Re: Negotiating a percentage

Subject: Re: Negotiating a percentage
From: John Hedtke <jhedtke -at- OZ -dot- NET>
Date: Thu, 18 Jan 1996 11:15:25 GMT

Stan Brown <stbrown -at- nacs -dot- net> wrote:

>Emily Skarzenski <eskarzenski -at- DTTUS -dot- COM> writes:

>>Since this will be the first time he's ever commissioned
>>documentation, I figure he may have sticker shock when he sees my
>>estimate. I'm thinking that perhaps I could lower his up-front
>>investment in documentation by accepting a piece of the profits in
>>exchange for some (or all) of the cost of the doc.

>>Emily Skarzenski
>>Deloitte & Touche/ICS - Chadds Ford, PA

<snip>
>May I suggest you consider carefully the absolute minimum you'd be willing
>to accept for the job. Get at least that much as a regular payment, and
>take the rest in royalties. Remember: no matter how good the product, if
>it's not marketed well it will probably fail. (Indeed, most new products
>_do_ fail, even when marketed by large companies with lots of experience.)
>You have to face the very real possibility that you'll never see any money
>from the non-traditional part of your arrangement.

>Another point: you used the word "profits" rather than "sales". I don't
>know whether that was intentional, but I would urge you very strongly _not_
>to make your compensation depend on profits. As you should know working for
>an accounting firm, a clever but completely honest accountant can easily
>come up with just about any desired figure for net profits. If you do
>decide to take a portion of your fee based on product performance, you're
>in a much better position to collect if your portion comes out of gross
>sales, as a percentage of the sale price or a fixed dollar for each unit
>sold.

Stan's comments are well-spoken. I'd like to add the old rule of
"Take the cash and let the credit go." I, too, have seen any number
of people who come up with the next great mind-busting product that's
going to make everyone rich. Most of these don't amount to enough to
keep them going after the venture capital runs out; the rest piddle
along for a while and get acquired by someone else. The entrepreneur
is interested in selling you their dream. Buy into it if you like,
but remember it's their dream. What you're doing is *your* income.
It's much better to do something for the cash and worry about a piece
of the action when the company goes public.

BTW, the argument that you can use when they try to sell you the
visions of the mountains, the moon, and the stars is to emphasize that
you're in complete agreement with the value of the product, that you
wouldn't dream of impinging on their fortune, and that, since they
will be doing so well, that their product deserves the highest quality
documentation available. Sign here, dude, don't worry about the price
as much; you'll be rich and can afford it. :)

Yours Truly,

John Hedtke
(who's seen far too many great dreams stay at the "dream" stage to get
excited easily by yet another <g>)


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