
Ask HN: consultancy, how to? - ErrantX
Hey guys looking for some insights.<p>Im working full time for a company who dont mind me consulting on the side so long as it is not in business time (win). An ex-university friend has approached me with a proposition to do some websites - he works for an IT consultancy that doesnt do web design but has said it is willing to hand off customers who want sites to him (in the region of 2 or 3 a month). It's a good gig and looking over the specs for the first job he has it looks like a reasonable amount of work.<p>He wants to split 50/50 - he brings the clients and does the design work pluss some admin etc. I do the site building and technical consults. Again it seems a fair deal because he can bring the serious clients.<p>Anyone spot a catch? More importantly any advice on how to get set up?<p>Obviously I will want an actual agreement - would a simple partnership (im in the UK_) suffice do you think?<p>Also as I am working remotely (though will be paid a day's travelling per job so I can meet clients face to face initially - I feel this is important :)) does anyone have recommendations for tools to collaborate on these specific projects (I will probably use bitbucket for SCM and ticketing etc. so more in terms of communication &#38; work hour tracking).<p>And finally if your already doing similar work what kind of rate would you expect to be paid for this work (initially we are looking at £25/hr to get initial traction going up to £70/hr as things progress / we get a reputation)? + any other advice :)<p>Cheers peeps :)
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mseebach
The easiest way to handle this when you don't have any investments, no
professional liability or other complications, is simply that you set each
your own individual sole proprietorship. Your friend, as he handles the
administration, bills the client, and you bill him. Your agreement should
likely be that you get paid when he does.

This way, if things turns sour, you only stand to lose what your friend owe
you - there's no legal entity that you share and might need legal help to
dissolve. If you don't trust your friend to make such a setup (even if this
particular setup isn't the right one), you shouldn't go into business with
him.

Regarding the rate, don't undersell yourself. There's an expectation as to
what a professional developer costs (probably way closer to £70/hr than
£25/hr), and if you don't meet that expectation (in either direction) you'll
experience some friction. You can give a one-off discount, e.g. as a voucher
handed out as marketing. Underbidding is for punks with ASP.net for dummies
and "Hello world" under their belt, bidding at the actual price is what
professionals do. State your rate at what you think you're worth, and be
prepared to give a discount if you feel it's the right thing to do. That way
the client also feels like he got something.

~~~
CyberFonic
Having read the all the suggestions, this is the one I'd recommend.
Partnerships are more bother than they are worth. There are a lot of IF's: If
he brings in the business. If he does a "good" design. If he manages the
client and responds to his calls. If he pays you on time. If he brings in
clients that pay at the top end of the scale. Then he might be worth 50%.

My impression is that your friend is trying to profit from your hard work. I
don't see the amount of time as being 50/50. So you need to factor in whether
his contribution is worth the 50%. In my experience you'd pay 5% for an
introduction. 15% - 25% for the invoicing, collecting, account management. So
really depends whether the design work is worth 35% or more.

Another arrangement is that you get back to him and say, that if he makes the
introduction, you take on the client and pay him a commission of 15% and bill
the design work to the client and keep 15% for admin costs.

A partnership or company is the last thing that I would suggest. Too many
things can go wrong over time. Believe me, it took me 4 failed companies
before I realised that it's impossible to reconcile expectations, especially
when people have jobs, social life and other ever-changing issues in their
lives.

Good Luck!

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lp456
5% for an introduction? If I'm understanding this correctly he's selling and
designing. The sale alone is worth 25%. Now I'm not saying 50% makes sense but
5% is incredibly low for a sale of anything (even if your cashmart).

Agree on all other points.

~~~
access_denied
Here in the german advertising scene the standard comission for an "successful
recommendation" is about 15% no questions asked.

~~~
ErrantX
We have decided to pass on e-commerce work to another company (despite some of
it being in the 10's of thousands) who have signed an agreement to pay 15%
commission. So I think that is fairly standard all round.

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salvadors
The agreement you have should reflect how well you know the person, how well
you trust them, and what the worst case scenario is. I'd suggest you almost
certainly want lawyers involved in this part as they can give you a fairly
boilerplate agreement that's tailored around the 4 or 5 key questions that
you'll need to think really hard about.

Bear in mind that in a partnership, rather than a limited company, you have
full personal responsibility for all debts (and not just in the normal course
of business: you also need to consider someone suing you, such as disgruntled
client). A simple partnership, without an explicit agreement to the contrary,
will also include joint and several liability. In other words if one partner
were to do something incredibly stupid, all the partners would be liable for
up to the full amount owed.

There's no reason why that sort of set-up _can't_ work: there are numerous
businesses that run like that quite happily, but you should be sure that
you're comfortable with the risks.

~~~
mseebach
If you need lawyers at this state, you're doing it wrong (specifically
starting up with the wrong person)

~~~
chollida1
Couldn't disagree more.

The reason we have lawyers look over documents is that they write these types
of documents everyday and they can tell if you've missed anything.

This comes in handy when a dispute arises or some other unforeseen event.

Joel talks about this on the Stackoverflow podcast when they discuss using a
lawyer to review the FogCreek office rental agreement.

The gist of it is that when lawyers talk about problems( ie a tenant paying
his/her rent late) then its' just lawyers talking, but if a tenant broaches
this subject with the landlord then suddenly it's confrontational as the
landlord is now wondering if the tenant is asking this because they plan on
not paying,etc.

You should have a lawyer look at most contracts you sign.

~~~
mseebach
> Joel talks about this on the Stackoverflow podcast when they discuss using a
> lawyer to review the FogCreek office rental agreement.

This is not a rental contract, that the ability of 100 (?) employees to their
job rests on. If Joel gets to the Fog Creek office one morning and finds the
locks changed, he looses thousands of dollars a day - and not just his own
money, that's money that he already owes in wages and so on. Absolutely, get a
lawyer.

These two guys are doing some contracting on the side. There are no
investments and no liabilities. Their worst case scenario is walking away, not
talking to each other, maybe disputing a few $1000. Doing ten rounds with a
lawyer (there's really no boiler contract that can cover every conflict two
friends working together might encounter) easily costs that, AND then you'll
still have to go to court to enforce the contract.

Spend an afternoon writing down a page of bullet points of the rules that
should govern this cooperation.

> You should have a lawyer look at most contracts you sign.

No, you should familiarize yourself with basic contract law and be able to
estimate the worst case scenario, and decide if that's a risk you want to
take.

~~~
chollida1
> These two guys are doing some contracting on the side. There are no
> investments and no liabilities. Their worst case scenario is walking away,
> not talking to each other, maybe disputing a few $1000. Doing ten rounds
> with a lawyer (there's really no boiler contract that can cover every
> conflict two friends working together might encounter) easily costs that,
> AND then you'll still have to go to court to enforce the contract.

Well then we disagree. This contract would require about 2 hours from a good
lawyer. At least when I entered in a similar partnership with a friend that's
what we spent.

I'm more thorough/cautious than you. All that means is that you and I are
unlikely to do business with each other:)

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caseysoftware
50/50 splits always make me nervous.

When the site goes down at 2am, who gets called?

Once the design is finished, will he be doing anything?

Does this deal apply equally to clients that don't need design work?

Does this deal apply to clients he doesn't refer?

Does he get 50% of the deal or 50% of the company?

Regardless, a 50% "finder's fee" is ridiculously high..

~~~
ErrantX
Wicked questions: as this is in the intial stage that's the sort of thing Im
looking for to ask.

The idea is 50/50 on any money regardless (after costs - i.e. my travel costs)
- I guess that is very vague and your right... I do need to nail that down
into an agreement.

He does have some technical knowledge so will be working on HTML aspects (but
has no real knowledge of backend programming meaning Im needed for that). The
work will be fair - I've already spoken about that. Yes he might be doing a
bit less but (as I mention below) I cant find the clients. He is also in the
same city as said clients so he would be the one meeting in person for the
most part.

50/50 for the finders fee is quite high but I dont think it's fair to call it
that as I couldnt get the contracts w/o him onboard and I wouldnt have the
time to make the contacts

This is pretty much his gig - he could probably contract me the work for a lot
less but Im not so happy with such an arrangement. 50/50 sounds like an OK
deal to me. We have agreed a hrly limit for my work....

In terms of "after completion" work - this is something we agreed to discuss.
I think our initial idea was some form of optional agreement with the client
to charge a fixed rate for maintenance and whoever does the work gets the
money.

What would you consider a fair split?

~~~
msb
As others have said, it really needs to be per project. There may be some
projects where frustration and resentment can creep in. For example, when the
work is all design/static content or heavy programming.

Perhaps the best way to do this is treat it like a company. Your friend gets a
reasonable finder's fee or percent of sales for bringing in the business.
Someone else might have a better number but I would think 5-8%. When writing
project estimates, you each add the hours it will take to complete your
respective tasks. Track your hours in detail (I like to use Klok, but there
may be better) and when the project is complete get paid accordingly. If you
both come in under, then perhaps consider splitting the 'profits' 50/50.

I think this type of structure accommodates the variation of skill
requirements in web projects and will also ensure that you both are getting
what you deserve.

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lionhearted
Hey Errant - not sure if you're still following this thread, but you got a
hell of a lot of some bad advice.

Most people are really "mine mine mine!" oriented, they're telling you be
careful of the split, watch out for getting filched, etc. That's all well and
good to some extent, it sucks to be burned. But you're doing services work -
there's not too much you stand to lose later.

I'd recommend you don't mess things up going for a slightly uneven split, or
overkilling the details. Like mseebach recommended, going sole proprietor is
good for low liability. After that, don't kill the goose that doesn't exist
yet. Getting experience in business and consulting while making cash is a good
thing. If you make 10,000 GBP over the next year doing this on the side, and
technically you maybe could've should've gotten 12,000 GBP - who cares? Trying
to get a 35/65 split, or overhashing details means the project won't get off
the ground. If it's a stellar deal for your partner - even better, he'll be
motivated to get you a lot of work. If it turns out to be a bad deal for you,
you can move on later.

My advice would be different if you'd be building significant assets or
investing money. But you're doing services - just get going. I'm guessing a
lot of the people who say, "Charge more! Get more of the split!" aren't really
big winners in life. No disrespect to them, but we're talking about grabbing
at pennies here. Just getting into business is the most important part - be as
amicable and easygoing about it as possible. Yeah, there's a good chance it'll
end poorly someday, as most partnerships do. But hopefully you'll get good
experiences, make some cash, and most importantly, learn a heck of a lot in
the process. Don't sweat the pennies, getting into action is where you get
paid now, and learn what you need to get paid even more later.

~~~
ErrantX
Thanks - as you say the split is something Im not worried about. The income
generated will be about £1500 a month for me (based on the current work lined
up - should be sustainable) which is about a third of my current salary. The
idea is this will be my savings money so it's not "on the line" in terms of
need. I have nothing invested (and am very easy going anyway) so I cant see
the downsides.

I could probably get a 60/40 split but the other guy would be a bit miffed
(it's his baby and he is all enthusiastic). The money I get seems pretty fair
for my time (even if it seems extremely generous to him) so.... :D

I think the impression I got is he is looking for this to be the start of his
"something big". Essentially I am helping him get that off the ground - the
deal is if it is "big" and turns into an actual company employing more
programmers I will be leaving with a pay off for my initial "investment of
time" (that figure is still to be agreed on - but will be) as I have a career
to pursue anyway.

I cant see the downside to a couple of years doing this for income on the side
- it's all good experience :D

Thanks for your comments! You've made me confident I am doign the right thing
:D

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bhousel
I would definitely recommend that you pick someone up front to be a Project
Manager. Your friend might be this, as you described his role as "finding
clients" and "some admin etc", but it's really a bit more than that - you
might want to bring in a third founder with experience in running projects.

I'll echo what others here are saying - don't split things 50/50 (or by any
percentage, really). Everyone on the project should have a bill rate.

I'm a consultant on a few projects that are structured this way, and it seems
to really work well.

~~~
pbhjpbhj
And then one of you messes up on their part and either the billed hours total
is more than the revenue or the client refuses to pay so much (depending how
you're charging) ... what now?

Also billed hours means that there's an incentive to work slowly to get a
greater share out of the business.

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davidw
You might do some searching, as this topic has come up before...

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ErrantX
my searchyc foo is poor. I found some useful stuff (and much of it is common
sense anyway) but I was really looking for experience in remote consultancy
etc. :)

