TL;DR:
Faced a $172K write-off due to inadequate contract management and lack of proactive communication.
Learned the critical importance of having strong governance and processes in place.
Discovered that addressing problems early prevents them from escalating and saves time and resources.
Realized effective communication is key to managing issues and fostering transparency within the team.
"Pain is knowledge rushing in at an incredible speed," said Jerry Seinfeld to Tim Ferris.
Chew on that for a minute.
It got me thinking of an experience that shaped my business approach.
Early in my career, I was responsible for a sizeable professional services P&L long before I was ready. We were firing on all cylinders, so I thought.
It was only in the monthly all-hands that I learned about write-offs.
"We had a great month, except Phil lost all our profit due to his massive services write-off," the CEO said.
$172K!
I started a consulting gig without a signed contract. So we were billing hours like crazy without a way to charge them. To compound the problem, I let our consultant keep billing and let the revenue and margin be recognized despite signs of an issue.
The problem festered for a few months. I was hoping it would resolve itself. I needed to be more proactive with the customer, our finance team, and our CEO.
When it all came to a head, it was clear that we were not going to be able to collect.
It was painful, I was embarrassed, and the trickle-down effect on the business was enormous, but what I learned about business was 100x the value of the write-off.
I admired the CEO's approach because he made a very public point that reinforced the lesson that needed to be learned.
What did I learn?
Governance and Process Matters:
A contract is not a guarantee, but signing one with a customer provides clues about how the relationship will go. It is better to find out early if the relationship isn't going to work.
Deal with Problems When They Are Small:
A problem rarely gets smaller over time. Dig in, figure it out, and solve it early. It will require less emotional energy, cost less, and save exponentially more time and energy for the people around you.
Communication is Everything
My instincts told me there was a problem, but I didn't investigate.
I could have communicated with the customer more directly or asked the finance group to recognize the revenue once I had a signed contract. I should have talked through the issue with the CEO.
To effectively manage the problem, it needs to be out in the open.
Pain + Reflection = Progress
This is a favourite of mine by Ray Dalio. Our CEO would say that mistakes will happen; the key is to avoid making the same mistake twice. Post-mortem reflection is the only way to identify the patterns that led to the problem so you can recognize the signs in the future.
Pain in business is inevitable, but so is the progress that follows. By confronting problems early and communicating effectively, we turn setbacks into stepping stones. Embrace the lessons with each challenge, and let them shape your journey towards becoming a more resilient and insightful leader.
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