7

I'm starting my own business as freelance Web/Application Developer and I get a lot of requests from clients to design mobile Apps or web Applications. They try to convince me that their idea will become the next million dollar company, but they don't have money to pay me and ask me to become a partner until the product generates income.

How should I deal with these kind of requests, given that I really need money to support my business?

  • 1
    possible duplicate of Client Wants To Pay a Percentage For Revenue Generated by Website – Scott Dec 21 '13 at 7:51
  • I don't think this question is asking the same thing. The OP here is asking about being offered a stake in the business in the event that it is ever worth anything rather than taking a cut of each individual sale. – levelnis Dec 21 '13 at 9:33
  • Same 3 pieces of advice as were given on another similar post: run, run and run. – Harry Cover Oct 22 '15 at 20:13
10

I get many requests of this nature as others have mentioned and most of the time I tended to follow the advice given here about how best to say no to these project requests. However, 18 months' ago I was approached by 3 partners who were looking for a fourth to deliver a new startup idea. It was the usual approach of offering equity due to them having no money. After careful consideration, instead of turning them down I actually decided to proceed with this one for these reasons:

  1. They had a clear idea about how the site was going to attain profitability and where the revenue streams would come from.
  2. There were clear definitions of roles and responsibilities and I was given complete control over the tech approach.
  3. It was understood that I would be developing the site out of normal office hours so there was a joint understanding that the sooner the site was completed, the sooner we could start marketing it, which meant that they agreed not to put pressure on me to deliver. If I couldn't work on the site for a number of days then so be it.
  4. There was an MOU (Memorandum Of Understanding) drawn up between the parties, which acted as a legally binding contract-in-waiting in lieu of us actually forming a company, which contained roles/responsibilities and equity arrangements (amongst other things).
  5. My equity stake was proportional to the total number of partners in the business.
  6. Probably the most important - it was a damn good idea that I could really see working and being very successful!
  7. It's a project that I find very interesting and can learn from participating in, both on the technical side (as per point 2) and on the business side.

These sort of projects can work if you have another primary source of income that can support you whilst you effectively work 2 jobs and there are lower expectations around the time it will take you to deliver a working system. It also helps if the person with the idea understands how to make the project successful after you have fulfilled your end of the bargain. If they don't have experience within the site's target industry that would be a red flag for me. The project is now live and going through a round of beta testing.

In short, don't just let the client sell you the dream - look beyond that and examine the reality. If they've put significant work into how they might realise that dream and are not just expecting you to do all the work and make them loads of money, then it might be worth deeper discussion with them. Just don't be strong-armed into a partnership that you aren't getting a fair deal on.

  • 1
    +1 Can you add: "7. It's a project that I find very interesting and can learn from participating in." That happened to me and was a stronger point than all the others. – Martin F Jan 12 '14 at 22:20
  • Good shout Martin, answer updated – levelnis Jan 12 '14 at 23:38
6

A similar thing happens with me as well. Let me suggest you a few pointers :

  1. Charge the client for the initial cost , no matter how low it is. Think till the point where you think it is affordable. Do not go below that point.
  2. The partnership terms should be profitable for you . Therefore, an ideal percentage would be in the range of 40-50%

If you do not ask for 40-50%, you will eventually be ending up with a loss on that project since the income (proposed income) of that project would need to fill that void of money which was created when you did the project at a lower price.

I once had an offer to develop a web app where the client told me that I should develop the web app for $300 , but the actual market price for that was $800. I was promised a lot of things but I suspected the client would not live up to his promise. You cannot trust a stranger completely in such matters.

Hence, it is very important to validate the client in terms of money, attitude and their past business transactions with other developers . With this, you will get an idea of what person you are interacting with.

If the client does not agree to these terms, I suggest you not to accept those projects at all.

5

I also get similar requests as a web developer and I tend to respond by saying I am not currently in a position to speculate and need to be paid in cash.

I might be inclined to take a risk on someone else's business idea if it looked promising enough and if I was in a better financial position but this hasn't happened yet.

I have a few business ideas of my own and would be more inclined to take a risk on these for 100% of the profit.

As Oliver Emberton says:

Ideas are cheap, fleeting things; by itself an idea is worth less than a half-eaten sandwich. At least you can eat the sandwich.

2

There are two issues here:

  • How to respond to these types of requests.
  • How to decrease these types of requests.

As Neil responded, it is completely okay to tell prospective clients that this is not something you offer.

But if you are getting these requests frequently, you should also investigate if there is something in your marketing that is attracting this type of client. Are you using language on your website or in your ads that suggest you are interested in working with start-ups? Are you advertising in places where start-ups are likely to be looking for clients?

I try to use language that signals my intent to work with only established organizations. And when clients call me and tell me they are a startup, I let them know right away that I only work with organizations that have been around for more than a few years. I want to work with companies who can pay me in dollars not stock, but also have an established history of paying vendors on time. Start-ups don't have this.

2

I've been doing freelance development since long before WWW entered our vocabulary and have been approached with this countless times. On a few occasions I fell for the presentation and became an equity partner. Each time I learned a lot about how to take a business to the next level, and each time I also learned new ways that ideas can cost you while failing to deliver on the hype. I don't regret the experiences, but even the best plans with megabucks backing them can flop.

The key is to examine the proposal and ask yourself, "If I had come up with this idea on my own, would I be willing to put my resources into it, and are these people [the proposers] the folks that I would choose to help me make this a reality."

A plumbing contractor once gave me some awesome advice... he said, "I didn't get into into this business to be busy, I got into it to make money." Being clear on that will help you whenever people want your time, or when they want to negotiate your rate.

1

Ask them a business plan. A true business plan with figures on a spreadsheet. Strategy, market, activities, costs and revenues year 1, year 2 and year 3. No vague claims like "I keep it secret", "huge market", "don't worry it's the killer app". That usually suffices to cut the relation.

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.