New business owners find it's a mistake to work for free

By Joyce M. Rosenberg
AP Business Writer

NEW YORK (AP) — It’s a situation many new business owners land in — they’re so anxious to find customers and clients that they work for little or no money. Or take on projects they don’t like.

These owners hope to get referrals, build a portfolio or get photos and testimonials for their websites. Instead, they wind up with a lot of grief and regrets.

Elise Gelwicks recalls feeling desperate for clients when she started InternView early last year. Gelwicks, who helps companies create internship programs, hoped that working without pay would allow her to make connections and lead her to paying clients.

“People who were interested wouldn’t pay me, and I said, OK, I’ll do it for free. I needed the experience,” says Gelwicks, who is based in Chicago. But not only was there no pay, she wasn’t doing the work she wanted — she found herself helping companies recruit interns.

Many owners find that clients who get cut-rate or free work aren’t grateful, and may in the end devalue the service or finished product. These clients may take advantage of a new owner and keep making more demands, since they don’t have to worry about running up a bill.

“Underpricing is probably the biggest mistake most companies make,” says Laura Willett, a business consultant and lecturer at Bentley University in Waltham, Massachusetts. “The perception is that your product doesn’t have any value.”

Conversely, owners find when they set a price that’s in line with what other companies charge, prospective clients and customers take them more seriously.

Gelwicks spent six frustrating months trying to turn no- or low-fee work into a growing business, and finally one day asked herself, “Where is this getting me?” She decided it was time to start charging what she knew she was worth.

“It was terrifying. I went through a period where I didn’t have clients,” she says. But she did find companies that needed the services she wanted to provide, and InternView is now growing.

Liz Mally found misery in doing work purely for the sake of building a portfolio.

“I was taking on pretty much any client I could get, regardless of budget or style, in hopes of gaining experience and getting my name out there,” says Mally, owner of LPF, a floral design company in Detroit. That included corporate clients who wanted dyed flowers in flashy arrangements, not the elegant, understated creations that are Mally’s specialty.

“I absolutely dreaded every second of the design process. I also didn’t want to share any photos of my work because it didn’t fit my aesthetic, which is the primary way I market my business,” Mally says.

Some individual clients also wanted arrangements Mally didn’t want to do. She learned to ask a lot of questions up front when contacted by a prospect.

“That helps me understand ahead of time if they’d be a good fit,” she says.

Some owners get lessons in good business practices from the anxiety-driven mistakes they make early on. Kenny Klein, co-owner of the public relations firm JAKK Media, recalls clients who kept asking him for more work but didn’t pay anything extra. Part of the problem was their written agreement — it didn’t provide for rate increases if more work was requested.

“Since I was afraid of losing their business, I complied more often than not,” says Klein, whose company is based in New York. “This resulted in a tough relationship where their expectations continued to increase and I was very poorly compensated for my time.”

After being caught in this bind several times, Klein started requiring clients to sign specific agreements about how much work would be done, and how he’d be paid if more was needed.

When V. Michael Santoro started his digital marketing company, he used several methods including the barter system — trading his services for another owner’s — to bring in his first clients. But he found that many saw little value in what he had to offer, even though his work made their companies more visible on the internet.

Santoro, co-founder of Tampa Bay, Florida-based Vaetas, realized he needed to say no to some prospects.

“We needed to communicate what our value was and back away if it wasn’t accepted. That’s the biggest lesson, know your own value,” he says.

The excitement of signing her first clients made it hard for Krysta Monet to see red flags, including the haggling one client did before the contract was signed. The client also wanted to micromanage her work. Payments were not only late, but it took eight days for checks to clear.

“I was being taken advantage of and feeling extremely used and I had nothing in the contact I had written up to protect myself from what was happening,” says Monet, owner of Nine & North, a public relations firm based in Orlando, Florida.

Monet’s mother, also a small business owner, told her she needed to reset the tone of the relationship. “You need to control the situation now before it gets out of control,” her mother told her.

So Monet got the client on the phone and set a limit on how much supervision she was willing to take, and said she would not work without being paid. At the end of the contract the client left.

“I’ve learned a lot and I’m very happy I got him at the beginning of my company, not later,” Monet says. “He changed my business model significantly.”