Friday, January 31, 2025

I Learn the Beauty of Perpetual Contracts - Lessons Learned

I Learn the Beauty of Perpetual Contracts 

This is Episode 16 of the ongoing Lessons Learned series. For all the information, and an index of Lessons Learned episodes, go to the Lessons Learned Page

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Today's topic:   I Learn the Beauty of Perpetual Contracts


When I started my independent consulting, I had one client at a time. Which is to say, I signed a contract for a fulltime gig. And for several years, this worked well. See Episodes 5 and 6. As I eased into having multiple clients, I wasn't sure what kind of contract they should have.

I probably should have sought out another IT consultant, but I wisely contacted an attorney who would trade two of my hours for one of his hours. I didn't need a lot of time, but I did need advice.

He set me up with a standard contract that could be used two ways: 1) Sell labor per hour, or 2) Sell labor in blocks of time. At the time (late 1990's), he got the boilerplate from a service he subscribed to. Boilerplate language was either delivered on CD-ROM or by dialing into a service with a modem. Today, of course, a much better collection of verbiage is available over the Internet.

The contract had one additional feature I didn't pay attention to at the time: It was good for one year (twelve months) from the day we signed it. This seemed normal enough. After all, I had come from the world of "one client at a time," and my contracts were generally for twelve months.

But a year later, as contracts came up for renewal, I discovered the weakness in these expirations. I thought I would simply slide a new contract across the desk and say, "sign here." After all, the contract was unchanged except the dates and maybe a small increase in the hourly rate.

But to the client, this was a bigger deal - and an opportunity to bring up every little thing that might get them a lower rate or easier terms. What is really revealed to me was: 1) I need to have these conversations all the time (without the contract), and 2) the contract needs to not expire.

Back to the lawyer.

The lawyer's reaction was along the lines of, "Oh. You need a perpetual contract." So, I laid out all the little things I thought could be improved, and he re-wrote the contract to be good for one year, at which point it renewed every thirty days until cancelled.

I know people go on and on about two- and three-year contracts. But even today, I believe in NOT holding your clients hostage with long-term contracts. You don't like vendors doing this to you; you should do this to your clients. I ran my IT businesses very successfully for two decades on thirty-day renewals.

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This incident also taught me that there are lawyers who are good as business advisors, and those who are merely good at law. Because of my corporate upbringing, I had only worked with lawyers who were good with business conversations. Now I had an attorney who basically said, "You didn't say you wanted a perpetual contract." 

Remember that in your business. Don't sell the client just what they ask for. Be a true advisor - on both the technical and the business front. Say, "What you really need is ...."

Very much related to the lesson above, I started making a big deal of holding regular conversations with clients. In this way, there was no annual get-together to discuss their problems and how service was going. I had monthly and quarterly get-togethers. I took people to lunch on a regular basis. With every job, we also talked about where this fits in their bigger picture.

The non-technical side of my service business was coming together. But I still had a big challenge. From time to time there were unprofitable jobs. I knew that could not be the norm. And, in fact, it should never happen.

We'll talk about that next time: How I learned to quote profitable jobs.

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