There’s Scope Creep Around Every Corner

Introduction:

For Lena McGuire, scope creep really can show up around every corner. She’s in the home remodeling business. But for most owners, including Jaci Russo and Ted Wolf, projects that expand out of control can be less visible but just as hard to contain. It’s baked into the job, because every assignment comes with a built-in tradeoff: Protect your margins or protect the relationship. And especially in the early days of a business, when reputation feels like everything, that’s not much of a choice. “I was afraid to have tough conversations with people,” Ted says. “I just wanted everybody to like us.”

Over time, systems help and boundaries get clearer. But the pressure never fully disappears. There’s always one more request, one more detail to tweak—especially when you’re thinking about the reviews and testimonials. “You want to get those nice photos at the end,” says remodeler Lena. “You want to get a referral.” This week, Lena, Jaci, and Ted talk about how their thinking on scope creep has evolved—and why it never stops being an issue.

Plus: On the small business subreddit, an owner recently posted that he finds chasing accounts receivable so distasteful—it feels like begging—that he often puts it off and hopes for the best. “Is this just me?” he wants to know. “Or is this a common thing for small business owners?” We discuss. And Jaci explains why, even if she could get it, she wouldn’t even consider accepting a $500 million account promoting a big deal consumer brand.

— Loren Feldman

Guests:

Lena McGuire is CEO of Spóca Kitchen & Bath.

Jaci Russo is CEO of BrandRusso.

Ted Wolf is CEO of Guidewise.

Producer:

Jess Thoubboron is founder of Blank Word.

Full Episode Transcript:

Loren Feldman:
Welcome Lena, Jaci, and Ted. It’s great to have all of you here. I want to start with an issue that’s come up here from time to time, but we’ve never really addressed it head on. And that’s dealing with the dreaded phrase of scope creep. I guess, first question: At some point, has this been an issue for all three of you?

Jaci Russo:
Oh, yeah.

Lena McGuire:
Yes.

Ted Wolf:
Yeah, definitely for me.

Loren Feldman:
All right. Anybody, can you tell me the last time a project went beyond what you scoped and what actually happened? Who wants to go first?

Jaci Russo:
12 minutes ago. [Laughter]

Lena McGuire:
Every project.

Loren Feldman:
Jaci, you go first.

Jaci Russo:
Okay, and I don’t mean to be jumping in quicker with the answer. It’s just like, literally, as I was logging in, someone was in my office sharing with me that we were working on this thing. And I said, “Was that in the original scope?” And they said, “No.” So it literally just happened.

Loren Feldman:
I like being timely, Jaci.

Jaci Russo:
You are always timely, Loren. For us, I will take responsibility, and I will share the credit slash blame. I think that, as a service-oriented company in professional services—and really focusing on service—we pride ourselves on being high-touch, high-value, which also means kind of high cost. There’s going to be that yes factor: Yes, we can help with that. Yes, we can do that. Yes, we want to make sure we have all of these pieces so that we can paint the full picture and achieve the goals. And I think that naturally lends itself to scope creep.

Loren Feldman:
I want to hear what happened in this specific instance and how you will deal with it, now that it’s happened.

Jaci Russo:
Sure, most of our clients are understaffed in their own departments, which is part of the reason we have jobs. So I appreciate that. But then there’s things that they can’t do—they don’t have the skill-sets, the software, the talent, the time for. And they turn to us.

And it reminds me sometimes of when somebody asks someone in charge of IT to build a website. Because in their mind, those things are both computer things, and so they must go together—when in fact, those two things are not at all the same. So sometimes scope creep comes from just not knowing where the parameters are. So that’s a little bit of: We should communicate better, and they should ask more questions, or not assume so much. And then I think sometimes scope creep happens because the original scope was defined so long ago. It evolves over time.

Loren Feldman:
What happened 12 minutes ago?

Jaci Russo:
12 minutes ago, we were doing marketing for an event, a B2B conference. And so, I was surprised to discover we are also now creating all of the decks for the speakers who were hired to present at the conference.

Loren Feldman:
And how did that happen?

Jaci Russo:
Scope creep.

Loren Feldman:
But more specifically?

Jaci Russo:
So, the account manager was asked, “Oh, so hey, I’m sending over the decks for those to get designed.” And people pleaser said, “Okay, great, we’ll get them to you in three days.” Or whatever the timeline was like. I’m like, “But that’s not marketing the conference.”

Loren Feldman:
Got it. Lena, how about you? You said, “every project.” Tell us about a recent one.

Lena McGuire:
Sure, every project. Well, I’m in remodeling, and people don’t really understand what they want to do in the beginning. Everybody works the same way in their home. If you’re painting the kitchen, all of a sudden, the dining room looks dingy. So, you know, we might as well do it. So it’s a little bit of a, “While you’re at it, why don’t we do this?” And then you paint the hallway, and now you have to replace the doors or paint those. There’s just scope creep around every corner.

Loren Feldman:
Those examples sound pretty clear cut. Like, most homeowners would understand that if you’re going to paint another room, there’s going to be an additional charge.

Lena McGuire:
Yes, but when they want to add new doorknobs, they think, “Oh, well, we were replacing the door.” Well, yes, you need hardware and hinges, too. So sometimes they forget about everything that’s included. And it’s: Take down the old ones, dispose of them, buy the new ones, install the new ones, put the hardware in. So they don’t really understand the scope of the scope creep.

Loren Feldman:
And how do you generally deal with it? Do you swallow it, or do you try to push back?

Lena McGuire:
I used to, but now we are much better at defining our deliverables. So we talk about things that could happen, and we talk about scope creep and how it will be handled. And a lot of times, it’s just simple phrasing. When somebody says—after I’ve shown them three different versions of a space, and they want to do something different, and we’ve included this many revisions. So you have to remind them that this is going to be additional. And in the contract, there is a clause that says: Additional work is billed at this rate, or it’s a change order.

So there are different ways to handle it, but trying to set the expectations at the beginning meeting and then talking to them as we go through the project is helpful. But it always comes up because somebody will have a creative idea. “Oh, I think we could squeeze a pantry in the kitchen corner over here.” Or, “What about adding on the mud room?” Or, “Since we’re doing this, why don’t we go ahead and do that powder room we talked about?”

So it’s scope creep, but it’s also an opportunity to do some upselling. So it depends on how you look at it. You can absorb it as scope creep, or you can say, “That’s not in our contract, and now we need to revise that. Let me put a proposal together for you. Let me tell you how much time it’s going to take, how much it’s going to cost, and when it can be done.”

Loren Feldman:
How about you, Ted? Can you give us a recent example?

Ted Wolf:
Well, yeah, and I think that all comes down to the definition of the scope of what you’re actually going to do on a project. And that’s where the project scope creep comes in. So, you know, they think one thing, we think another. You’ve got to get it in writing. You’ve got to put formalized—here’s the process, procedures. Here’s what we do week by week, etc. No different than what Lena was mentioning about, “Well, we got to replace a door. So we need new hinges and everything else, hardware on the door that goes with it. That’s why there’s an additional cost.” Just have to keep working to get a lot of clarity in what it is you offer. And that’s where your legal documents come in: the scope of work, master agreements, and things like that. They’re all important.

Loren Feldman:
Is there a typical example of that with a client who’s working with you on AI, where they have an expectation that differs from yours?

Ted Wolf:
Well, they don’t know what agents are, and they think one agent can manage an entire sales pipeline, which just cannot be done. There’s too much for one agent to do. So an agent, you have to educate them, bring them into the understanding, and try to do it upfront. But sometimes it doesn’t work, and they think, “Well, I thought I was going to get this for what you’re doing.”

And fortunately, we’ve learned enough in project management that we can catch those before it turns into a hardship. But yeah, there’s all kinds, with AI, promises that are being made in the market that people don’t understand, and that takes a lot of work. And that’s scope creep at the project level. You’ve got to be very careful, because it can literally cost you an awful lot of cash flow.

Loren Feldman:
Jaci, in the situation you described, it was, I believe you said, an account manager who made the decision to people please, as I think you put it. Is that typical? Is the problem generally you or your team?

Jaci Russo:
Oh, not me. I don’t deal directly with the clients, and I don’t mean not me like it’s not me. It’s all me, because it all comes back to me. So I can tell you where I should have established some better processes. I need to do a better job of training them to handle those situations, because it’s about communication.

You know, Lena hit it. When somebody asks for another revision outside the allowed number, or they realize what one dingy room looks like compared to a freshly painted room, how you communicate that is the determination of whether the client feels taken care of or sold to or frustrated by. And so it’s all communication.

Loren Feldman:
But no matter how well you communicate at the beginning, I’m guessing there’s always the possibility that somebody on the front lines just can’t say no.

Jaci Russo:
Well, and how you say no, though, determines how everybody feels about it. And so the communication at the beginning is great, but it’s the ongoing communication. Our average client life is six and a half years. That tells me we do a pretty darn good job of communicating to keep them happy and informed and up to date and not feel like there’s an imbalance or advantage or whatever. But we have to be happy, too.

And so, there was some training that happened right before this call where we discussed how to handle it when someone assumes something is going to happen. How do you properly respond so that they understand, “Oh, okay, so you’re right. That wasn’t in the original list.” Not that we’re not going to do it, but you just need to know that’s outside what we originally hired for, and this is what needs to be the next steps if you want us to do it.

Loren Feldman:
Lena, in your situation, I’m guessing, generally, if there’s a communication problem, there’s no one for you to blame. It’s on you. Is that a good thing or a bad thing?

Lena McGuire:
Oh, well, it’s good, as in, I know what’s going on. So I don’t have to go through a whole chain of command, but the buck stops here. So I have to decide: Do I want to take a time loss, a money loss? Do I want to keep the customer happy? You want to get those nice photos at the end. You want to get a referral. So how much do you absorb? How much do you not?

When you’re first starting out, you’re hungry. You take everything that comes along. You’re a generalist. But as you grow in your business, and you get out of the infancy and into the adolescence of your business, you start realizing that you’re going to focus on certain types of projects, certain types of clients, and you’re going to start saying no to things.

So when scope creep comes up, or when somebody comes in and says that they want to do this, that, and the other thing that wasn’t in the contract, you have to start standing up for that. And that can be hard. So a lot of people just keep taking and taking, and then they get overwhelmed and overworked. And they can’t understand why they don’t have enough profit. And it’s because they’re using all their time to do all this free work.

You know, if you get a client who’s sending you a text of a faucet saying, “I like this one. What do you think?” And you picked out a faucet a month ago, that’s scope creep. They’re invading your time, and they want your opinion, and they’re not thinking that they have to pay for these types of things. It’s like you’ve already finished your obligation on that, and you’ve moved on, and now they’re backtracking. So scope creep can hold you back, too.

Ted Wolf:
Yeah, and I think scope creep is something you have to manage every day, within yourself and with the client. And as Jaci said, it’s constant communication. I mean, on weekly updates, you’ve got to clarify, “Here’s where we are. I know it’s in writing, but I want to make sure everybody understands this is where we are. And there’s where we need to go next. “And those detailed weekly updates for our business are invaluable in educating ourselves and our clients as to: Okay, here’s the reality of where this project is. Now, where do we need to go so it wins for everybody? Because it has to win for everybody.

Lena McGuire:
Absolutely. We do a weekly call or in-person every single week. We touch base on Friday afternoons. And our basic premise is, when we’re dealing with our clients: We tell them what we’re going to tell them, we tell them what we need to tell them, and then we tell them what we told them. Because they need to know what the expectations are. “This is what we’re going to do today. This is your homework. This is my homework. This is when we meet again. And then at the end of the day, this is what we covered. This is what you’ve agreed to do. This is what I’ve agreed to do. This is when we’re going to meet.” And you just need constant repetition, constant reassurance, and for us, it works good on a weekly basis.

Ted Wolf:
Yeah, and I think when you build a company, you learn those things, but Lena and Jaci, I’m sure you both, when you started out, you just wanted to generate the revenue, so you said, “I don’t have time to document meeting minutes and reviews,” etc., etc. And that’s what gets you in trouble. What we have today with AI is we can actually transcribe a meeting, put the minutes together, make sense out of them, send them to the clients that we’re both talking about the same thing, and all the information is on the table then.

Loren Feldman:
Have any of you ever lost a client over a scope creep issue?

Jaci Russo:
Oh yeah.

Loren Feldman:
Can you tell us about it?

Jaci Russo:
I mean, I said it instantly. I didn’t have an immediate client in mind. I’m just sure of it, because it happens so regularly. No, I will tell you that, especially in the early days, as we transitioned, we realized that we had pitched and then evolved into agreements where we were doing a lot of things for a very little amount of money and had to go back to the client and say, “We need to make some changes here.” You know, we’re on a month-to-month, and so that does go both ways. It’s only happened two times that I can think of in 25 years, so not a bad track record. But in those two times, we had to say, “Listen, you’re paying us pennies, but asking for paper bills of work, and so we need to redefine this.”

And one time, it was fine. We redefined and reallocated and reassessed, and it was great. And one time they said, “No, we’re not going to pay you more. And if you’re not going to continue to do this much, we don’t want to work with you.” And we said, “Okay.” And they went their way, and we went ours. I feel like I have to do the right thing for my team, first, the quality of the work, the time that we spend, the frustration. You know, this is not scope creep, but I immediately thought about another interaction with that same client, so I wasn’t as sad to see them go, because they were kind of abusive.

And so when we get the angry, very inappropriately worded emails late in the day or the end of the day on a Friday, it’s like: You’re yelling at us right now for something that happened on a Tuesday. So you’ve just been holding it three days to do it at the end of the week, just to kind of make it sit over the weekend. And the way that, and this is just one client, but, man, they just wouldn’t let it go. And so the parting was positive for a lot of reasons. I don’t think most people, when there’s scope creep, it’s because they’re jerks; it’s because they don’t know better.

Loren Feldman:
I can see that decision that you made being fairly easy for you to make today, but I think you said this was fairly early in the development of your business. How tough was it to see that revenue walk away?

Jaci Russo:
Oh, it’s never good. Even today, it’s not good. I take it personally, not like I don’t like the people anymore, but I will spend quite a bit of time thinking: How could we have done this better? What can we improve for next time? How do I turn this into a lesson?

And I’m always looking at the dollars. It doesn’t matter if we’re having the greatest year we’ve ever had or a tight year. I’m still pretty tight with the dollars. And so those things are impactful, and it’s immediate. Who’s out there that’s replacing this? Because we do have a nice lineup of the next clients and the next projects, and so I need to make sure that that income is not going to hurt us.

Loren Feldman:
Ultimately, it seems to me, the question here comes down to: Do you worry more about protecting margin or protecting the relationship with a client? How do you guys think about that?

Lena McGuire:
For me, it’s usually the relationship. I always put the client first, because my business is based on a lot of referrals. I’m only as good as my last project, and I don’t need people bad-mouthing me all over town and telling people not to work with me. So it’s an incredibly delicate balance to make sure that people are happy, that I’m happy, that the people I’m working with are happy, because it gets tough.

Loren Feldman:
That makes perfect sense, but it does make it harder to deal with scope creep, no?

Lena McGuire:
It does. There are times when I have a line item in my chart of accounts called warranty, and that is for when I have to go ahead and say, “Whatever it takes, and I’m going to pay for it.” And then we try to figure out the dollars and cents later. Most of the time it’s equitable, but there are times when it costs me $3,000 to buy a new cabinet because it needed to be done, it needed to be done right now, and I wasn’t able to recoup the cost. But in the end, the kitchen came out great. The customer’s happy. I’m short of $3,000 of my profit that I thought I was going to have. It’s just part of the business.

Loren Feldman:
Ted, how do you think about protecting margin versus protecting the relationship?

Ted Wolf:
I take a different angle, and I think about protecting employees and the contractors and vendors that we use. And I say that because I had a situation—and it wasn’t necessarily early in the business—that happened years ago, when we were on a pretty fast pace of growth, scaling, and ran up considerable accounts receivable with a client. We’re talking hundreds of thousands of dollars. We were following, and we had it all documented—what we both agreed to—and there wasn’t anything there, but they just said, “We’re not paying because we don’t have the money,” in effect.

And we could have sued them. We could have gone through all that, but we decided the people on the account, who were working on the account, did a really good job, and, long story short, we decided to move on. And we learned an awful lot about good and bad clients. But I always look at: Okay, our employees and contractors that we’re using, what’s the impact going to be on them? And how do we all win? Because if we win, the client will win.

But there are clients out there—and we’ve all met them—who I’m going to say are unconscionable in the decisions and the activities they make. And here’s another example: One time, very early, we were selling some services and computer hardware, and an individual found a better deal. How, where, whatever it is, it comes up. Buyer’s remorse took over, and we ended up parting ways. But I did it because, again, that’s where I started to learn: The impact on the employee is the thing I’ve got to watch.

Loren Feldman:
What was your concern? Why would that have an impact on the employee?

Ted Wolf:
A lot of times, when you’re working on a very large account, or you’re working on a large project, you get a number of people involved, and their identity rides on the success of that. And that feeds into the rumor mill in every business, and the rumor mill is the biggest competitor any company has. I don’t care if you’re five people or you’re 500 people, 5,000 people. You’ve got to manage that. And to me, I don’t want an employee walking around saying, “I gave my best work, but we all failed,” or “I failed,” or they start pointing fingers at each other. And then you have team degradation taking place, and things like that.

So, I get everybody in the room, and I talk with them. What do we want to do? What’s best for the business and everybody here within our organization? Then I go and talk with the client, if we’ve got a problem, and laying it out. But the whole thing, in the back of my mind: What’s a good employee? What’s a good client? Bad employees and bad clients cost you money. Good people, good clients, don’t. I mean, they make you money, I should say.

And that’s just the way I’ve learned to make decisions. And I think, for the best of everybody, it works that way. And that means sometimes you’ve got to face some tough decisions and walk away from money, because it’s not necessarily, “It’s a scope.” I mean, they get buyer’s remorse and decide they just want their money back. I mean, if you’re going to fight them, it’s going to be a lot of negative energy and an awful lot of negative cash flow, perhaps. So sometimes I bite the bullet pretty quickly in that one. I discontinue relationships at the first sign they’re going astray, if I need to.

Loren Feldman:
Do any of you price what you do, assuming there will be some scope creep?

Jaci Russo:
Absolutely.

Lena McGuire:
Yep.

Ted Wolf:
Yes.

Loren Feldman:
Can you put a percentage on it?

Lena McGuire:
I’m working on the percentages now. I’ve been tracking to see what are the—we call them E.R.s, emergency responses—that I have to send to the cabinet company. What is wrong with the cabinets? How many cabinets per job? What is the dollar versus the percentage of the cost of the project so that I can have that, basically a slush fund, to cover those warranty costs?

Because it does come up. You forget to order a piece of crown molding, or the contractor has the extra piece that you have put into the project. It’s just in case there was an error, but he makes two errors in cutting, and you don’t want to have to splice a piece of crown molding, because it’ll be noticeable. So you have to order a $300 piece of crown molding, and it just adds up. You need another this. You need another that. This is damaged.

Loren Feldman:
That’s not just for scope creep—that’s also to cover yourself just because things go awry?

Lena McGuire:
Yeah, but sometimes the customers will say they do want some additional things, and you have to put those additional things in. But that’s part of it. So scope creep, warranty coverages, errors, that’s all put into the slush fund. So, yeah, I’m trying to figure out what that correct dollar amount is so that that comes out of my overhead expenses.

Loren Feldman:
Jaci, do you have a slush fund?

Jaci Russo:
I don’t, first of all, think about it like that. I’m not sure that I would call it that. But when we do create our fixed monthly pricing—because we don’t do billing by the hour—we have to think about: What’s the quantity they’re going to ask for? What are they going to actually end up needing? What are our recommendations? And price accordingly.

And so, yeah, I have to think about it. Is it an exact percentage? No. Because every month, we are still tracking how many things we’re doing and how long it’s taking us. And so we guesstimate that. We don’t track hours to the minute, like some firms that bill by the hour, but I know how long—you know, if we’re doing four rounds of a logo, I can tell you how long that took for six artists. And so we’ll do an assessment at the end of each month and our monthly reports of: This is what we billed you, but this is all the time we spent. And so after a few months, I can get a real good handle on where we are versus what we’re charging. And that fuels the process for when we price it out next time.

Loren Feldman:
How do you deal with the client expectations, given that you’re charging by the month, but you’re putting hours of employee time into the project? Does the client know what your expectations are, in terms of how many hours this is going to take?

Jaci Russo:
Well, one of the first things that we always do is, like a design/build of a home, we’ve got to start with the architect, figuring out the plan of what we’re building. We call that Razor branding. That’s our strategic brand plan. So now we’re mapping out the trade shows, the social media, the email campaigns, the sales flyers, the brochures, all the things that are going to need to be done over the course of the year. And that fuels our pricing process. And so that allows us to really kind of know the answer to that.

And then—and this is a new evolution of our process—we are now mapping out type of work by type of work, quantity by quantity, timeline by timeline, exactly what we’re going to be doing. And it aligns to the plan, because it’s design/build. We’re building it, too. And so now for the monthly execution, there it is. So there’s the scope.

When they decide to add an extra conference that no one expected, or they decide to launch another product that wasn’t accounted for when we created the plan eight months ago, then it’s up to us to either say, “Oh, well, we’re not doing this as much, so this fits,” or, “This is additional. We’ll need to charge more.”

Loren Feldman:
But Jaci, what if it’s not the client asking for something specifically additional? What if it’s just that it takes you more hours than you thought it would take?

Jaci Russo:
Oh, we eat that. Oh, if it’s more hours, we eat that.

Loren Feldman:
Have you gotten pretty good at estimating how many hours it’s going to take?

Jaci Russo:
Very.

Lena McGuire:
Yeah. It works the same way in my business. We map out what it is. It’s basically, we’re defining the deliverables. Because if you start talking about, “Well, it’s this many hours this month,” that doesn’t work for me. So if I say, “Okay, at the end of this, you’re going to have three concepts to look at. You’ll choose one of those, and we’ll develop it.”

So I can, as I keep track of hours, I can figure out how long it takes somebody to do that. Myself, I can do it this many hours. If I hire somebody else to do it, it’s that many hours. But over the course of many projects, you start to get a real feel for how long it takes to do step one, step two, and get that deliverable.

Loren Feldman:
Sure. Ted, do you see scope creep as primarily a pricing problem, a sales problem, or an operations problem?

Ted Wolf:
Operations problem, definitely. I work hard, and we work hard with our clients. I mean, when you get into scope creep, you’ve got to take a look at it and say, “Okay, what are the ingredients that actually go into scope creep?” And here’s where, I’m going to say, honesty comes into a big focus in a lot of organizations, because sometimes side deals are made between, let’s say, a salesperson and the account, or customer service in the account, so they can keep things going, but they never surface. So we want to put a system together where we’re going to be able to identify where exceptions are made. They’ve got to be public. They may be the right thing to do, and if they are, we want to do them. But we want them to be public and not surprised when closing the books at the end of the month or something like that.

You know, side deals, exceptions, sometimes escalations, somebody doesn’t want to make a decision, so they throw it over to another person or a manager, and that’s where it starts to get sticky to say, “Well, what’s going on? Why do they want this exception?” Or, “Why are you now escalating it to me where I’ve got to make the decision?”

And a lot of times, even long-term habits, you make a side deal quietly. It doesn’t surface. You don’t charge them for it. It may be the right thing to do in year one, but year two, they may expect it. “Well, wait a minute. You worked with us this way in the past. Why aren’t you doing it now?” So you’ve got to really be very careful about how you’re governing and the rules you put in place and how you’re tracking your projects and what you’re doing and the ingredients that go into it.

I have a two-week-billable, if you will, rule. If you’re not paying your invoices—because we invoice weekly on our projects—if you’re not paying in two weeks, we’re going to pause the project. We’re going to have a long conversation to see if we start up or if we don’t. Because the one thing you don’t want to do is build accounts receivables, to a large extent. I mean, you can’t touch that money.

Receivables are nice to have. They make people feel good sometimes, but they don’t put money in the bank, and they don’t enable you to pay a lot of bills. So you’ve got to guard against all those things. And I look at the ingredients, as I just mentioned: the escalation, the exceptions, the side deals, long-term habits that are bad habits that we just let exist that we shouldn’t, and that comes down to the systems you design and how you’re going to run your business.

Loren Feldman:
Have any of you hit upon language that’s been especially effective for you in basically saying no to a client who’s asking for something that you hadn’t agreed to?

Jaci Russo:
Ef off! No, that’s not the approach I take, but I want to sometimes. [Laughter] Is that the language you were thinking of, Loren?

Loren Feldman:
Have you tried that out, Jaci? How does that work?

Jaci Russo:
Not as well as I would like it to.

Lena McGuire:
I have to deal with it a lot, and a lot of times, you reassure the client first. Like, “That’s a great idea. However, based on the budget we’ve established, that’s going to put you over. Happy to take that into consideration if you’re willing to increase your budget.” So, we do talk about it.

Loren Feldman:
And that’s been effective?

Lena McGuire:
Yeah, because they need to know that it’s time, money, and effort. So they realize, if I bring it up, it’s like, “Oh, that’s a wonderful idea. I love the idea of doing this or that, but this is what we have in the budget to do this. Do you want to change some other part of the scope to incorporate this? Do you want to increase your budget? Or do you just want to move on?” And then they sit there, and they think about it. And it’s like, “Oh, I didn’t realize that was going to be expensive. No, I don’t want to do that.” So it gives them the opportunity to opt out, but it also allows them to have an opinion on what they’re doing and voice the ideas that they have.

Ted Wolf:
For me, it depends on who I’m talking to. I think there are people, Lena, you just talked about: You deal with them in an honorable way, and you explain, and you have choices to make. But there are some people who are just obstinate, and you’ve got to deal with them like—I hate to use this analogy, but—some countries you have to have a heavy hand, or individuals, a heavy hand, and you got to deal real matter of fact and in their face and say, “This is the way it’s going to be. Or this is what I’m going to do.” And you’ve got to carry it out. You’ve got to deal with it. Because there are people out there that just want to say, “I might be able to get an extra 5 percent, so I’m going to push them in this way just to see if I can get it.”

Loren Feldman:
Ted, It sounds like you’re dealing with some tough clients. How are you finding these people?

Ted Wolf:
Well, I have an awful lot of good clients, too. And the good always outnumber the bad, because I get rid of the bad. I’m just very in tune, because I’ve been in this business long enough, and service-related businesses, that it’s like, you’ve got to call a spade a spade and be honest with everybody. And then you’ve got to have those tough conflict decisions—or conversations, I mean. And you’ve just got to go for it.

And I might talk about them more now in this podcast, because hopefully people who are just starting out in business, or they have small businesses, they can learn from the agony in some respects that I had to go through. Because when I was starting out, I was afraid to have tough conversations with people. Because I just wanted everybody to like us. I wanted to do well. I thought highly of everybody, whether I should have or not.

Loren Feldman:
And you wanted the money coming in, too, so you could stay in business.

Ted Wolf:
Exactly. And that’s where I learned I’ve got to have these tough conversations early, and they don’t bother me anymore.

Lena McGuire:
Yeah, I think that’s the muscle that you exercise. And it gets better, because most people are people pleasers. When you’re the business owner, you’ll want people to be happy, but then you realize that you’re going to be unhappy. Your employees aren’t going to be happy. The customer is going to be unhappy. And the sooner you have the hard conversations, the better off you’re going to be. And you just have to do it. It gets easier. Ted’s not the only one who has customers. I’ve fired a couple of customers, too.

Ted Wolf:
But you know, you do what’s best for both parties concerned. That’s what you have to do, in my opinion. And sometimes, parting ways is the best thing.

Lena McGuire:
And sometimes it is because, in our instance, if they’re abusive to the contractors or to some other people, it’s just a no-win. You can’t have that. You have to draw the line and stand up for it. There’s nothing wrong with having integrity.

Ted Wolf:
And that’s your brand. You’re talking about your brand there. So I think that’s all important.

Loren Feldman:
Jaci, is there one thing you’ve done that’s been most helpful in dealing with this issue?

Jaci Russo:
I think it’s better definition in the beginning of what the scope is, so that both parties—we know what monthly social media means, but the client doesn’t. They don’t know what that’s going to mean, in terms of the information that we need from them for the good stuff that’s happening day in, day out when we’re not on their property, the strategic things that are longer-term plays, the ways that we need to be targeted for each of their different target audience segments.

They just think it’s six posts. And so it’s like, “No, it’s more like 15 posts.” And then they’re like, “Well, no, it’s 30 posts.” “No, it’s more like 15 posts.” And so, you know, it really is about defining quantity and quality up front of something and then sticking to it. And if we do go over a little bit here, because it was necessary at that time, swinging that equilibrium back the other way, so we stay calibrated. And again, it’s all about communication.

Lena McGuire:
It is. And the other thing I would add is timelines, especially in Jaci’s world, where you have materials that you have to receive from the client. If they need to supply photos, or they need to approve something, and they miss the deadlines, you’re going to miss deadlines. And that’s going to cause issues too. So when you’re defining your deliverables, I put the time frames in there, too.

Loren Feldman:
I’m sure that’s important for you, too, Lena, in terms of people making decisions so that you can order what you need to order and line up what you need to line up.

Lena McGuire:
Yeah, when I’m lining up eight different contractors to be in and out of a project in eight weeks, everybody has to have the work done before they get there, or you lose that contractor’s date, and then you could be waiting three to six months for them to come back. Yeah, we don’t want to get in that situation.

Loren Feldman:
Lena, is there one thing you’ve done that’s been most helpful to deal with this?

Lena McGuire:
Yeah, getting my letter of agreement, my contract, tightened up so that the deliverables are clearly defined. So this many revisions, this much timeframe, this is the budget. Getting those written down and reviewing them every week, so they know what to expect, what we’ve accomplished, what we’re going to do next, and what we just did.

Loren Feldman:
How about you, Ted? Is there one thing that you’ve done?

Ted Wolf:
I can’t say there’s only one thing. I think there’s a multitude. And I keep coming back, always deciding: Are they a good client? Are they a bad client? Are we being good to them? Are we being bad to them? And that’s basically where I drive a lot of things.

Loren Feldman:
Got it. I hadn’t expected accounts receivable to come up in this conversation, but that happens to be the topic of the small business subreddit post that I want to run by you. Let me read what a business owner wrote: “I’ve been running my business for a while, and the one thing I still can’t get comfortable with is chasing payments. It’s not that I don’t know how. It’s that every reminder feels like I’m personally begging. I end up putting it off or just sending one email and hoping for the best. Is this just me? Or is this a common thing for small business owners?”

Can anybody relate to that?

Ted Wolf:
Yeah, I know I can.

Loren Feldman:
How did you get past it?

Ted Wolf:
I don’t like accounts receivable, so I make phone calls and let people know. And it’s explained upfront. “This is exactly what we’re looking at. I have cash flow just like you. Here’s what we need. If we’re happy and we’re moving forward, great. If there’s any problem, let’s get it resolved right away.” Accounts receivable are an illusion to a lot of entrepreneurs and business people, I think.

Loren Feldman:
Was there a time when you did not deal effectively with this? Were you like this person who wrote in, where you let it go too long because you weren’t sure how to deal with a client?

Ted Wolf:
Yeah, and for me personally, I had to learn how to overcome that conflict and ask those tough questions and get the decisions. Because as long as you have an accounts receivable in the books, you look at it like, “I’m going to get paid, or at least, I hope I am.” But it’s like trying to close when you’re in a sales effort and you’re a salesperson: Can you actually ask tough questions to close the contract, get it signed?

And you know, when you have an accounts receivable, you think you’re going to get paid, you’re hoping you’re going to get paid, but you may not get paid. And that’s failure. And you don’t want to look at it, and it makes you go back to your own identity, I think, of why am I not getting paid by this person? I’m not accepted again. Entrepreneurs like to be accepted, particularly by their company. So I think there’s a lot of internal, emotional things and internal, I’m going to say, parts of our personality that come out when it comes down to accounts receivable questions and conversations.

Loren Feldman:
Lena or Jaci, did you guys have a learning curve dealing with this issue?

Jaci Russo:
Oh yeah.

Lena McGuire:
I don’t do accounts receivable anymore. I charge upfront. So when we get to our big purchasing meeting, if somebody is going to buy $50,000 worth of cabinets, they’re paying for that 100 percent upfront. Because it’s a custom order, and I don’t need a new kitchen in my house. [Laughter] So those cabinets are specifically for their particular location.

So it used to be very scary for me. I would just take a 50 percent deposit because I was being like, “Oh, that’s so much money. I don’t want to ask for that much.” And then I had a client who was very ill, and I was very, very concerned that they would not be alive by the time the project was finished. And I was very glad that I had learned how to ask for the money upfront. Because what am I going to do if somebody dies on the job? You don’t want to get stuck with this stuff. So trigger event—something happens, and then you learn: Okay, I need to do it differently. So now I charge upfront. Even before I do a basic in-home consultation, they get an invoice from my admin. It goes through the email. They pay for it upfront.

Loren Feldman:
So it’s not just for situations where you’re making a purchase on their behalf. It’s also about your payments for your services?

Lena McGuire:
Right, because I’m working on intellectual property here. So I walk into somebody’s house to do a consultation, and I’m using my years of experience to help them figure out: Can this wall come down? What kind of design solutions can we have? And as much as I try not to design all the time, I mean, that’s just my natural habitat, and I’ll just give them ideas. And that might be very valuable, and then they don’t need me anymore. So I charge for my consultations, and I charge before I get there, because my big fat mouth is going to run. [Laughter]

Loren Feldman:
Jaci, what was your learning curve like?

Jaci Russo:
Exactly the same, except for us, it’s media. And I don’t want to use my money to pay for their media buy. I want to use their money to pay for their media buy. So we bill 30 days in advance, so they have 30 days to pay it, but the media doesn’t run until the invoice is paid.

Loren Feldman:
And how about payment for your services?

Jaci Russo:
Retainer. We bill the beginning of the month, and really, by the time we get to that point, we’ve already done the Razor branding, which is sizable—it’s a five-figure to six-figure project, which we bill half to start and half when we finish. And so at that point, we’ve already established, “Oh, they are quick pay,” or, “It takes them a while. We had to send a reminder.” And so we have some clarifying conversations before we move to the retainer. And then the retainer is at the beginning of the month, and so we are collecting before we finish that month’s work.

Loren Feldman:
Would you say you’ve solved this problem, to the extent it was a problem?

Jaci Russo:
I would say so. We have a couple of clients that move a little slower than I would like, because they’re more on the 60-day, but they’re a global company, billions of dollars company. I would imagine I am probably the smallest account in their list. And so the fact that they probably typically pay 120 and we’re sitting at 45, I’m not complaining, you know?

Loren Feldman:
Although, isn’t that so often the case that it’s the largest companies that take the longest to pay? And isn’t that offensive to you?

Jaci Russo:
It is not, because as long as I know, if they are really 45, and that’s just what their process takes, and they stay consistently 45, then I know we need to bill them 15 days sooner, so that my net 30 and their 45 day alig n to be the same day. Because that’s their system, and I’m not gonna have this entire global company change the way the accounting department in Taiwan does what they do, because I am sitting in Louisiana and would like to get paid 15 days faster. Like, come on. So we adjust. You know, we’re a little more nimble and flexible, but to your point, it is about understanding them and their needs, and us and our needs, so that I know we’re better aligned, and there’s no hurt feelings or misunderstandings. And we can all be on the same page.

Loren Feldman:
Well, it certainly helps when it’s a big company that you’ve dealt with, and you’re confident you’re actually going to get paid.

Jaci Russo:
Correct, absolutely. And look, I read the trades just like anybody else, and I see a lot of the larger advertising companies—not naming names, but most are on the stock market, and it’s the things you see on your store shelves—have gone to net 365 day terms on media. That means the agency that “wins”— and I use air quotes here—their account is paying for their media for a year before they get reimbursed. We’re not doing that.

Loren Feldman:
Wait a second. Seriously?

Jaci Russo:
Seriously.

Loren Feldman:
Why would anybody accept that?

Jaci Russo:
Because it’s a $500 million account.

Loren Feldman:
Ah, okay.

Jaci Russo:
But that actually makes me more worried, not less worried.

Ted Wolf:
I’ve got to tell you, what convinced me and got me over any fear of that: I looked at an account like that, or a bad account, and I said, “I want you working with my competitors.” [Laughter]

Jaci Russo:
Yeah, exactly!

Ted Wolf:
That’s the gift I want to give my competitors, because then I can go out and search for the good ones.

Loren Feldman:
So really, Jaci, I mean, if Tide knocked on your door and offered you $500 million, you have the strength to say no?

Jaci Russo:
On those terms? Absolutely.

Lena McGuire:
Yeah, that’s not a good fit.

Jaci Russo:
Because no bank is going to loan me the $500 million. So, no, I have no qualms on it. I mean, it goes to, we have a criteria, Loren, and one of our criteria is they have to be B2B. Every time we stray outside of that, I deeply regret it for days and days and days. So already, Tide is off the list. Two, they’ve got to be mid-sized, mid-market. We want to take a number 15 and move them into the top five, not grab a number two and try to keep them there. We want challenger brands, not established people who don’t want to make changes. We’re here to make changes. Do things differently. Get attention for our clients.

Number three, they have to be a good partner, in terms of our billing and payment and all of that. And then number four, they have to be kind of nice people to work with. They have to believe in the process. They have to be kind and considerate to my people. If you expect my team to work on a Saturday or Sunday, we’re not going to work with you. Because I don’t expect my team to work on the weekend, so you can’t either. So things like that, I’m going to protect my team and protect the client, and that means it’s got to be a good relationship.

It is a lot like being married, and I’m not going to marry you just because you have a lot of money and you’re mean. I’m going to marry you because you have a lot of money, and you’re nice, and you can cook Italian food for me every night at five o’clock. [Laughter]

Loren Feldman:
I think that’s the deal you got, isn’t it?

Jaci Russo:
Well, not the money part, but the rest of it. Yes, he’s good-looking, he’s nice, and he cooks for me every day.

Loren Feldman:
Good deal. All right, my thanks to Lena McGuire, Jaci Russo, and Ted Wolf, and a special thanks to our sponsor. This episode was brought to you by Grasshopper Bank. Thanks, everybody.