Hacker News Reader

Comment by comrade1234 | Hacker News Reader

I had a client fall behind on my consulting work by about $75K for a software product I was writing for them. I negotiated a revenue sharing agreement of 10% and we would call things even while I finished the application. I finished and was paid about $2M over ten years, with almost no work done for those years.

Then before Covid they needed more work done (customers and revenue were dropping because no updates to the application) so I negotiated part ownership of the company and have been working full-time on it since to try to increase revenue.

So yes, no pay, no work. But pay doesn’t have to be a paycheck. That said, I could be getting paid more right now if I was working in a more traditional role in a more traditional and larger company.

View on HN

It's a good move. Cash flow is king in most businesses, so pretty universally, if you increase the risk or even just the timeline of cash payouts, you get more. It's an excellent negotiation dimension for anything involving money in my experience.

For my agency/consultancy, if a client wants a discount on the total investment, they can book a larger chunk of hours or pay upfront. More risk for them, less cash for us in total, but more reliable cash sooner, that's worth the discount. Cashback for quick payments is another common and simple example of this.

On the other end of the spectrum, if a client wants to delay payments to a later point in time to improve their short term cashflow, that will cost them more in the long run. Company shares, VSOP, revenue share agreements, success based fees and delayed payments with interest are some of the ways to implement this.

It all comes down to how you distribute the risks and rewards between both parties. Any good negotiation isn't haggling between two hard positions, but a shared venture to find a win win model. What you did there is renegotiate a deal that didn't work for one party to find one that worked for both.

I agree, you should take the risk into account when negotiating a deal. The value should balance the risk.

I'm surprised you could trust them on the rev share when they were so far behind on contracted payments.

You can get the P&L statement every year that they prepare for their taxes. Eventually I stopped asking for it because the payments were always correct. But also, they are trustworthy people and fell behind to a big one-time corporate expense that I understood.

You were lucky that you ran into the ideal case at every step (quality of people, trustworthiness, company performance, etc.), except for the initial invoice hiccup. Your experience is the very rare exception.

After being in your position repeatedly I learned that most cases are not this. Clients would just refuse to pay with reasoning that was sometimes legally solid even if clearly malicious. I ended up having to go to court again and again to get the invoices paid, which meant getting paid years late and with a haircut from unrecoverable court fees. Sometimes it wasn't even worth it to go to court just for a pyrrhic victory, or there was nothing left to go after.

I'm scratching my head now to remember a single case where the inability to pay was due to genuine impossibility followed by good will, rather than "because we can". They'd go to extreme lengths to not pay their debts, all the way to bankruptcy and usually reappearing a day later with a new name and a clean sheet.

> all the way to bankruptcy and usually reappearing a day later with a new name and a clean sheet.

"Phoenix" bankruptcies are a real problem among small businesses. It defrauds their creditors, and sometimes the public (taxman) as well. All the way up to things like Rangers (Sevco) football club.

The excellent book on the history of fraud, Lying for Money, has a chapter on this. It concludes that almost every middle class person could probably get away with a fake business bankruptcy at least once, because it's difficult to tell from the outside versus a real (extremely common) small business failure.

These discussions happen because it becomes unlikely that the payments will ever happen. It's about finding another way. After that, you can build in ways to verify - at least until you can trust again. Like access the accounting.

Common thing in bad relations is ignoring the situation of your debtors or creditors. It is always a business deal so the last thing you want to bring is hurt feelings. My second development deal was a 75k debt that fell through. It was a good business and a good developer they just did not have their expectations set correctly.

I've been in contract development business for 25 years and been through more than 100 client relationships. None of them ever had profit, and only a handful ever had revenue. So people should see this advice with a huge grain of salt. It may have worked for you, but for most people, nothing but immediate payment for work done will ever come through from any of their clients.

It's refreshing and pleasant when a client is willing to discuss things in good faith and find a reasonable solution. And it's sad that in my career it has ... never happened. I have approached clients, and clients have approached me on options for continuing projects - but the discussions have never reached a good outcome. These anecdotes to point out that yes, such options should always be on the table (if both sides can manage) but you can't rely that something like this will happen, until it happens.

I expect you value that client, and you should!

I thought you were about to have an epiphany but the only takeaway is that you just never met the right client.

It's possible, not sure how many clients you have had. But over the long run it should be less and less likely that it's always the darn client.

I don't know, I've had tons and tons of clients over the 20 years I have consulted. Off the top of my head, 80% have been fine, 10% run in to issues now and then, but there's a hardcore 10% that will stretch you and stretch you because they can (I'm talking about paying NET 60/90 when the contractual agreement is NET 30).

If you withhold services, you usually lose that client. To be honest, that's not always a bad outcome, because a bad or slow paying client is usually the noisiest, most demanding and most unreasonable one as well.

When my career was just beginning (maybe choosing to freelance on day 1 was the mistake), if a client was even a couple of grand behind on invoices then I would have been toast financially.

Early in your career, with no savings, working for free is just not an option.

I have never done freelance or consulting work where I didn't have at least 6 months of cash on hand.

> When my career was just beginning

Clearly "just have half a year's savings" wasn't an option here...

I get that, that's why you spend your time trying to find work, until you do have that nest egg. I spent my early 20's with multiple jobs (e.g., working as an LTE (Limited Term Employee) at the local University 30 hours a week and then working nights at a club 2.5 hours away Friday-Sunday - getting a couple hours of sleep Sunday night, driving back and going straight to my day job. I don't think I could do that now, but my LTE jobs were never that complicated (or high paying).

Nice. Of course you could have ended with zero too!

Well yes. With the possibility of high upside also comes a chance of a downside.

Revenue share is better than ownership of the company because you get a piece of net payments

Covid was 5 years ago, was this successful?

Is this alongside the revenue sharing with the shareholder option in case this is additional liquidity?

My first thought is that this relationship with the individuals involved is too intertwined for rationality, but the first 10 years were good

More often than not the people you are working for will just go bankrupt at some point if they can’t pay you. They will have loads of other bills they can’t pay, and probably if they engaged you knowing they can’t actually pay you then you need to understand that they are narcissistic and dishonest and treat them accordingly (ie don’t make additional deals with them)

Chances are your revenue sharing agreement might not hold up in court (ie veto/not approved by shareholders) or they might scam you by selling the IP for $1 to a shell P/L company and just reincorporating.

So yeah don’t jump for this option unless you think they’ll never pay you anyway… chances are if you keep the debt you can sell to a debt collector for 10% of its value (they’ll go after the director and usually succeed), or wait for liquidation and grab a bunch of their stuff. You might end up with choice pick on a few company cars or something like that you can sell.

Startups operating on unpaid invoices is a very common and real scam that you need to be aware of and avoid. I hear founders casually make comments such as “I’ll try xxx project on unpaid invoices and see if it works” all the time.

Reply on news.ycombinator.com