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Startups: Hire Workers for Zero Dollars
Posted by Scott on 17th October, 2007 | 9 commentsBack in 2002 when I needed to hire developers to revamp ResellerRatings.com, I didn’t have the funds to pay $80,000 developer salaries while the site earned $0. The solution was simple: hire developers solely on a royalties/revenue sharing basis. Granted, you will have to look to find people that are willing to work this way, but talented college students come to mind, as do out of work developers, and anyone with spare time on their hands who wants to pick up some extra work and get in the door of a promising and fun-to-work-for startup.
There are a few issues with this:
1) You will have to tell your independent contractors how much you make and you will have to commit to paying them some percentage of your revenues or profits.
2) If you don’t start earning revenue within a few months, your crew will become restless and will inevitably mutiny unless they are guaranteed a percentage of profits at some time in the future whether or not they are still employed by you.
3) If you don’t have an established history of creating successful startups, it will be more difficult for you to find people willing to work on a revshare only basis.
4) You will probably need to commit to paying the worker a percentage of your profits for several months after they are fired or quit (unless they are fired for doing something nasty), to protect them in the event you decided to fire them right before they made money.
5) You may need to agree to pay the worker a percentage of your profits up to a certain cap, no matter when in the future the business starts earning money and regardless of whether you are still employing the worker. The cap would shift upwards over time, the more work the worker contributes.
This concept can be modified into a hybrid of either a flat monthly compensation + a revshare, or a low hourly compensation + a revshare. The revshare takes risk away from you and shifts it to the worker. You will be able to pay the worker less money or no money while your business is getting off the ground, and they will share in its success as it grows.
Before you write, “yeah right, sure I can find people to work this way”, you should know that I found three talented developers that did. They didn’t really know anything about my background, it’s just that these were the terms I proposed and they were willing. One of them still works for me 5 years later under a more traditional monthly consulting fee.
Keep in mind that this is different than an options or stock equity program where an employee would have ownership rights in your company. This is strictly a revshare compensation method where you are contractually obligated to pay the worker some share of your profits up to a cap over some period of time, but doesn’t grant them ownership rights. Something to think about for startups.
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Wednesday, October 17th, 2007 at 5:43 am and is filed under Web Business. If you like this post why not subscribe to my full text RSS feed. You can leave a response, or trackback from your own site.
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it’s really a great idea….
I feel more and more that if I had a way to outsource some of my work, I could accomplish much more and don’t feel overwhelmed.
I understand this post is about something else, because you’re looking for skills you don’t have to carry on one particular project and you don’t have the funds to pay an usual salary.
I don’t have that experience, but I guess you would need quite quickly come up with compensation to give out to your employees so they start to see some money, even if it doesn’t even match their transportation expenses so far
To be honest with you, a lot of college students are looking for these opportunities. I personally have been involved in several projects where I was not paid. I did it because of the people who where involved. I help with the Utah Technology Council and worked with a lot of CEO’s in Utah, and the reward is I get to go to a banquet with all of these individuals. I also know whenever a reference is needed on my resume it can only help.
Interesting post. What kind of lawyer structures such a deal, and what are the legal costs of having it drawn up?
“Interesting post. What kind of lawyer structures such a deal, and what are the legal costs of having it drawn up?”
Any kind of business attorney should be able to do this no problem. It would just be a standard consulting agreement, and the section outlining compensation would say, “During the Term of this agreement and for six months following its termination for any reason except for Due Cause, Consultant shall receive royalties of 10% of gross Company revenues up to $10,000 in gross revenues per month. In no event shall Consultant be entitled to any share of monthly revenues in excess of $10,000. In no event shall any payments be due to Consultant for any given month unless Company’s revenues exceed $0 in that month.”
Or, perhaps a hybrid hourly/revshare deal such as, “Consultant will be paid $10/hour for services performed. In addition, Consultant shall receive 10% of Company’s gross monthly revenues, to be paid within 30 days of the month where those monies are actually received by Company.”
Note that I’m not an attorney and this isn’t intended to be legal advice.
I’m a big believer in internships. In fact, I’m in need of a few interns right now for (a) PR, (b) technical writing (e-books), and (c) other marketing activities.
I can offer the opportunity to work for an innovative company with world-changing technology or one of the top self-help websites in the US, http://www.AspireNow.com, and, of course, a good reference.
Thanks for the post! - Scott
[…] Startups: Hire Workers for Zero Dollars - I like this one because this is a technique we’ve applied at WhyDoWork.com and can attest to its effectiveness. You can attract the best from collegiate IT programs who are more than happy to work for the chance of greatness and to get some start-up experience on their resume. Just keep in mind that when your help delivers on their promises, you need to deliver on yours! […]
I remembered reading this post a while back. A partner and myself are talking with a developer right now who I have worked with in the past. We were going to give him a stake in the company. I am glad I revisited this post. Revenue sharing sounds much better. Thanks for sharing the information Scott.
wow !!
its very interesting article.
Good post.
realy good post
thank you