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Clients and the way Zerksus is being misused

Plus the way matters will be handled from now on...

2010/01/04

 The 2009 year was a busy one. The peak negative experience came when we were robbed, at gunpoint, in middle of September. The four robbers broke the security gate and caught us in our driveway. The short of the long story is that they cleaned us out. Even when their own vehicle was full they had the cheek to call and 'order' another vehicle. They basically got away with all our computers, backup drives (that I was busy making backups on), audio and video equipment and jewelry. All in all about R150 000 ($20 000 USD) worth of hardware got taken.

Since September we have had an uphill battle resetting the office, recovering data from numerous small backups and trying to keep afloat. All our contractors also went without work since then and I regularly have to spend time making promises for when we are going to be back up and running.

Now, all of the money and time lost from the above is nowhere near the money and pain some of our clients caused us. The robbery was just a cherry on top, probably a good thing because it made us sit down an think. We sat down and made a list of the top clients and ended up with a list of 15. Of these about 5 take up most of our time. We get calls till late at night, we work 7 days a week, supply free hardware and supply free support for it etc...

The story always start the same. A client approaches us with literally thousands of potential orders. The initial order's profit is normally much higher than labour costs, so that is waivered from our side. We then end up designing and manufacturing a prototype but we never get to pre-production, hence no cover on labour and prototyping costs. Then the client wants some bell or whistle added and still does not place any definite order. Around this time the price is beaten down till the profit is so low that it is basically dangerous to touch production with a stick. In the end we sit with an expensive proto and a client we don't want.

We also got sucked in a few times with people that know people. In November to December we got sucked in by people who claimed they knew Richard Branson very well. On the Water2Fuel side these people sucked around R45 000 for free demos which Sir Branson never even saw. I even had this one client who came to "fetch" some samples (>R10 000), got me to get his software sorted out so he could invoice and have some money for Xmas. Apart from the hardware loss (now secondhand, physically handled), fuel and time spent we have no money to show for it. Another client also wanted to order numerous copies of circuits. Initially he only took and paid for 2 units where we had an agreement for an MOQ of 20. Serious loss. Then the second batch he took 6 boards. He now requires a 3rd version. On his project we basically invoiced unit cost but we paid for all the tooling. The last payment barely covered the PCB costs. Another client ordered a large batch of boards and asked for it to be delivered in batches. We had to spend money of MOQ components but the client decided halfway to "halt" the delivery as they did not want to mess up their cashflow... but messing up ours is OK. We are starting legal action next week as we have a legal order from them. Yet another client was unhappy because we were closing for April holidays. I rushed to finish their work before we left, invoiced BUT we still have not be paid.... 8 months later. Another client got us started on a PPM GSM project for which we now have R1000 per month recurring expenses. The first batch was supposed to be 50 units (again to cover labour costs) but near completion they only wanted 5 (which was completely off by 10 times). So far, even if we do get a 50 unit order, we will barely cover the costs incurred so far.

We are grossly mistreated. My one friend made an accurate comment the other day that we would have lost less money if we just did not work at all. It seems that the more experience and capability Zerksus seems to acquire the more people are expecting for free. We get requests for quick software. The one request was for software that "should not take you longer than 5 minutes". That software took 2 days and then the client wanted to modify the hell out of it. Again for free. When we used to do work for companies like Denel they would understand that a circuit board started with with documents, prototyping, schematics, PCB layout and manufacturing. These days the "clients" are so clued up that they know it takes roughly 5 to 8 days for a prototype PCB's manufacture, .... so the obvious lead time from meeting to demo is about 1 working week. There is no time allowed for design documents, prototyping or the rest.

The other major mistake we make is to fall for the large volumes clients promise us. For these large volumes we normally waiver the design costs. The problem is that the profit we make is sometimes less than what we would make for the design costs. The one client kept on pushing the price down so much that the PCB assembly guy is making more than us (for nearly no risk). If the CPU on the board dies we lose more on that component than the profit on the board.

So, and I know our clients will probably be reading this (if you don't get an email first), this will be the standard way we do business from now on:

1) Initial decision: Who's IP is it?

  • If you approach us for a product then you will have to decide if you want to own it or not.

  • The end result is simple. If you want to own the IP then you pay for it. We will provide a detailed quote and if you accept it (official order) then you will pay for the work done on completion of each line on the quote/order.

  • If you decide you don't want to own the IP then you will commit to a minimum order quantity of units (calculated on lesser amount of expenses).

  • If you decide to own the IP then we will discuss first right of refusal to manufacture 'your IP'. If you agree to this we will get the first option to manufacture the units, with predetermined markup.

  • If you own the IP you do not own the complete rights to all possible products. One client was upset because I designed a power supply for another client. The IP will be product and market specific with a time limit.

2) Payment terms.

  • Contract work will be paid on-time as per contract terms, usually 30 days from date of invoice. Work will only start on receipt of official order.

  • Ad hoc "can you quickly come and help us please" work will be payable immediately at the end of that session. A callout fee will also be asked for each trip. Distances further than 50km will be charged more.

  • We accept any normal form of monetary payment, including cash, EFT, credit cards and cheques. We will only accept credit cards and cheques from customers with physical addresses (i.e. can be found) and for values of 1 day's labour or less.

3) Added value service.

  • You get what you pay for. If you buy a R49 CPU card then that is all that you get. Many clients expect me to get in the car an physically code and program the card in their system. Don't come with stories that if this circuit works (with me getting it operational) that there is a market where you will buy thousands.

  • If you require assistance on a product then send an email. We will help as much as humanly possible, meaning that if you are basically stupid that we are not going to design your system for you. Calling us to get it sorted out over the phone takes time and will be invoiced if it takes too long.

  • For all consultation/development contracts the terms of assistance will be stipulated in the contract. As soon as assistance, beyond the contract, is required the hours will be billed.

  • Don't think because a product is cheap that it will be cheap to get it fixed/operational etc...

  • Don't think because a product is expensive that the cost will cover hours upon hours of assistance.

4) Client Guarantees and pre-payments.

  • For products and labour exceeding 3 days (in monetary value) we expect some form of guarantee before excepting work.

  • The guarantee will depend on the monetary size/value. This is more applicable on smaller (financially) clients as the larger companies normally honor official orders. This will require the client to deposit an agreed upon amount into an attorney managed bank account.

  • For prototypes, pre-production and production orders we will require a percentage pre-payment before the work starts. This means that no components will be ordered until the funds are visible in our bank account. Pre-payment percentage will be dependent on the type of design. A circuit composed of simple components and small MOQ numbers (e.g. 40 chips per tube) will require less pre-payment. Products with expensive components (like GSM modems) and large MOQ numbers (e.g. power supply chips with 2500 chips per roll) will require a much higher pre-payment to cover the procurement cost.

5) Minimum order quantities.

  • Certain components will dictate minimum order quantities. These MOQs are in a lesser way applicable to shelf items.

  • We cannot build a single unit, using CNC pick and place methods, for the cost of components plus markup. Components have to be ordered in rolls and tubes and range from 500 to 5000 components per roll. Keep in mind that we have to carry the stock (for our IP). Prototype units will now be more a matter of hours spent than just the component cost.

  • If the product is your IP, and we manufacture, then you have to pay directly for your components and pay us the agreed upon markup per completed units. All excess components will be delivered along with the units.

6) Predetermined business closure times and unforeseen delays.

  • We have only had 1 1/2 vacations in the last 10 years. Don't even get me started about the 1/2.

  • All projects and deliverables will be scheduled. If a project moves into a holiday timeslot then it will wrap around and only be delivered afterwards. We are also human and we also need rest. There is this sick trend people have pushing us hard through Xmas, with them resting, and then hitting us hard in the beginning of January with new work (usually free stuff they thought up during New years).

  • We will not work on any public holiday.

  • We will not work weekends. If required Saturdays will be used but definitely not Sundays.

  • We will close around the 10th of December and start around the 10th of January.

  • We will close for one week in April and one week in July. The days will be published on the website. Clients will receive emails and SMSs.

  • PCB designs will close by the 1st of November as most PCB manufacturers close orders by the 15th of November. This means that it is useless to rush complex designs just days before these closures.

  • April is funny season. There are so many small holidays during April that one week's work easily turns into 3 weeks. Expected delays will be compensated for.

  • Our supplier delays will be passed on directly to you, the client. If the PCB manufacturer delays the delivery by 1 day then the entire project moves by one day.

  • A work week consists of 40 hours per person. If the planning shows more than 40 hours per week then another person will be contracted or the project endpoint must be moved out.

7) Shortcuts, non-genius moves and false feelings of knowing everything.

  • It is said that it takes 9 months to make a baby, anything less is a potential abortion.

  • If the circuit needs to go into a plastic injected box then we will get a proper mechanical engineer, get the proper mould made and have it manufactured at a reputable manufacturer, with all the cost covered. Sounds simple, but believe me I have been situations where the client decided at 99 that he did not want the expensive box anymore and rather would like us to make a quick rubber mould and cast it by hand. That stunt cost me R200 000 in 2004, causing the project to look below standard, caused late delivery but allowed my client to pocket some R150 000 in spare cash.

  • Products don't fall from my brains to the table. That would be nice. Normally it requires a lot of meetings, lots of paperwork, prototyping, CAD work, more prototyping and many hours of coding before a product is complete. I am sick and tired of clients who think the product will be complete when the components and PCBs land. I even had a client who expected full vehicle installation 2 days before the last microcontrollers landed. We will follow the agreed upon process or not at all.

  • No last minute changes!!! Change costs money. The further down the project timeline the greater the impact. The same genius client above decided 3 days before commissioning to add another server to his system. This required a complete overhaul of the software causing delays and red faces. We usually adaptively design during the process. If a component catches onto a moving part, a potential future component might be too high (e.g. SMD capacitors) we will pick it up way in advance and inform the client of the "rectified" problem. A single feature change usually upsets the entire design flow.

  • Some clients feel they know everything. Recently I had a client (yes, you might see yourself in this) who told me that he could get GSM trackers for very cheap (sub R100!!). He did not know the difference between GSM/GPRS and GPS. So my pricing, according to him, was way off resulting in the demand for lower and lower prices.  My feeling now is that if the client is so smart that he does not really need me.

  • Assumed functionality is also a major problem normally associated with a super smart client and very little documentation. This is the part where the client suddenly comes up with new requirements the day we demo the system, saying things like: "Shouldn't the power LED flash with a 20% duty cycle, .... like my cellphone when it is charging?". Each project will have the proper documentation, agreed upon at time of contracting, with proper line-by-line specifications and test documentation ...with results....and signed off. If you suddenly experience an epiphany at demo time then the new feature will part of contract number 2.

  • Promising your client unrealistic specifications. I refuse to work miracles anymore for stuff you promise your end clients. I designed a vehicle tracking system for a client who promised his client that this circuit will be so good that it will even measure the fuel levels in their tanks. Not only was it impossible (at that budget) to implement but it was also illegal to tamper in the fuel system. They eventually convinced my client to at least put in something nice like impact sensors and my ex partner signed the deal, without me, locking me into a near impossible design target with a budget of R100 per sensor (including development). That little extra cost much more in time, money and endless problems.

8) Long distance work (anything requiring a long drive or sleepover), S&T.

  • If you have a project in mind then try to sort implementation and testing so that the nearest site to us is chosen. We are in Centurion, near Pretoria and Johannesburg. That is, e.g., not near to the Kruger National Park, Bloemfontein or Cape Town. If you have a tracking system in mind then it makes more financial sense to drop the vehicle off with me so I can develop, test it here and make sure it works. After that we can discuss remote installation and other procedures. I also have people here who can help, who can drive the vehicle, auto electricians who can correctly wire and install, PCs and other lab equipment etc to do quick modifications... I also have my bed very close which is for my account. As soon as I move away from my lab things get slower, more complicated and prone to errors. It also costs, as set out below.

  • If you require me, or a Zerksus contractor, to work in a remote location then you have to compensate for the following:

  • If we have to use our own vehicle then the client must pay the AA tarrifs per km. We have a cost effective vehicle for that purpose. A contractor, driving his/her own vehicle, might however cost more per kilometer.

  • If we have to sleep over then the client must pay for suitable accommodation and food.

  • When sleeping over at a remote location the minimum payment will be 8 hours per day of the agreed tariff. This includes the travel time for that day. If the travel time exceeds 8 hours (long flight, or drive to Cape Town) then this will be renegotiated beforehand. Keep in mind that billable hours are being used. Also, flying to Cape Town might seem more luxurious, but it is a lot more productive than driving for many hours and sleeping half a day before getting to work.

  • Bottom line is that we want to stop paying to go and solve problems for free.

9) Warranties, maintenance agreement and Zerksus responsibilities.

  • We accept that Zerksus work/products must carry some form of guarantee. It is sometimes this perceived guarantee that is costing us a lot of money. In 2004 we had a client in Klerksdorp (200km away from us) who would call 7am in the morning that our system died completely. After driving all the way we would find that it was Telkom who decided to unplug and move our server rack mount box, but because we were initially so nice (and normally spruced up system system and retrained the personnel) we did not invoice. After several such trips they assumed that every callout was free.

  • Zerksus normally specializes in custom systems, and yes, sometimes installed far from home base. In the past, as part of Zertec, the budget only allowed for one set of components. So if something broke it required us to drive out and fix it. Our new way of approaching this is as follows: If a system is critical then you can to buy spare cards. This is very common with standard IT systems to have spares and an IT person nearby, so why not for other systems. If a component breaks you must have the personnel to swap it out. The defective unit must then be couriered to us where it will be inspected if within the warranty period. If the unit is brand new and malfunctioned under normal conditions then it will be replaced with a new unit and sent back. If older (depends on product) the unit will be repaired and returned. If the unit shows signs of foul play then no replacement or repair will be done and the client has the option to have the unit repaired and couriered at his cost. Simple. We have never shrugged away from honoring warrantees/guarantees and have in many cases gone far and beyond the lifetime of the product.

  • Maintenance agreements. Larger systems, like access control and custom tracking systems, normally includes the warranty and maintenance agreement (if required) in the initial payment which covers the first year. Again, if far from home base, it can get complicated so another company close by (or in-house) must be trained to take over these general maintenance jobs. After the first year things get complicated. In 2005, after the split between Zertec and Zerksus, we spent numerous hours maintaining all the old VMS systems (Zertec no longer had the technical know-how). The 'tab' just grew and grew, again with no money flowing into Zerksus, as the clients believed they paid for unlimited maintenance. That is never going to happen again. The terms are simple. You want maintenance then you have to pay for it. If not normal callout fees, hourly rates and repair costs.

  • Having your own untrained experts work on the system is also highly unacceptable. We have had clients, wanting to save on a callout, who had their own people "work" on the system to eventually utterly screwing it up beyond repair (also known as FUBAR). We ended up being called and so shocked and willing to fix "our" problem that we only saw in the end that it was their "experts" who did it.

  • Lightning. It is the client's responsibility to have the equipment insured against lightning strikes. Access control installations are normally prone to lightning damage. Remember that additional lightning protection equipment (not part of the Zerksus equipment) is required by most insurance companies (as these devices are certified) for them to pay out any claims. Spotting lightning damage is very easy, even if there is no physical visible damage, so trying to pin it on the manufacturer is not so easy.

10) General comments.

  • What we want is simple. If you want us to work then you pay us for that time and effort.

  • If you take a piece of hardware then you pay for the hardware.

  • If you have the hardware and need help programming it/get it going/ fault finding (all products are thoroughly tested) then you pay us per hour.

  • If you need help at your site then you pay getting there and for the time spent there.

  • There is nothing "quickly" or "it is easy for you". The fact that after all these years I don't need manuals to design or code does not mean that you don't have to pay me anymore. If you pay the lesser qualified GP R150 per 15 minutes then do you pay the specialized cardiologist R50 per hour because it is so much easier for him to treat/diagnose you?

  • Expect excellent service if you pay. Expect nothing if you don't.

  • We are not a spares shop. If you want 5000 units of a specific component then no problem. We will organize. If you want 10 resistors and a can old Freeze spray then I will charge you for the 2 hours that one of us has to go and stand in the queue at Communica.

As of about 3 weeks ago we have abruptly stopped working on just about everyone's projects. It might seem crude and unprofessional but seeing that none of those clients have paid for the work being done (and none seem to be willing to pay even when complete) that we decided to lose less money and just chill for one Xmas. As from tomorrow we are taking legal action against 3 clients, so 2010 will indeed be an interesting year.

 

 


Victor Schutte

2010/01/04

 

 

 

 

 

 

 

 

 

 

 

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