How I nearly lost a major client through outsourcing

Scott Popovic started Icon Global in 1996, focusing on client management software for community care providers. Since then, the company has scored a number of major clients, including government contracts, with revenue of $3.5 million.

But in 2005 the company nearly lost a major client after outsourcing a project that couldn’t be delivered. It began a two-year saga that cost the business about a million dollars, and nearly sent it broke – but ultimately made it stronger than ever.

How’s the business going?

Things are going extremely well. We’ve put another couple of people on, we’re up to 27 now, and we’ve picked up a few new clients too. Towards the end of the year there are people sitting on contracts that want to get them done, so it ends up being a little busier now.

We just picked up the city of Sydney today, and we’ll be using our community care software with them. Things are going very well.

So what was this issue with your client?

Basically what happened was, we decided to rewrite our software in .net, and to do that we set up a stakeholder group of existing clients that were using our old product. We involved them in the specification stage, or the unit testing stage, for the new product, so we had quite a big role in them helping us get the product right for their purposes.

To do that our largest client funded a lot of it, and we hired an external development team to drive that development.

And what happened there?

We get screwed by a guy who said he could do a lot of stuff that he actually couldn’t do.

What did he do?

He dragged the project on for years, and didn’t produce anything. Basically, the client was continually putting pressure on us for us to finish, and in turn we kept putting pressure on the external development team.

It’ll be done “next week, next week, next week” they kept saying, so we couldn’t stop to take a breath to do anything about it while the client was breathing down our neck to get a result.

How did you end up even starting to fix that?

To get the team and development process back on track was a long-term process, and it just went round in circles for such a long time. So eventually, the client just said they were going to pull the contract. They had enough of waiting, and they said they’d go somewhere else.

What was your reaction to that?

That was actually a blessing in disguise, because it allowed us to take a step back, get rid of that development team, get some in-house resources and jump in and learn the program.

I actually learnt how to program in .net to help get the project back on track, and we rewrote everything the external team had down in six months.

Did you eventually get them back?

After that process was done, I called up our customers and said to them that we had it all ready, we had gotten rid of the previous team, and asked whether they would come and have a look.

And what did they say?

They were back on board. And they’re still a client now, although they’re no longer the biggest because we’ve grown.

How close do you think this whole process brought you to closing your business?

Basically, if we didn’t get this right, it could possibly have been the end of the business.

How do you think your attitude has changed regarding outsourcing now?

They were in our office some of the time, actually, in our client’s office and working in this office as well. The problem was they had demonstrated some stuff and it could run, but it was just very badly structured and it wasn’t enough to go on with.

When we hired the internal resources and went through the source code, we found we had to rewrite the entire system. There wasn’t one line of code left in the final system.

Do you feel the need to have more control now?

That’s the biggest lesson I learnt from this. I know a lot of people use external contractors to do work for them, but when it’s your main product and crucial to the success of your business, you need to be a little bit more in control.

This must have put a big strain on your cashflow.

There were times when my business partner and I couldn’t pay ourselves for a period of time, and there were times when we wondered where we would get the money for the next payroll. Because we took so long to write the program, it cost us a million dollars in development costs, and we lost quite a few big sales.

There were about two years when we couldn’t sell the new product, and we had stopped selling the old product. It nearly killed us.

So what’s the biggest lesson for SMEs to take away here?

The biggest lesson is just making sure you maintain control over the key aspects of your products. We learnt it the hard way.

But it worked out in the end. Now we’re able to use what we have and market to a much bigger client base, and attract much bigger clients as well.