Pricing your services

Should You Work For Anything But Cash?

By Brennan Dunn

Sooner or later, we all get asked to switch up the way we bill for a client. We might be asked to sacrifice revenue in exchange for equity (this is usually accomplished by painting a very rosy picture of the future.) Or maybe defer payment now until our client can afford to pay us back (at a premium, or with interest) later.

Depending on how smooth talking or respectable the client may be, all of these propositions include moving some of the risk that the client typically shoulders over to you, the consultant.

So I’m generally risk averse, especially when we don’t have much control over the outcome of the underlying investment. If you’re waiting to get paid until either your stock is worth something or the client can afford to pay you, you’re betting on the client’s ability to sell and make a profit — something that you, the silent “investor”, generally has little influence in!

I’ve taken on equity in one form or another a few times during my career. And each time I’ve done it, I’ve ended up regretting it.

It’s too risky

First, for the reasons I mentioned above, it’s just too risky. I’m investing capital (my time or my employee’s time) in an investment that I don’t have much control over. I’ve had disagreements with the way some of my equity clients have done things, and haven’t had the time nor ability to have the client shift course (like, making niche medical iOS app entirely free for… “exposure”.)

Equity doesn’t pay the bills

Second, “cash is king”. I can’t pay my mortgage or my monthly payroll obligations off of worthless stock options. I really first experienced this when I had employees of mine spend time on equity projects. Not only was there an opportunity cost (the revenue I could made billing them out during this time), but there was a payroll cost — they still were paid their weekly salary.

It’s a lot of upkeep to manage

Third, it’s additional overhead. Do you really have the time to stay on top of your various equity arrangements, and to followup monthly or quarterly with how their doing, and how that affects you? Also, these arrangements typically require lawyers getting together, and lawyers aren’t cheap. The likelihood that you’ll spend more in setup costs and lost opportunity than you’ll make is significant.

Finally, it boils down to the fact that you and I run a professional services firm. I once had a client lament, “But I had to mortgage my house just to pay your invoices!” And that’s the disconnect that you’ll sometimes run into. Your job is not to take on risk. Your job is to provide professional services, and get paid. Your client is the one who has the most to win and the most to lose, but that’s not your concern (outside, of course, of doing the best you can to make the project a “win” for your client.)

If a new housing complex goes under, the investors — not the general contractor — are the ones who suffer the fallout. Likewise, if this new housing becomes the hottest real estate in town, the investors are the ones who profit.

Next time you get asked to accept equity in lieu of cash, simply explain that you’re not in the business of shouldering risk. If the client persists, they probably don’t have the money to afford you, but advise them that if their idea is so great that they should have no problem in partnering with an angel investor that will gladly shoulder the risk with them.