New Customer? Don’t Celebrate till the Contract Is Signed

Early founders often lead the sales efforts at their companies. It makes sense. They typically understand the problem and solution better than other team members. Resources are limited, so the founder picks up a lot of the slack. When the founders land early customers, it’s a cause for celebration, and rightly so.

Before the celebration, though, stop and think.  With so much going on, the team can let mission-critical tasks slip, which can deeply harm the company.

Today I spoke with a founder who onboarded his first customer recently. His company’s a service business, so he had to hire staff and train them to meet the customer’s expectations. A little over a month in, they’ve hit a serious hurdle. The customer hasn’t paid as promised. The startup has been paying the team but hasn’t received any revenue from the customer. Translation: the company is losing money because of this customer. Investigation has revealed that the customer never signed an agreement. The company can’t raise capital from investors or banks because it can’t prove it has a customer. The startup is in a difficult financial situation and has no leverage with this customer.  

Things fall through the cracks all the time at early-stage companies. It’s part of the chaos of startup life. Unfortunately, some of them can sink the company. If you’re an early-stage founder, make sure you have agreed-upon terms in writing (or better yet, payment) before celebrating or incurring expenses for new customers.