Don’t Get Cut Out by Your Vendors – How to protect yourself from client poaching!

Dec 6, 2016

Everything is going great! Your business is growing and you have more customers than you ever imagined. The countless days and nights spent developing great processes have finally paid off with customer needs being exceeded and strong relationships built. Out of the blue your customer stops calling you. Can you believe it! Your vendor has cut you out!

Here are two examples of Customer Poaching and how to avoid them!

The Nefarious Employee Scenario:

Jennifer worked hard to build her health and beauty spa located in the shopping center next to the local grocery store. Approximately three hundred customers a week enjoy massages, nail and facial services provided by her and four employees. Her spa is beautifully appointed with state of the art equipment, luxurious finishes and great branding. Jennifer smartly outsourced her accounting and bookkeeping systems to ensure she was capturing all the revenue and expenses without any worries. She knew her net income was higher than industry standards thanks to her tight cost controls. Her customer service was second to none and it showed! When the spa down the street tried to steal her business name her intellectual property attorney used her federal trademark registrations to halt the dastardly people in their tracks!

All of a sudden Jennifer noticed a drop off in massage visits and sales. While this was puzzling, Jennifer thought it may just be part of some business cycle. One day when shopping for groceries she ran into Jane, one of her first customers. Jane mentioned that Helen, one of her “star” massage therapist (or so she thought!), handed Jane a business card and offered to provide massages for less money at Jane’s house. Jennifer was floored! One of her employees was poaching customers right under her nose. What a fool she had been!

Unfortunately, even after firing Helen, the damage was done. Jennifer talked to her accountant who pointed out the she could have avoided this by having her attorney prepare good employment agreements. Don’t be the next Jennifer!

The Nefarious Subcontractor Scenario:

Francisco lives in New York City on the Upper East Side. His company provides software development and support for hospitals and healthcare systems. Part of the software development includes creating customized software the hospitals use to track doctors’ credentials, education, publications, and grants. Francisco has a great subcontractor in Panama that helps write the code for regular updates for some of his hospital clients. The subcontractor came with great referrals and a portfolio of quality work. Thrilled that he finally found someone who could help him maintain the large amount of updates the hospitals needed Francisco quickly signed the agreement provided by the subcontractor and put him to work.

The subcontractor did a fabulous job. The updates were perfect and the hospitals couldn’t be happier. After months of a profitable working relationship Francisco received a terrifying voice mail. His subcontractor’s message was “I was to speaking to my client about my code in the last update….” Holy sh#t!!! Francisco’s subcontractor was referring to the Francisco’s largest hospital client as being the subcontractor’s customer. Now Francisco has two problems. The subcontractor is cutting him out of the loop and stealing his clients. The same subcontractor also has pending updates that are partially completed which are coming due.

Unfortunately firing the subcontractor may create even more problems. This could have been avoided by using the proper software development and subcontractor agreements up front. Now Francisco has to hire an intellectual property attorney to retroactively negotiate the necessary agreements to confirm ownership of the code and confirm who is authorized to contact and interact directly with the client. Francisco also has to contact his accountant and ensure that any unpaid subcontractor invoices are held until the matter is resolved. Don’t be the next Francisco!

Your entrepreneurial spirit likely fills you with enthusiasm to chase your dreams. Don’t get carried away and enter into relationships with third parties prior to consulting with trusted professionals that are looking at for you! The expertise that a good intellectual property attorney and accountant will bring can save you heartache and money later.

If you have any questions regarding business entity formation, employment and subcontractor agreements, software licensing, branding, trademarks, patent planning or other intellectual property matters, please contact Garcia-Zamor Intellectual Property Law, LLC. Ruy Garcia-Zamor has been helping individuals and businesses with their intellectual property needs for over nineteen years.

If you have any questions regarding accounting, bookkeeping, and business consulting services please contact TBooks. Teresa Sanders has been helping individuals and business with their bookkeeping and accounting needs for over twenty years.