Chances are, you’ve made a purchase, tried a new restaurant, or visited a new venue because of a recommendation from a friend or family member. You know who you can trust, and you rely on these people to help you make important decisions. And if someone has a history of bad recommendations, you learn fast to disregard their advice.
The same holds true in the business world, particularly for small IT businesses. If your advertising budget is small, one of your most powerful marketing tools is word of mouth. All it takes is a few unhappy customers to ruin your reputation and cost you thousands in lost business.
Consider the example of hardware and software firm Oracle and the New Jersey-based Montclair State University.
After two years of fighting in the courtroom, Oracle and Montclair agreed to a settlement, ending a long, multimillion-dollar lawsuit. The legal problems started after Montclair claimed that Oracle mismanaged a $20 million dollar IT project, underestimating its cost and using "unprepared staffers" to design an enterprise resource planning (ERP) system. Because Oracle is a large company, it’s been able to handle both the legal fees and the reputational dings.
Unlike larger businesses, though, independent IT contractors and freelancers don't have much room for error. One botched rollout, and your reputation could be irreparably damaged. One mismanaged project, and you could wind up in a lawsuit that will burden your business with massive legal bills for years.
The really scary thing? The Oracle case isn’t unique. If you Google "ERP lawsuit," you'll see dozens of multimillion-dollar lawsuits just like the one between Oracle and Montclair. You'll also find numerous experts pointing out the difficulty of delivering ERP products.
ERPs are an industry term for large, comprehensive IT solutions. Usually, a company like Oracle takes its standard software and adapts it to fit a client's specific needs. But IT project managers know that real-world projects are never as straightforward as that description suggests.
While you might not be installing a huge ERP for a client anytime soon, you face the same delivery disappointment challenges as your larger competitors. Read on for ways to manage those risks and protect your business finances.
4 Reputational Risks that Can Devastate a Small IT Business
Every once in a while, it's good to take a step back and rethink how you manage IT projects. What are your risks? How can you improve your IT risk management?
Consultants and IT project managers have a complicated mix of liabilities. You may be responsible for managing employees, making accurate estimates of cost, and delivering secure IT solutions.
Among these risks are four that can lead to a massive lawsuit like the one Oracle faced:
- Working with big clients. Of course you should work with big clients because big clients have big money. But you also need to recognize the kinds of problems that are associated with larger players. Bureaucracy, working among various departments, and satisfying multiple managers are all challenges that come with big projects (to say nothing of the difficulty of building more complicated software for larger companies).
- Mismanaging deadlines. Failing to meet deadlines and / or underestimating how long a project will take can lead to dissatisfied customers. In many ERP lawsuits, plaintiffs allege that their IT contractor told them a project would be finished by a certain time, then failed to meet that deadline. You may be tempted to overestimate how quickly you can finish a job, but remember: this can lead to breach-of-contract lawsuits.
- Overpromising. Make sure you don't oversell what your software can do. Many IT firms find that customizing their preexisting software to fit a client's business is much more challenging than they anticipated. Be reasonable and accurate about the capabilities of your software (and your programmers).
- Managing staff. Good help is hard to find. Many IT projects run aground over issues in managing their staff. Some projects don't have enough staff. Some are missing key leadership to coordinate among parts of a project. Others hire independent contractors who turn out to be under-qualified. Finding talent, hanging on to the best people, and budgeting for the right amount of staff are vital to finishing a job on time.
A Small Business Is Only as Good as Its Reputation
As a small-business owner, much of your business may come from referrals. IT risk management is important not just because it reduces your risk of lawsuits, but also because it helps grow your business.
By avoiding disagreements with customers over schedules, delivery, cost, and other factors, small-business owners build a reputation as someone who’s easy to work with and knows how to get the job done.
Small business insurance can also help you finalize deals with new clients. Many prospective clients want reassurance you can finish a job. They'll also want to know that if something goes wrong, they'll be covered financially.
Errors and Omissions coverage (also called E&O or Professional Liability Insurance) can pay for lawsuits when you fail to satisfy a customer. Many new clients will ask that you have this insurance.
Want a free estimate on the cost of coverage for your business? Use our free risk analysis tool. Answer a few simple questions, and you’ll get an idea of what it will cost to protect your business’s reputation.
