Inc.

Collect from the worst. Reduce your exposure to high-risk customers.

(Sept 1999) By Ilan Mochari

It’s a problem as old as business itself: how can you make sure your new customers will be reliable payers? For High Tech Connect, a $1-million PR firm in Pleasanton, Calif., the problem has been especially severe: 50% of its clients are start-ups. Still, those start-ups represent the company’s meal ticket because of its location near Silicon Valley and its specialty in publicizing high-tech products.

So president René Siegel devised a method for screening rookie companies. First she judges them by the credibility of their financial backers–and the amount of backing provided. The San Jose Mercury News prints a quarterly venture-capital survey that details what companies were funded by which venture firms and for how much. “You don’t worry if it’s an established firm like Kleiner, Perkins,” says Siegel. “Having private investors doesn’t mean the start-ups are unreliable, but it [having a big-name investor] helps if we’re doubtful.”

A little gossiping helps, too. After scrutinizing the bios of a start-up’s executives, Siegel drops the execs’ names with members of her two business organizations, the Forum for Women Entrepreneurs and GraceNet, to check whether they have any inside knowledge of the management team of her prospective client. Siegel also runs names by clients she’s come to trust, and she relies on referrals whenever she can. “It’s comforting when their first line is, ‘I heard about you from so and so,’ not, ‘Look at our Web site,’ ” she says.

Siegel has learned to avoid customers who don’t cherish her service–those who, for example, challenge her prices or expect two-week marketing miracles. Some casual questioning, usually during a first or second conversation with the prospect, tells her all she needs to know. “I’m looking for answers that show they have a realistic understanding of marketing costs, expectations, and results. If they’re an order of magnitude off, no matter what I do they’re not going to be happy, and are more likely not to pay on time,” she says. Like any other company, Siegel admits, High Tech Connect has made mistakes in choosing customers, but her diligence in screening has helped keep them from greatly affecting her bottom line. Since January 1997, only one customer has been a nonpayer: a PC-peripherals maker that filed for Chapter 11.