Good day Andrew.

Since you have mentioned that your advice or consultation cannot be computed on an hourly base, I suggest that you base you compensation on solutions that you provide. Now your deliverables may be board in content but it will provide you baseline revenue models that you can calculate by your ROT (Return on Time) value. This will allow you to adjust your compensation accordingly to models any potential customer desires of your solutions.

As for the approach of CxO’s, it’s the old time proven method of you ensuring them that the ROI of your services will increase the growth of their companies as you have mentioned in the last paragraph of your question.

Sincerely,

Tony D. Abel
CEO & Chief Solutions Architect

dotNet Framework Solutions

Links:

• http://www.dotnetframeworksolutions.com/Solutions.html
• http://dotnetframeworksolutions.com/blog
• http://pipes.yahoo.com/pipes/search?q=dotNet

posted April 19, 2007

Andrew, First never work for free. Once you do that, you have established the value of your work in the marketplace. Second, you have an interesting concept: take a retainer fee for the privilege of hanging around and then take a piece of the action without consideration of the actual impact on the business when you present a solution, which may or many not actually solve the problem...

...at least that is how the CEO of a startup with limited funding will see your business model. Think about it. Most startup CEOs have their entire family financial portfolio, to include their home, and a tremendous amount of “sweat equity” invested in their dream. I’d be surprise if they take a salary much more than the monthly mortgage and grocery money. They are shouldering 268% of the risk. These people are being approached daily by every Tom, Dick, and Harry with an offer of the same flavor: give up a piece of your business to people who are unwilling to share the risk.

CEOs of a decent startup probably have the LEAST say in giving away equity. There are other parties involved who have provided funding and have negotiated placement of key executives and other constraints. These people expect returns on those investments and the last thing they want is to erode their ROI by reducing the owner’s equity.

I’m being tough here just to drive home the point (I’ve started 3 companies). I respect you and your abilities so don’t take offense. If you are good at what you do, and I trust that you are, you should have very little difficulty demonstrating your value to your clients and command a fee of $300/hour. Your clients may see this as expensive, but they will also see their ability to cap their exposure. Forget the equity unless you are willing to share the risk; and even then, it will be tough to position yourself to show that risk without making an investment.

All the best Andrew and let me know if I can help.

posted April 19, 2007

Building on Rick's comments, I'd echo his sentiments to a large degree. However an approach that has worked before is to start with the $300/hour fee. Then, after the relationship has been established, you can offer to take a small amount of equity in place of some or all of the fee.

This was pretty common a few years ago. Keep in mind, however, that you will be likely be working with the 100:1 against odds companies. IPOs (the pay out) take longer and are harder to reach than they were a few years ago. You may end up spending more in lawyer fees getting the paperwork in order than you ever recover in stock value.

posted April 19, 2007

I have consulted to businesses small and large for 18 years in the current stretch, and five years at other times. I found successful a clearly thought-out engagement letter that stated the customer's immediate problem, the proposed solution, and a breakdown of the cost for doing the work.

Because companies expect difficult things to take time, set the price for that great idea in the engagement letter and work backwards to your hourly rate and number of hours for doing it. Then, ask for an advance equal to the first project period--usually a month--and state that you will bill your time and expenses monthly for payment within 15 days.

Call for termination if payment is received late, with forfeiture of the work-in-process. The advance and termination clauses do two things--they keep a constant advance in your hands as a credit balance, automatically extending the engagement until it is really wrapped up, and you give them the credit at that point in lieu of a last payment. Both parties have to be satisfied to continue the relationship.

Your work is only valued if you price it both fairly and accurately compared to what it would cost them to replicate with another consultant. If you are giving them significant benefit, conversion of this "front money" and monthly billing cycles to a fixed amount retainer is relatively easy to sell after 3-4 months into the engagement.

Failure to convert is a real bell to toll in the relationship. If they are hesitant, look for dissatisfiers on your part that are holding it up, and offer to make good until they are satisfied. They'll appreciate your up-front organization and professionalism.

posted April 19, 2007

Andrew..

At the outset I would be less concerned about an equity position with a startup and more focused in earning a fee for services provided. (we all need to pay our bills) Since you feel that an hourly arrangement is not suitable - I would suggest a fee based uopn some pre defined performance or result would be more in order. It is never a good thing to work for free.. it deminishes the value of the product or service you are bringing to the table. Before an entity would give up equity they need to know that you can deliver on your comitment and that you can deliver WHAT they Want & Need. Start small, offer meaningful help, deliver measurable results, develop a reputation as someone who can be counted on.. Get to know the business, the people, earn thier trust, build long lasting relationships.

What I know for sure is that your long term success will be very dependent uopn your ability to deliver what the client needs..

Take the time to define your purpose, your vision - develop your strategy, celarly understand your strengths and capabilities, know your competation and formulate near term and long term goals.

Remember "Business NEVER plan to Fail they Just Fail to Plan"

posted April 20, 2007

I suggest you to contact Mr. Stump.
-
Devesh

Devesh D also suggests this expert on this topic:

• Richard S

posted April 20, 2007

First of all, Andrew, by offering your time and solutions for free, you have set the value of your time and solutions from the outset. Customers' will not value even the greatest peice of advice or even equipment if it is free.
I have worked across many business organisations and train up to Director level.
Giveaways are not valued, if you were to give somebody a product to try for free, many will not se it, it sits in the corner until you return to collect it and they say that they didn't have the time - sound familiar?
To set your value, try this:
What do you want to earn per year? Say £100,000 per year.
Divide that by 200 (Number of real working days per year excluding weekends and holidays). £500 per day.
You can then divide that by 7 for hourly rate if you want. Approx. £75 per hour.
Monitor your income, if you are not working 7 hours or 200 days per year - you need to increase your daily rate or find more clients.
Many people think the opposite and reduce their daily rate. This will not work as people will put less value on your service. If the earnings are not being made then look at yourself, your service/product, your marketing efforts etc.
As for a million-dollar idea within an e-mail - again - where is the value? We all think we have million-dollar ideas when we set up our companies - that's why we do it .....
Why not take more time in responding and sit with the CEO and sell your idea back, do this over time, not within 10 minutes in an e-mail, otherwise your service will not be valued.
You will notice that I use the word 'Value' throughout - you need to build value in your service, you and your time.

Hope this helps, Nick

Links:

• http://www.sunesissolutions.co.uk

posted April 21, 2007

I agree with the people who say "never work for free". Working for start-ups is difficult; many have liquidity problems. We experienced the same when we started selling our services. What has worked for us is 'packaged' services; defining a Statement of Work, pricing it and working with a fixed price. You can then work with a discount if necessary and get paid a higehr fee upon succes. We have tried the variable part being paid in equity and product, but somehow it just doesn't work. So now we are owners of worthless trees in a teak forest, and shareholders in worthless enterprises (because they did not make it). Have your succes fee paid out in cash. What does work on the equity side is creating joint ventures where the risk and cost is equally shared.

Hope this helps, regards Benno Pieters.

Links:

• http://www.tc-one.com

posted April 21, 2007

Andrew, I do a tremendous amount of work with spinout and start up technology businesses in the defence and energy industries. On several occassions I've recruited for such businesses and taken a smaller fee for initial search work and subsequently the indexed the remainder of the fee against the candidates performance objectives. Part of the contract I agree with the client is that I will attend my candidates preformance reviews (3,6 & 12 months). This keeps us close to the client and us vested in the training and development needs of the candidate in delivering the long term business plan. Most start ups appreciate a consultant prepared to back himself.

posted April 21, 2007

Andrew:
You've been given a broad selection of ideas to consider...just a few more to throw into the mix:

1. "Free Service" is unlikely to be of value to customers, or to you, as you have given your expertise and services no value yourself. It's time to move on and get paid for your services.
2. Charging hourly for services in any business or profession will limit the amount you can make in your consulting business. You are limited by a set number of hours in the day, days in a week, weeks in a month, months in a year. Some might say that you can always up your hourly rate to make more, and to some extent that is true. But, it is generally the market that controls how much they will pay for given services, so customers may well not want to work with someone set on doubling or tripling his income and search for another consultant who can provide similar services at what they consider to be a more reasonable cost.
3. Think about asking for a percent of the client's success based on your solutions. For the sake of argument, say they hire you on to help them develop a plan for increasing sales. If a set amount or percent of increase in sales is the goal....say the goal is to increase sales by a million dollars over the next year or eighteen months. If that customer is going to see a value of a million dollars from working with you, he should be willing to pay a substantial 'investment' to you in fees. How much that might be will have to be negotiated with the client. If you come up with a million dollar idea for a client, whether it takes you ten minutes or ten months, you should receive a significant compensation for your brilliance and expertise.

posted April 21, 2007

Andrew,

If where yor provided free services can be used as reference, then you could model your services as under

a. Retainer + Fee (Based on Efforts put in by you)
b. Retainer + Expenses + Equity (If your clientele have had good successes and where they have good revenues)
c. Retainer + Success Based Fee (Where your ideas help bring ni more customers)

Cheers - S Stanly

posted April 22, 2007

We have similar arrangements with Rahul and he had many ideas about compensation. I think you can contact him directly.

Sachin P also suggests this expert on this topic:

• Rahul B

posted April 22, 2007

I agree with many that have already answered so I am just answering to back that group up with more numbers.

Never work for free. I charge a retainer fee that continues to grow as the business does along with a final pricing at or slightly above market value because I put in the lower rate while they had less cash. On great companies I will ask for some of the company ownership. If you work for free you will never make it back.

posted April 22, 2007

Andrew,
Congratulations on building a reputation in the marketplace. I trust that you provide outstanding expertise, and you should (rightfully) be compensated for that. To reflect what some others have said, I think your best opportunity for obtaining equity in the companies you consult to is to build the relationship (via hourly fee). The trick will be implementation/execution of your advice. If you are providing advice alone, you may not be in the best position to ask for a stake. However, if you are retained to assist with the execution aspect, then it may be appropriate to explore alternative forms of compensation with the client (retainer, equity).

Sincerely,
Adam Pearson

posted April 23, 2007

I would say that the concept of providing a company with a "million dollar idea" is pretty unlikely. I'd suggest reading Paul Grahams essay on the value of ideas... It's a bit focused on startup ideas, but I think it makes sense beyond that realm. I would focus on trying to provide value beyond ideas, because (in truth) that's the only place that the value lies. Help your customers IMPLEMENT the ideas, help them manage their organization change, etc.

On the "providing contacts" front, professional services people can either give away their connections gratis (which I think is a good strategy) or explicitly charge a finders fee and/or an hourly fee to facilitate the relationship.

Link below.

Links:

• http://paulgraham.com/ideas.html

posted April 25, 2007

Ok, I'll bite, my two year old company is in the beginning stages of creating my big vision. Going from what we have been doing well around personal branding and other key Personal Board of Advisor areas to the new digital media dream for how we will present and support our clients. I have the tech/media partners and my vision. I have the "multi" million + $ idea, but continue to need people smarter than me.
Is that you?
My concern is you did yours for free? At my beginning stages where I needed more testimonials and reference accounts, I never gave away my expertise and my clients don't either no matter how tough! I worked deals in trade sometimes, but they always put skin in the game. I would rather pay for service then not myself. So you have strike one, but people make mistakes - have a recipient of your ideas call me. And feel free to contact me yourself for pricing strategies and we will see where it goes.

posted April 25, 2007