Archive for December, 2008
Web design or development profit share agreements
I had this post in mind for a while, prompted by Neil Dixon’s post on the same subject, however the recent post over at Carsonified and the responses to it reminded me of this subject, and that is might be a good time to add my thoughts to the debate having been on the receiving end of many such offers over the last 7 years.
At edgeofmyseat.com we build web applications, so we chat to people about their potential projects all the time. Every so often I’ll get an email or phone call from someone who is trying to get us to work under some kind of profit share agreement. I find that very rarely do they mention profit share up front, and the fact that someone isn’t honest from the outset is always the first alarm bell for me! We have a discussion about the project, I ask some questions so I can give a ballpark cost, and usually at that point they will say, “I was really hoping you would agree to be a partner in this business”. By which they mean, “I was really hoping you would develop this for free and I’ll pay you if it makes me any money”.
As Neil points out, most of the time with these offers, the entrepreneur has no business plan to speak of. They have an idea and think that if they can just find someone to build it, they’ll be rich! If the entrepreneur manages to find themselves a developer who is willing to entertain this idea they think they have themselves a real win-win situation, they lose the big cost of their venture, and only have to pay anything out if it makes money.
However, it might not be such a great situation for the entrepreneur as they think. Without payment they are really relying on the goodwill of the company or individual they have approached. They will probably find their project at the back of the queue behind any paid work that might come in. Without a well thought through business plan that both parties are excited about, it seems likely that both the entrepreneur and the designer or developer will be left feeling hard done by when the application either never gets built, or gets built but fails due to lack of marketing or simply because it wasn’t that great an idea in the first place. Without the market research, planning and forecasts that should go into a business plan you just don’t know.
That isn’t to say that such an agreement could never work. It could work really well in a situation where both parties are excited about the project, act as partners in the business rather than the developer just doing their usual job that they are normally paid for without the pay, and have a good contract drawn up to explain both parties obligations. It has to be said I’ve never been approached with a tempting enough opportunity yet, and if I were tempted it would probably be with a company or person I already knew and trusted.
The below are the points I would consider if I were tempted by any profit share opportunity.
Does the opportunity have a proper business plan?
By asking someone to work for free you are essentially asking them to invest in your business. Any investor will want to assess your business plan and ask questions. Treat investments of time and skills in the same way that you would treat an investment of money.
Are you happy to accept that I will want to have a say in how the business is run?
As an investor I would want to be able to help the business become a success, not just build what we are told to build. If you want someone to be quiet and just do what you say then you definitely wouldn’t want me as a partner. Any opportunity I was excited enough about to want to be part of, I’d want to be properly part of it.
Is this something I’m excited about?
I would want to enjoy being part of the business, not just see it as another job, so anything I partnered in I would need to be really excited by and keen to see do well.
Is this something I can be of benefit to?
I’d have to feel that my involvement would be more than just my ability to write code – am I the perfect person to be a partner in this business because of my other skills and knowledge?
Is this going to be interesting to develop?
I like building interesting things and I’d be far more likely to take on a project on a profit share basis if the work itself was going to be interesting, would show me and my company in a good light, and would increase my abilities.
Do I like, trust and respect the other partner(s)?
If I am going to partner without someone or another company I need to like an trust these people. I try to avoid having clients that I don’t trust – that goes much more so for those who I am going to enter into partnership with.
I would expect to be happy with all of the above before it even got down to contracts and breakdown of who gets what and when. Then it goes without saying I would expect to be involved in discussions about those contracts and that all parties were happy with the agreement before it was finalized and work started.
As to the comments over at Carsonified that Elliott knows and trusts Ryan, in my view that makes it even more important to have all of the exit possibilities mapped out in a contract. Contracts shouldn’t be seen as a means to beat the other party over the head if it all goes wrong. They should be a means to protect a relationship by spelling out exactly what happens in any given situation. So if either party needs to terminate the agreement for whatever reason, the steps are mapped out and a conclusion can happen without any wrangling or argument, and the relationship stays intact.
I wish Carsonified and Elliott Kember the best of luck, and I’ll be interested to see how their app turns out. This post isn’t really a reaction to Ryan’s post, as other than the details posted there we don’t know anything about the plans that have gone into this. However I’d love to hear your stories of partnerships, or of proposals you have received that you decided to turn down.
Starting your own business during a downturn
It is certainly shaping up to be a tough time for a lot of people right now. Several friends have found themselves unemployed and I’ve seen a number of people mentioning on Twitter how they are considering starting their own business. From my own experience I would encourage people to go for it – even from the early days I have felt more secure as a business owner than an employee. I am the first to know about any potential trouble spots and can do something about it myself rather than hoping my boss will. Starting a business at any time seems quite scary, as we enter a recession even more so, and as someone who has been through that process I wanted to share my own tips for starting up with nothing.
When I started edgeofmyseat.com in September 2001 the web industry was also in the middle of a crisis. The dot com boom was crashing and the market seemed to be swamped with out of work web designers. However we have gone from strength to strength as a company and I believe that the tricky start I had has been important to our success. Sometimes the best lessons are learned through dealing with adversity.
Conventional wisdom is that you should have a pot of money saved – around 6 months worth of salary – before taking the leap and starting up for yourself. If you’ve just found yourself unemployed you might not have that luxury – I only had the next month’s expenses covered when I started up. It certainly focuses the mind! Even if you are fortunate enough to have some cash in the bank, try and see it as your contingency fund and act as if you need to make enough to live from day one of your new business or freelance life.
Spend on only what is necessary
You don’t need much to start out as a freelancer or small company. A computer with appropriate software (which you may already have – even if it isn’t the shiniest and newest Macbook Pro), somewhere to sit and work comfortably, an internet connection and a phone.
You can do without a load of printed materials. When I started the company the only printed materials I had where some cheap business cards. These days getting nice and inexpensive business cards is easy – check out Moo.com. Even today we have business cards and printed letterheads – no compliment slips, leaflets, folders etc.
However, don’t scrimp on essentials
Your computer might not be the newest but it needs to let you do your job. If you need to use Photoshop and it takes half an hour to launch or crashes every hour then it is false economy to battle on as the hours you waste soon add up to a lot of money if you could have been doing chargeable work during that time. Learning when to economise and when to invest in equipment is a vital part of starting out on your own. For a few days keep a tally on the mount of time you spend waiting or rebooting. You can then work out when your investment in a new machine will pay for itself in time saved.
If you are sat at a desk all day essentials also include a decent chair. Back problems can leave you unable to work for weeks. I’m not suggesting you go out and get an Aeron, but shop around for a decent adjustable chair, you can often get really good deals in office stores on ex-display or end of line stock.
Promote yourself on the cheap
We have never advertised in the traditional sense. Instead I have always used the things that I’m good at to raise the profile of the business. A well written article for a busy site, that covers one of your levels of expertise, can be worth many expensive adverts in magazines or a fortune spent on Google AdWords. Think about ways you can raise your profile by putting in some time – writing, starting a podcast, spending time helping people out on mailing lists and forums or offering to speak at a local event are all ways you can promote yourself and help other people too.
I believe the key with this is to never treat what you are doing as purely an advert for your business. Write, speak or answer forum questions in the spirit of community and in sharing knowledge, and do the activities that you enjoy doing, where you can offer something.
Make sure everyone you know is aware of what you are doing
This bit I’m quite bad at, self-promotion not being one of my strong points. If you are already involved in the web community – on Twitter, on mailing lists and forums, have a blog or personal site – make sure that you let those groups know about your new business or freelance status. You may find that people you already know have work to offer or contacts they could introduce you to. It is worth being specific about what you do so that people know you are the person to come to if they need someone for that type of work.
Keep an eye on cashflow
I never wanted to be a bookkeeper but part and parcel of running a company is having a decent understanding of what happens in your accounts. I’d advise any company to get a good accountant to help with the year end accounts and advise on tax issues, however think seriously before outsourcing all of your bookkeeping. I still do all of our day to day bookkeeping, and find that checking into the accounts several times a week keeps cashflow at the front of my mind and prevents any small problems becoming big ones. It also saves us money with the accountant as I can send him neat up to date accounts to check and make adjustments to rather than a pile of invoices and a shoebox full of bills!
Chase unpaid invoices promptly
I find it really difficult chasing money from clients with whom I have a good working relationship, but it is one of the necessary evils of running a business. Have payment terms and stick to them, don’t feel bad about asking for payment when it goes overdue. If you’ve done the work it is your money! In times of trouble companies often use freelancers for a interest free loan, getting work done and then delaying the payment for 2 or 3 months. You are not the bank so don’t let your clients treat you like one.
The Better Payment Practice Campaign website has a lot of helpful information about getting paid and what to do if a client is not paying. A lot of this is UK specific – but some of the general points are true wherever you live.
Get Networking
If your target market is other businesses then getting out and talking to people can generate a huge amount of interest. Check out your local Chamber of Commerce and the local papers to see if you can find local business networking events. Some groups will charge for membership as well as for the events themselves but usually will let you attend a couple of sessions as a guest before joining.
My experience of networking is that I very rarely meet anyone at an event who becomes a client however, a few weeks or even months later I often hear from someone who has been told about us by someone from an event.
My top tip for networking is that you should never go out there and try and sell your services, instead just chat to people. Usually the first question anyone will ask is “what do you do?” so be ready to answer in a way that describes your company and services clearly and memorably. Then find out what they do! You will meet some nice people, perhaps find out about services and products you can use, and also spread the word in your local area about what you offer. If you work alone, networking groups can also be a really great way to discuss business issues in general with other people, and many groups have speakers who come in to talk about business related issues. You can get some good advice from these groups in addition to any contacts you may make.
As with online networking and promotion it’s all about give and take. If you become part of networking or local business groups, and try and help other people by referring them on to people or being willing to share your knowledge, you’ll soon find that people want to help your business as well.
Look for opportunities – even if they aren’t very glamorous
Starting a business in a downturn might mean that there is less really interesting work to go round. When I started out a lot of companies had found they needed to lose or trim down their web teams, and when their applications started to run into issues or need additions made they were looking for freelancers to fill the gap. I spent a good part of the first three years I was in business fixing up other people’s code. Definitely not glamorous work but it taught me a lot about web development and paid the bills until people started commissioning new work again. A lot of the clients who initially came to me to fix up old applications then came back and hired us to develop new ones, so it’s wise not to turn away opportunities too quickly, especially if you aren’t already swamped with exciting work!
So these are my suggestions for starting a business or going freelance during a downturn. I’d love to hear more suggestions in the comments.
24 Ways returns and edgeofmyseat.com evolves
24 ways – the advent calendar for web geeks – is back. Each day throughout December check the site for a new article on web design or development. Drew has kicked off the proceedings with Easing the Path from Design to Development an article full of real-world tips on how to ensure a good result for everyone when taking a design from Photoshop to the web. The site has a shiny new design this year courtesy of Made By Elephant.
We’ve been busy at edgeofmyseat.com, today we quietly relaunched the edgeofmyseat.com website using our own Content Management System and an evolved design by Jon Hicks who created our brand during the last redesign of the site. There is still much that we want to do on the site but we’re pleased with the changes so far.
