Banking optimize

When your IT consulting client wants you to "buy in"

If a client asks you to be a partner, a shareholder, or an employee or promises to make you a celebrity, Chip Camden advises you to carefully weigh the pros and cons in each scenario.

 One of the big advantages of being an independent consultant is the freedom it gives you to choose the work you want to do. Sometimes your clients can get a little unnerved by that freedom. They start to worry that you might move on to more interesting gigs and leave them looking for someone else to fill your shoes. Despite all your assurances to the contrary (but never in writing), your clients may look for a way to get you to buy into their business. They reason that if you have some investment in their success (beyond continuing to collect your exorbitant fees), then you'll stick around to make sure that success materializes. And that's not all bad.

Here are four scenarios that a client may present to you:

Let's make you a partner!

I've had this happen several times -- usually with start-ups, but once even with a mature software company. This offer screams, "We don't have ready cash, but we need for you to put in a lot of hours." That's not always the motivation, but you want to make sure. Sometimes it really is just about wanting to keep you committed for as long as they can. Besides considering the client's motive, there are a number of other things to think about before responding to this type of offer.

  • Is this company going places?
  • Is their product something special?
  • Is it really going to make me any money? And if so, when?
  • Do I like this company?
  • Am I ready to sacrifice some (or all) of my other business to focus on this?
  • What does my lawyer say about it?

I've accepted two such offers in my career, and in both cases, they were startups that never got off the ground. All the time I invested in those projects counted for nothing -- except for the lessons learned.

Let's make you a shareholder!

One of my clients (a privately held corporation) offered to sell me stock. I took them up on it, because they've been in business for a long time and they're getting more profitable as the years go by. It made sense for me as a long-term investment. It made sense for them as a way to increase my investment in their future because, since their stock isn't publicly traded, I can't just unload it when the value goes up. Believe me, I really had to consider that fact before buying.

Another client once offered me stock as part of my compensation. This was back before the dot-com crash, and they had this great Internet startup idea. I said "no way" -- and I'm glad I did. I'm sure that decision severely limited the number of hours they were willing to give me, but all that stock I could have earned isn't worth anything now. When considering stock or stock options in your client's company, you have to look at the cost of that transaction (your time and/or money) and the potential value of the stock as if you weren't personally involved in the company at all.

Let's make you an employee!

This is a much bigger investment on your part than it may appear. You're committing a large number of hours exclusively to one client, and you'll probably be prevented contractually from working for any of their competitors. After you get used to those regular paychecks and (somewhat) more affordable insurance plans, it could be difficult financially to go back out on your own -- not to mention having to rebuild your client base. Most of all, you'll lose at least some of the freedom to choose your own projects. On the other hand, it does eliminate the "feast or famine" problem, so it might be right for you if you don't like taking risks. I've had a couple of clients offer to put me on their payroll, and I've always said "no, thank you" without hesitation.

Let's make you a celebrity!

This doesn't happen to consultants very often, but when it does, it can be magic for both sides. Rather than hiding the fact that they get help from a consultant, your client proudly shows you off to their users as a key part of their success -- which gets you even more business. In return, you become an independent (though admittedly biased) industry specialist on their product. You blog about it and present at conferences, which helps to get the word out to other potential users. Your brand goes up in value as your reputation grows, and you become more invested in your client's success. My huge ego loves this approach.

Assess your risks

Sometimes it pays to invest more than your time into your client's business. But it's important to accurately assess how much you're risking and how deep you're digging yourself in. Evaluate the worst case scenario, as well as its likelihood of occurring. You should consider the best case scenario as highly unlikely.

What other ways can you invest in your client's success? Post your ideas in the discussion.

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About

Chip Camden has been programming since 1978, and he's still not done. An independent consultant since 1991, Chip specializes in software development tools, languages, and migration to new technology. Besides writing for TechRepublic's IT Consultant b...

19 comments
JohnMcGrew
JohnMcGrew

The most notable was a bit over 20 years ago while I was in school. One of my clients was a small but nationally known consulting firm. One day, all of a sudden I found myself called into the big boss's office. (This was a guy who had the POTUS on speed-dial, and vice-versa) About 3 minutes into the chat, I discovered that this wasn't just chit-chat, but was actually an employment interview! Wow. It would be for much less than I was charging hourly, but it offered benefits, all the hours I could work while in school, plus invaluable experience, contacts and status. It didn't take long for me to accept. So a few weeks later I was settled in my office and had all the paperwork done, and was plotting out their first network. A few days later, I walked in and everything was strange and everyone was kind of stressed. Something was going on. Not long after that, I was called into the controller's office and he was practically in tears. Turns out there had been some kind of political upheaval in the office, and it turns out that the side that recommended my employment was the side that lost. I hadn't even been there long enough to get my first paycheck! Although I had already quit another part-time job, fortunately I still had other consulting gigs and clients I that could pick up where I left off. So life went on. Since I never got a paycheck and was kinda pissed off, I sent them a bill for all the hours that I had worked there as an "employee" at my former consulting rate. A few days later the controller called back and asked what this was about, and I explained that I had paid consideration (dumping other jobs) to go work for them, and felt that the bill was more than fair considering what had happened. He said that he'd get back to me. After a few weeks of no check or phone calls, I called back only to find that the controller had since been jettisoned as part of the same coup that took me out. So I had to tell the whole story to the new guy, who didn't have a clue as to who I was or what had happened. After another week of no contact, I called back and laid it on the line that I'd be receiving payment in full within 10 days, or would file for unemployment and then sue for damages. I got my check a few days later. It retrospect, it's really a shame that it didn't work out. It would have been an exciting job, and no doubt my career would have gone in a much different direction than it eventually did. As it turned out, the damage was minimal and my time there prior to the mess looked good on the resume. However, over time being a "celebrity" has paid off far better. The one thing that I like most about my work is the knowledge that I am an integral part to many of my client's success. Many clients are quick to share that with others. However, sometimes it backfires as well; Some clients are afraid that if they "share" you, they run the risk of losing you to greener pastures.

PMPsicle
PMPsicle

And I'm afraid I'm one of them :P ..... Usually, I get offered an employee position when I'm working for someone and they decide I'd cost less if I was an employee. Given the market here, that doesn't usually enamore me of their cost accounting abilities (some exceptions ... ). In any case, I've always turned them down. In one case, they offered me employment $ with a contractor's promises (work for 40 hrs get paid for 20 while training ... 6 months no guarantees, no benefits). I feel proud of myself for being polite and not laughing. Unfortunately, I've not been so lucky when it comes to equity in startups. Each time it's happened it's been a type of work I didn't have experience in, and during a period I didn't have anything else going on and needed a break. And each time the company folded. Sometimes you got to do it for what else you can get out of the deal.

LarryD4
LarryD4

I have had clients offer me similar opportunities and turned them all down. But what I do offer in return is a retainer option. Very much on the same level as a lawyer does. I have four clients on that level and we are all very happy. Granted it won't work for all scenario's, but for the small to mid size business that needs a go to IT person to answer questions, offer purchase guidance, and an overall IT business path, its a great alternative.

drowningnotwaving
drowningnotwaving

... pay me the cash now and keep the big money in the future for yourselves. I've had the "share" offer twice and rejected it both times. One key reason is that the owner always has a significantly inflated value of their idea. My $150 per hour for many months worked out (in his mind) to be worth about 0.5 % of the company. Given the company had no assets, no revenue, a couple of years before the first client and no serious financial backing at the time, I thought my effort was worth at least 25% !!! On the other occassion I was wary that the person concerned was not one that I would want as a business partner. I was happy to perform a specific and detailed task and be paid. I didn't want to share a lot of time with this person. Luckily in both cases I didn't regret it in hindsight. The danger is that every now and then, someone becomes a gazillionaire from taking such risks!! They go off and buy football teams and very large boats.

Sterling chip Camden
Sterling chip Camden

... experienced any of these scenarios? What did you do? How did that work out for you?

Sterling chip Camden
Sterling chip Camden

... that vividly highlights the cost of becoming an employee. Good work extracting payment. I've seen that attitude about celebrity status -- fortunately for me, my clients realize that trying to corner me into working only for them would be far more likely to result in losing me.

nwnick
nwnick

If you wouldn't mind sharing how do you structure the retainer? I have never done one, although a few have asked, but I figured it would be too complicated. Do they commit to a minimuim monthly? Does it expire after a year if they don't use it? Thanks.

Sterling chip Camden
Sterling chip Camden

I've always thought of a retainer as a way to keep your client hooked, but it's also a form of commitment for the consultant.

JohnMcGrew
JohnMcGrew

...although only to the degree that it didn't interefere too much with my paying clients. None have paid off, but I don't regret the time spent. It was an education, and had situations and timing been a bit different with some of them, I certainly wouldn't be stressing an economic downturn like I am now.

tssi
tssi

I took the offer of a start up client to sign on as a full time employee, from a contract position. Similar description... significantly inflated value; earn a few shares each year; potential to become a gazillionaire; etc. After 3+ years the company is still worth zero. The shares are worth the same. At least they have not folded yet. I just left last month. It's a great idea and I hope it succeeds. The owner is a great visionary but a lousy, and very controlling, business man. If I had to do it over again I would do it without hesitation. At the time I was considering changes anyway (14 years as an independent contractor). The experience of being heavily invested, both time and talents, (luckily not as a financial investor) in the idea-to-production stages of a start up is worth it (challenging, exciting, etc.). I still like the concept. I think the potential is still there, if someone else were to take over. On the flip side, I lost out on a TON of billable hours. :-) Now I will returning to my contracting roots and after this many years, I have to re-build my client base. It was a nice diversion though. ;-)

jeffdean143
jeffdean143

Hi if i face this situation i will not allow anybody to take my assets.at max i will try to save it till the end of my extent. It is not good to take over The successfully running company forcefully. =============================================== Jeff Dean [url=http://www.alcoholtreatment.info] Alcohol Treatment[/url]

JohnMcGrew
JohnMcGrew

Most of my clients are too small to justify a dedicated full-time IT person. So job offers of that sort are far and few between. When it does occasionally happen, it's usually because someone decides that I'd be useful in some sort role in addition to IT. I've yet to be tempted to take any of those offers since they don't usually mean any more money, the secondary role isn't particularly interesting, or after 25 years, I just don't want to sacrafice my freedom.

LarryD4
LarryD4

Their is a level of commitment to the user, but it can managed. For the few I have their are some limitations, that include thinkgs like, don't call me because you can't figure out how to add a table to a word doc. But with appropriate connection software to the client and a sensible client, so far its worked out real well.

Sterling chip Camden
Sterling chip Camden

... it can be both fun and educating to try out some new potential. You just have to weigh the cost.

tssi
tssi

The stock already earned is mine to keep, but it is in a privately held company that will probably never go public. That means I can't sell it. The only hope is that the company eventually becomes successful.