No PhD

I work for Nature Publishing, but I haven't got a PhD

Early stage developers

leave a comment »

Early Stage Developers
As an ex-freelancer, and somebody who still receives the odd request I have grown weary of approaches of the following ilk: “We’ve got this great idea, we just need a developer to build it for us. We haven’t got any cash but we’re willing to offer a small equity share”. These approaches are designed make $ signs spin around in the developers eyes. However, my gut feeling when I receive an approach like this is:
1. If the business guy won’t risk any cash (whether it’s his or somebody elses) on the big idea then it’s probably a crappy idea.
2. All the business guy is trying to do is offload the risk of failure to me.
As a business guy, when raising cash for a new enterprise you would typically search for investors to put in money in return for a percentage of your company. Early stage investors usually put up relatively small amounts of cash for larger percentages of the company. This is because the perceived *risk* – at an early stage the company/idea is incredibly unlikely to succeed – makes it effectively worthless. When they approach a developer to build the product at this early stage and all that is offered is equity they are asking them to take the same risk, with something just as, if not more valuable than money. Time.
I can see why this is an attractive route for business guys. Why take investment to fund development of your product and lose a great chunk of your company when you can go straight to the developers and get the product built for a much smaller percentage? But the approach is flawed in many ways:
– Good developers always get work. Proper paid work. You’re not going to get the best developers.
– Given a fixed percentage equity, developers will cut corners to deliver features in the shortest time.
– If the relationship sours there’s a lack of flexibility on how to proceed without resorting to legal channels
Business guys trying to develop their products in this way need to realise one thing. The early stage developer is an investor and thus should be treated in a similar way; someone to pitch to, someone to get advice from, someone to be completely transparent with. Someone to trust. And thus someone to treat with respect.
Now I’ve been lucky with the jobs I’ve selected in the past. I hooked up with very passionate people who had (admittedly limited) funding, who had a great idea that I shared the passion for, and who have been very transparent in their dealings with me. Even given that however, there are certainly things I would do differently now.
Firstly, the business guy *pays* for the first iteration (which they did for the gig I accepted). No question. This way you have closure if the relationship doesn’t work out for whatever reason. You get paid up front, you do the work to contract, then you stop. How much is up to you, but I suggest a daily rate that works for you. At the end of this iteration the business guy should have a prototype or v1, and the developer has been paid.
If the first phase works out and they like what you’ve delivered, we have a basis for a relationship. Now it’s time to barter equity for features; DON’T accept a flat equity percentage for continual involvement. Less “Give me 20% and I’ll work for you”, more “I will build you the commenting system for 5% equity in your company”. I think this approach is great for many reasons:
– the business guy is focussed on getting a useful feature, and the developer is focussed on delivering it.
– the business guy gets more flexibility – if he gets funding in the future, then future iterations can be paid for in real money.
– the relationship has flexibility in the event it sours as the only agreement is to deliver *the next iteration*.
This iterative model can continue until the product is complete, the product fails, the developer gets hired as the CTO, whatever.
I think there’s a seed of a good business venture in there somewhere. Any developers out there interested? There’s a small equity share in it for you…

As an ex-freelancer, and somebody who still receives the odd request I have grown weary of approaches of the following ilk: “We’ve got this great idea, we just need a developer to build it for us. We haven’t got any cash but we’re willing to offer a small equity share”. These approaches are designed make $ signs spin around in the developers eyes. However, my gut feeling when I receive an approach like this is:

  1. If the business guy won’t risk any cash (whether it’s his or somebody elses) on the big idea then it’s probably a crappy idea.
  2. All the business guy is trying to do is offload the risk of failure to me.

As a business guy, when raising cash for a new enterprise you would typically search for investors to put in money in return for a percentage of your company. Early stage investors usually put up relatively small amounts of cash for larger percentages of the company. This is because the perceived risk – at an early stage the company/idea is incredibly unlikely to succeed – makes it effectively worthless. When they approach a developer to build the product at this early stage and all that is offered is equity they are asking them to take the same risk, with something just as, if not more valuable than money. Time.

I can see why this is an attractive route for business guys. Why take investment to fund development of your product and lose a great chunk of your company when you can go straight to the developers and get the product built for a much smaller percentage? But the approach is flawed in many ways:

  • Good developers always get work. Proper paid work. You’re not going to get the best developers.
  • Given a fixed percentage equity, developers will cut corners to deliver features in the shortest time.
  • If the relationship sours there’s a lack of flexibility on how to proceed without resorting to legal channels

Business guys trying to develop their products in this way need to realise one thing. The early stage developer is an investor and thus should be treated in a similar way; someone to pitch to, someone to get advice from, someone to be completely transparent with. Someone to trust. And thus someone to treat with respect.

Now I’ve been lucky with the jobs I’ve selected in the past. I hooked up with very passionate people who had (admittedly limited) funding, who had a great idea that I shared the passion for, and who have been very transparent in their dealings with me. Even given that however, there are certainly things I would do differently now.

Firstly, the business guy pays for the first iteration (which they did for the gig I accepted). No question. This way you have closure if the relationship doesn’t work out for whatever reason. You get paid up front, you do the work to contract, then you stop. How much is up to you, but I suggest a daily rate that works for you. At the end of this iteration the business guy should have a prototype or v1, and the developer has been paid.

If the first phase works out and they like what you’ve delivered, we have a basis for a relationship. Now it’s time to barter equity for features; DON’T accept a flat equity percentage for continual involvement. Less “Give me 20% and I’ll work for you”, more “I will build you the commenting system for 5% equity in your company”. I think this approach is great for many reasons:

  • the business guy is focussed on getting a useful feature, and the developer is focussed on delivering it.
  • the business guy gets more flexibility – if he gets funding in the future, then future iterations can be paid for in real money.
  • the relationship has flexibility in the event it sours as the only agreement is to deliver *the next iteration*.

This iterative model can continue until the product is complete, the product fails, the developer gets hired as the CTO, whatever.

I think there’s a seed of a good business venture in there somewhere. Any developers out there interested? There’s a small equity share in it for you…

Advertisements

Written by spanx

22nd July, 2009 at 8:31 pm

Posted in Code

Tagged with ,

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: