I don't have much cash to work with and I am working on developing a mobile app. However, I want to find a good designer to work with. I don't want to give them equity but I do want to pay people for their work. Would you recommend promising (in writing) a profit percentage? If so, how much would this be?
Yes, this is something that is fairly common.
Calculation: in order to calculate the % you should give, you need to understand how much is due to the designer for all their work, and how much your projected profits will be in the first 6 months/year. Then, you offer a % which should give the designer a little bit more than the value of their work during that 6 or 12 month period.
It is important that you define in the agreement/email, what the amount is - meaning that when the designer gets that amount, you stop giving them a % of profits.
I would also add a section in the agreement that states that should you decide to do so, you can pay them off the entire amount and stop making the monthly payments.
Lastly, make sure it is clear that they are only getting a % of the profits (not the income) and that they don't have any voting/decision rights.
I've successfully helped over 350 entrepreneurs, startups and businesses, and I would be happy to help you. After scheduling a call, please send me some background information so that I can prepare in advance - thus giving you maximum value for your money. Take a look at the great reviews I’ve received: https://clarity.fm/assafben-david
This is what we like to call a revenue share. If I believe in the person, along with h the product and// or service while having the time to invest, I have been known to participate in the past. It's essential to understand this endeavor is a gamble and long term investment that may not make a single red cent. If this happens that is the calculation of risk we decided to take. If it doesn't work out as business plan suggest we can't have hard feelings later. It is high risk for a potenttial tich reward. That said as we are all well aware, most businesses fail in the first five years. Please proceed with extreme caution, at your own risk. I am not a fear monger , simply protecting the interest of all involved. Transplant , Crystal clear expectations are beyond crucial to protect your bottom line , in business we don't have any friends. Often this is a great way to loose a friend. This is my opinion , with obvious brutal honesty. Others may have the answer you wish to read. I have played this tape forward and in this arena would have to say thank you but no thank you I would not be willing to participate
You can certainly come to a profit sharing agreement and there is some good feedback from other experts listed here about how to structure that to protect yourself. However, most technology startups and mobile apps need to be reinvesting their profits back into the company, so even though money may start to come in, it doesn't mean you want to spend it on paying back the designer you worked with. When I started my company, I gave a designer 1% stock to design my logo, business cards and the four main pages of my website. This was a great deal for me and would have been an incredible deal for them if we sold for a big amount in the end. But most importantly, it didn't use up any of my precious cash in the early stages of my business.
You may not have a lot of money coming in for awhile. I would try not to spend any of it at all if you can find someone willing to work for equity instead.
In my humble opinion and experience, this is a bad idea. If you don't have cash and can't raise it either, then you should be willing to give equity. Otherwise, your proposal may end up self-selecting a poor quality developer. The reason being is you're asking the dev to take on too much risk in return for very little reward, and the offer/demand curve is against you (there's lots of other entrepreneurs willing to pay cash and/or give equity for a good developer). I run a small software development firm (see www.chimi.co), we build mobile apps (among many other things), and we'd not accept this. We have, however, in very few occasions (e.g.: known entrepreneur we've worked with in the past, and upon satisfactory due diligence from our side, etc) exchanged a discount on services in exchange for (vested) equity.
The main issue isn't whether this is a good idea, it's whether you can find a designer who would be interested. I have a business finding app developers for entrepreneurs and small businesses, so I can tell you from experience that most designers and developers don't want equity or a percentage of profits; they want cash. And that's understandable. They have an extremely valuable skill, and they'd rather have cash than a slice of equity that might be valuable or might be worth nothing. There are so many risks in involved with apps that most pro designers or developers wouldn't take that kind of risk. In this case the deal is even worse since it's a percentage instead of equity.
This kind of value disconnect with entrepreneurs is common. The problem is that you see your app as an exciting, sure thing. And that's only right; as a startup owner you should be excited and motivated about your big idea. But for a designer, it's not their big idea, it's their job. And so they want to be paid like with any other job. The only time I tend to see this kind of arrangement is when the entrepreneur has a friend that they're going to work with. Even then though you see equity more than profit percentages. I'm not saying that finding a designer who's willing to accept a percentage can't happen, I'm just saying it's not that likely unless you have a history of startup success and an impressive resume.
This may not be what you want to hear, but it's the situation that you have to deal with. So what do you do? There are a few things. First, keep your app plans as simple as possible with very few features. That means a simpler and cheaper design. Also, consider whether you actually need a pro designer. It's not necessarily a given that you do. Obviously you need some sort of design for your app, but depending on how complex it is you may not need a separate designer, you may be able to just do some mockups of your own. In fact, if you're planning on making revisions to your app post-launch, you'll end up having to revise the design anyway to accommodate the changes. Of course, if you're a commercial business that needs an app as a sales tool, then you might need a designer to make sure that your design has some polish to it. Overall, I'd say the key thing for most apps is picking the developer, not the designer. Of course, I can't give firm advice since I have no idea what the app is or what you're trying to do.
I consult on app planning and developer hiring, so feel free to reach out if you'd like some more individualized advice.
After 40 years managing designers, I have a diferent point of view.
First class designers are not gamblers. I do not know any reliable designer that will accept a risk condition and sustain the drive to commit himself aoo%.
Do not make such an error. Invest in design and your start up will give your expected future profit.
If you want to discuss my view, do not hesitate to call me.
My site www;marcarbranding.com
If you can find a developer who would accept your proposal, it is a good deal for you. Most developers worth their salt will not agree to something like it unless you have some unfair advantage.
If a developer is free they can develop on their own ideas and keep 100% of the profits and equity. However, you might be able to find new developers or students who are looking for experience with a model like this.