So eventually, the next payment deadline came, and went. Not a dime. The account was suspended and the client had lots of excuses, but no willingness to make anything more than a token effort towards retiring their debt. One of our patient-beyond-words billing people attempted to negotiate a new payment plan, that would theoretically provide about a full year to pay off the full debt, with no luck. The client pulled up stakes and moved their Internet presence to a competitor.

The painful part is that I doubt my friend will ever be very friendly with me ever again. He’s the sole proprietor of this business (at least from what I can see… it does not appear to be a corporation) which means this debt is his debt. If we have to turn this over to collections, it is HIM. I didn’t want this to be personal, but I expect it will be perceived as so.

I have no intention of changing the way I place trust and friendship high in the list of priorities in dealing with our clients, but this episode taught me some hard lessons. One of them is that balancing of client relations with financial reality can be a very difficult thing. We would have never allowed a ‘non-friend” to dig themselves THAT deep financially. In hindsight it was stupid for us to do so really. If we had been realistic, or detached in our viewpoint, we would have realized the whole “Bad Lieutenant betting on the Mets” financial scenario unfolding before us. In the future I’ll never let the “friend” status of a client drive financial decisions in matters beyond about 90 days. The nature of our business growth at the moment makes a repeat of this scenario unlikely, but the experience has left some scars, and wisdom, behind.

I have no idea if this client can pay the debt and make the whole problem vanish, or if we’ll be faced with taking the hit ourselves and writing it off our books (a tough situation in this close margin biz), or some solution in between. Only time will tell.

** That linked photo is Titus Bicknell of the Discovery Channel. Titus has been a digital.forest client for years and years.. a great guy, snappy dresser, and provides me with a semi-regular supply of Laphroig 10 year old cask strength malt whisky when he ventures over from the UK. That photo was taken on a snowy November morning as we took a spin around my “block”… which is about a 4 mile drive. Even though the steering wheel was on the wrong side for him, Titus was a very happy boy after the drive. Besides, how could I deny a Scotch-bearing Englishman a spin in an E-type? The above story is NOT about Titus, or his employer. If anything they serve as the flip side to this scenario.