I'm competing with a client? is it fair?


1

I've been working as part of my service company for a client (ClientA) for a year now on building a plateform.

A few weeks ago another client (clientB) asked me for a quote for building a similar product. I said to the client that we have been working on a similar product for a client and that we have a mature platform that they may use without all the hashles of doing it from scratch. So i sugested that they partner with my other client to use his plateform instead.

Unfortunatly, the negociation didn't went well because of many factors:

  1. ClientA don't want to have a partnership with CLientB but instead want to keep owing the platform and provide it to clientB as a SAAS service: which i can understand because of the investment already made.
  2. The plateform don't have all the features that ClientB want, so they need to invest money in developping those. However they are reluctent investing such money in a platform they don't own. because they are planning to sell it to thousand of their own clients. So basing your whole business on a product you don't have control on is not a good move for them.

I've done my best to make them agree, but seems like they can't because of each one wanting to have control on the plateform.

Now the clientB as he already wanted at first, want my company to build a similar plateform and want my company to partner in this. We'll share any ROI with them.

It is a thought decision for Me to take because i understand that we can't as a company keep working on those two plateforms at the same time.

The first version of the plateform was obtined from a freelance website under the "work for hire" clause. So the code belong to the clientA. So we cannot reuse anypart of that work.

Now as a company manager i'm in a dilema because i suspect that clientA will take that move as an unfair one.

What are your thoughts on that matter?

Legal

asked May 7 '11 at 17:50
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Clide313
106 points

4 Answers


3

Early in my 15 years of freelancing I decided to never take on work from anyone considered a direct competitors to one of my current customers. I ran into a variety of situations exactly like you described, and in all cases I called my original client and described the situation, and told them that I would turn down the work in order to avoid any potential conflicts of interests. The original customer was always impressed, and this concern for their feelings often led to great referrals and testimonials.

Take care...

answered May 8 '11 at 15:04
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Dave Feyereisen
963 points

2

Competing with a customer is a terrible idea - here's why. I'm assuming you don't have a non-compete agreement in place with Client A. So let's imagine what's likely to happen if you go ahead and partner with Client B to go into competition with Client A.

In the US, it's common in situations like this for Client A to sue you, claiming that while they were your client, you received confidential information about their business or technology, and are using it for your competing product. It's very expensive to defend against such suits, and it can be hard to prove them wrong.

You can expect your product to sell badly, because Client A can frighten away your potential customers by pointing out how risky it is to use a platform that's the target of an intellectual property lawsuit.

Your service business will also probably lose its client base. Every one of your current and potential customers who hears about this will wonder if you'll go into competition with them, too.

There are also ethical issues involved. As a bespoke software developer, I normally won't even work for two clients in the same industry unless there's been several years' gap, or the earlier client is out of business.

I applaud your having encouraged Client A and Client B to partner in some way. But when it was clear they weren't going to come to terms, if I had been in your shoes, I would have just told Client B, "I'm sorry, I can't help you further. It would be a conflict of interest with my responsibilities to Client A."

answered May 9 '11 at 03:52
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Bob Murphy
2,614 points
  • Thank you for the very informative answer. I know it is risky to get into business with clientB as there will be always a suspicion of using the original source code, this is why i originaly asked this question. My goal is absolutly not to bypass clientA and this is why i've made my best to convince clientA to find some partenership with clientB. However, i don't feel very confortable on just letting a business oportunity passby. I've sent an email to clientA explaining that the clientB will build the platform anyway and they want us to build it. depending of his answer i'll decide what to do. – Clide313 8 years ago

1

If I were in your position (and I have been) I would not take the business from client B. Instead, I would refer them to another service provider whom I know provides good work. I would also check in with client B from time to time to make sure my referral was satisfactory.

  • This rewards your first client for having faith in you and hiring you first.
  • This will keep you positioned well with client B even though you can't work with them directly. When they refer services to others, your company will probably still be included.
  • This protects you from liability

Of course, in business nothing should ever be given away for free. I would request a royalty from the other service provider.

answered May 10 '11 at 01:16
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Rain Maker
81 points

1

This is a tricky but ultimately good position for you to be in.

Really, long term if YOU were to own the "core platform" as a white label service and they put their own brand name and additional features on top.

Given the original contract you don't seem to own it unless you were to rebuild in a different langauge ... if you could do it fast enough. We have done this sort of thing previously where the customers didn't want to be "software developers" they just wanted to be better at their own industry. Thus the mostly "shared" nature of the product suited them because they weren't "out on their own" and didn't have to support a development house alone.

Given this I would try talk to both sides again, saying that they have both common and unique aspects to their businesses. With an appropriate architecture both sides can invest $X per year in the common base and $Y per year in their own additions.

In this scenario ClientA should be paid an amount upfront to cover their investment to date and ClientB should consider it as they will be able to go to market with the basics straight away rather than waiting a year to catch up.

If this fails, which it sounds like it might, then you are probably down to choosing which one to go with. The current client doesn't have an exclusive drive on you if you wanted to swap.

It comes down to you and your companies feelings on which is a better long term strategy and how much you "owe" the current client in terms of loyalty.

... I would be approaching clientA first and saying "we see a long term future, this proves there its a good market, we want to go in with you to develop this ... (maybe ask for a 20% stake in exchange for a 20% drop in hourly rate if you can afford it).

If they have first right of refusal then you are probably in a better position all round.

Good luck.

answered May 7 '11 at 18:50
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Robin Vessey
8,394 points
  • Thanks for taking the time to answer my question. What do you mean by rewrite it in a different language? Some part of the platform is web based while the other is objective C code. so we can't definitly use another language for the objective C part. However i was planning to rewrite it with the team from scratch without using any part of the original code. The current platform lack alot of architecture and it base is not very good. all the year long the client has been asking for future with low budget and asking for a JFDI approach. So the project at it current state is not optimal. – Clide313 8 years ago

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