LearnWhen you fail, it's time to try again

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Ryan Carson
writes on December 17, 2008

No one is successful 100% of the time. Just look at entreprenuers like Richard Branson (founder of Virgin) and Milton Hershey (founder of Hershey’s Chocolate). They are (were) both extremely succesful and yet they’ve also had some spectacular failures (remember Virgin Brides?).

Thankfully we’ve enjoyed a couple successful ideas here at Carsonified on the web app front:

* DropSend was built on a budget, grown to a profitable monthly revenue and sold for a healthy sum of money.

* Our internal event booking web app EventStream has been a big help to the company.

* Matt was a successful small app which didn’t make us any money, but was really fun to build and got us a ton of press coverage. Awesome.

But we’ve also failed pretty badly with another web app called Amigo. We launched it in late 2006 and received some great press. The idea was solid (pay-per-click advertising in email newsleters) but the problem is that we were naive and we thought we could run it in our free time.

Wake up call: you can’t run a web app in your free time.

You can build a web app in your free time, but you sure as hell can’t market it, grow it, maintain it and promote it. Once you build a web app you need to pay attention to all the details. Things like:

1. A/B testing
2. Conversion rates
3. Usability tweaks
4. Email marketing
5. Blogging
6. Networking and sales

So Amigo is going on the chopping block at Ebay so another owner, with time and money, can make some serious money with it. I’ve never sold a web app on Ebay, so it should be an interesting ride. Stay tuned.

Time to build a big app again

So now with three successes and one failure under our belt (well, two if you count DropSend’s short-lived predecessor FlightDeck that I coded in PHP), we’ve learned a huge amount about what makes a great app and what doesn’t.

With that in mind, I’m very excited to announce that we’re building a new web app called Truvay (a play on the Frech word trouver which means ‘to find’). It’s the brainchild of Keir Whitaker and I’m fricken excited about it.

Mike Kus will be designing it and Elliott Kember will be building it and we’ve set up a pretty interesting arrangement with Elliott (as he’s no longer working at Carsonified).

Here’s the rough contract that Elliott has agreed to:

Maintenance
=====================

* Work at least 8 consecutive hours per week every Monday

* Answer all support emails within 24 hours

* Use Basecamp for project milestones and todos

* Use a bug tracking solution (suggestions?)

* Blog at least once a week on Carsonified.com about the development and progress of Truvay, before and after launch. This isn’t a part of the 8 hours of consecutive work every Monday

Ownership

=====================

Carsonified will own all intellectual property for the project.

Financials
=====================

There will be no charge for building or maintenance of the app, but instead Elliott will receive a monthly cut of the revenue. This will be after expenses, which include:

1. Hosting bill (bandwidth, rental, etc)
2. Marketing costs (variable but will include AdWords), which Elliott will be consulted on
3. Bookkeeping
4. One day of Ryan’s time per week for management (normally charged out at £800 per day, but reduced to £300)

Elliott will receive 10% of monthly revenues, after the expenses listed above. If he launches the site on time (3pm April 20th), this will increase to 15% (hat tip to Natasha on that idea). When the site hits $25,000 monthly revenue (excluding VAT), his take will increase to 25%.

His monthly cheque will be determined by a snapshot of the revenue on the 1st of every month at 9am.

If the app is sold, Elliott will receive 10% of the cash price, after lawyer and accountancy costs.

Notice period
=====================

Either party can terminate the contract with one month’s notice. After the one month notice period has ended Elliott will stop receiving monthly revenue and will no longer be eligible for 10% of any future sale price. If we receive a Letter of Intent for an acquisition, we will not be allowed to cancel the contract, providing he is still dedicating at least one day (8 consecutive hours) per week to the project.

Your thoughts?

Normally companies would just hire a developer to build a web app but we don’t want to take that financial risk right now. I think that this deal is a win-win for Elliott and Carsonified. He has the potential of making serious long-term revenue and we get to launch the app with very small financial risk.

Love to hear your thoughts …
[Photo Credit: http://flickr.com/photos/babsphotosecosse]

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165 Responses to “When you fail, it's time to try again”

  1. It’s awesome to pay a quick visit this site and reading the views
    of all mates concerning this piece of writing, while I am also zealous of getting familiarity.

  2. How’s it going?

  3. InsongeMoolve on July 11, 2009 at 11:09 am said:

    For a second everything went quiet in the cab, then the driver said, “Look mate, don’t ever do that again. You scared the daylights out of me!”

  4. the fact you published his terms of service leaves a real bad taste. even if it is a great contract, you don’t really have the right to everyone. it’s arrogant and tantamount to invasion of privacy.

  5. Looking forward to reading about it.

    BTW, why haven’t you put a placeholder site up yet?

  6. On first read of this, the deal for Elliot sucks. He should be able to bring in £200 a day fairly easily as a contractor so he’s investing quite a lot for something that will quite possibly not bring in a penny. That’s about £10k a year in lossed earnings if it doesn’t make a profit for a year!

    One thing I’m not clear on is how much input Elliot will have on the app. Will he be starting from scratch with just an idea or is he building it to a tight specification?

    What happens if the development effort needs to be stepped up?

    All that being said we are not clear what his motives are, perhaps he doesn’t need the cash, perhaps he wants to become a web celebrity? There’s no doubt he’s getting good exposure thus far.

    I do commend the openess of the deal though. It wouldn’t suprise me if Elliot was now flooded with slightly more lucrative offers on a similar basis.

  7. First, Ryan thank you for being transparent about the contract. Before even reading the comments thread, I used Ryan and Elliot’s contract as subject material for my article on negotiating good contracts for startup companies. I wish I was supportive of you Ryan, as I am all for entrepreneurs – but the deal you worked out with Elliott is just unreasonably in your favor.

  8. McKinley on January 7, 2009 at 2:59 am said:

    The notice clause is crazy. You already sacked him once to save costs, why should he think you wouldn’t do it again and prevent him from reaping the rewards?

  9. Melissa on January 6, 2009 at 3:15 am said:

    I think we have to remember something here. As a freelancer you are working for yourself and most freelancers has some “entreprenuer” qualities in them or are full fledged entrpreneurs.

    This app is most definetly a risk for both parties involved. It is a risk for Elliott and the Carsonified team because both are putting their time and effort on the line to develop this app. Elliott is lucky to be working with the Carsonified team because he can have the peace of mind to know that the app will be managed correctly.

    You have to be able to look at the opportunity presented to you and analyze the risk-reward. Is it risky for Elliott to work on this project? YES because the app might fail. But the potential reward is huge and considering the partner Elliott is working with, the reward is much more likely to be in Elliott’s favor.

  10. Elliot: Would you sign a dozen of these agreements? I’m going to guess no, there simply isn’t that much time in the day for you to build apps.

    Ryan: Would you sign a dozen of these agreements? Well, of course. Anyone who’s been in the field a few years like yourself has a drawerful of business ideas, and that’s all you have to contribute. You could sign a thousand and come out ahead if 999 never turned a dime.

    That’s why folks are calling this a bum deal. Elliot’s the only one taking a risk and, at best, he’ll get less than 25% of the return.

    Elliot, you said you’re young and can take a afford some risk to work with good people. There are a lot of good people out in the world to take risks with. The time you have ahead of yourself in life is one of your most valuable assets, don’t shortchange yourself spending it on risks for other people.

  11. Hendrix on January 5, 2009 at 5:13 pm said:

    IMHO I would run a mile. I have a similar outlook to Elliot, money doesn’t really matter to me too much either, just do what you enjoy. Treat people how you want to be treated etc.

    You can’t make a guy redundant, and then offer him something like this. It’s mental I tell you. I was made redundant recently, and all that goes through your head is, ‘Am I going to make rent this month, or next’, if someone approaches you, saying, hey, in a few months, you’ll be on $1,500 a day, its hard not to get excited. But you need to see through the smoke and mirrors, and realise there might be better opportunities out there.

    All this controversy all over again, its all a bit too much for me. It might good PR or whatever for Elliot, but I would recommend moving on. Go chill on the beach for a few months and think things over…

  12. Wow… just read through all 150 comments! Really interesting read, well worth 25 minutes of my time 🙂

    I think it’s great that you posted the main points of the contract – I can now use this as a starting point for a contact I need to build for my new project. So, thanks!

  13. £1,950+vat per day? £250 per hour?

    You’re having a laugh right?

  14. you certainly seem to be courting controversy of late Ryan. Openness is a brave and noble thing, but I think I’d draw the line in explaining business deals publicly.

    Anyhoo. Good luck with it all. I realise you’ve not posted the exact contract but my thoughts would be Carsonified should commit to a minimum marketing spend to justify Elliott’s time and if Carsonified decided to cancel the contract at any time before the product is marketed there should be some form of payoff to him.

    But of course, there’s no success without risk. That goes for all parties involved. No-one could argue Elliott is naive about the risks considering the public way this is being debated.

    I wish you both a successful 2009..

  15. Amigo failed because email is a failing advertising platform. Period. No amount of research or market analysis can help you avoid that fact.

  16. @ Peter Tavistock

    When I do consultancy work, I charge around £1,950 + VAT per day, so I costed it at £800 per day based on the fact it was an internal project.

  17. @Peter:
    “Contracts if agreed by both parties – are good contracts. End of. But seriously, £800?”
    —————–

    Maybe there is a factor of name recognition here pushing up the market value?
    That being said, as a freelance consultant I know the market intimately, and in the current climate a Project Manager would struggle to get more than £350-400 a day in London, considering rates in the rest of the country tend to be much lower, you can draw some conclusions.

    Of course, that’s not the only factor to take into account, Ryan surely has “alternate costs/revenues”, for instance if he spent that day doing something else, it is possible he would get revenues in excess of that £800.

  18. I see a lot of criticism here, and also a lot in the defense of Carsonified.
    I’m not going to take either side here, as only Carsonified and Elliott can decide whether they are getting a fair deal.

    I would personally just raise two concerns regarding the contract, one is on behalf of Carsonified, the other on behalf of Elliott (Pleas note, I AM NOT A LAWYER):
    – First, considering Carsonified laid off Elliott recently, writing a contract like this exposes Carsonified to a risk of being sued for unfair dismissal. It seems to me the parties of the contract are a bit confused whether they are entering an employment like relationship, or a business partnership relationship (it seems to be somewhere in between).
    – Second, the notice clause seems wildly unreasonable, either Elliott should get paid for his work and have a traditional notice clause (as is the case). OR there should be some sort of vesting or earn-out for him (for instance, even if the contract is terminated by Carsonified after delivery, he will have “vested” 5% of his “ownership” unless he has been in breach of the terms).

    The thing that really throws me off is the termination clause, which is the cause of both my first and second point – the rest of the contract is that of a business partnership, whereas the termination clause is that of an employment relationship, it doesn’t make for a good combination.

    If you want to keep the agreement as is, fine, but If I where either party, I’d revisit the termination clause, as it puts both parties at some legal and financial risk.

  19. Peter Tavistock on December 24, 2008 at 12:33 pm said:

    Has no-one noticed Ryan values a day of his time at £800?

    Contracts if agreed by both parties – are good contracts. End of. But seriously, £800?

  20. This is an interesting model, however I also agree the 10/90 split seems a bit one sided.

    On a random note…

    I walked to the Carson address (19c Charles Street, Bath, BA1 1HX) on Friday night to put a Christmas Card through the door.

    Does anyone know which post box to use?

    19c’s post box is blocked by a white message saying to put post in the adjacent door. I couldn’t find Carson Systems (or anything similar) listed on door buzzers, or post boxes of 19, or either of the doors adjacent to it (18 and 20).

    The only businesses I could identify were a recruitment company (http://www.staffofdistinction.co.uk/) and a related childcare recruitment type company (http://www.imperialnannies.com), both on the ground floor. The next floor up has a “to let” sign in the window.

    From what I can see, there’s no Carson branding anywhere on the building or in the windows (visible from ground level). I’d half expect given they do nice design that something would have been put up.

    I can’t really tell if they’re at the address at all. Does anyone know which box to use?

    DJ

  21. Although I might not agree 100% with the condition of the contract, this benefits (and I mean ‘this’ by the recent high profile redundancies etc) Carsonified greatly; after all any publicity is good publicity. It has gotten people talking.

    By being slightly controversial and creating a debate on said topics the name Carsonified has been mentioned 100s of times a day on Twitter recently.

    That said, I think the brand has been damaged slightly because of it – but not enough to make a difference. For such a relative small company the exposure outweighs the negatives.

    But I certainly wouldn’t want my employer explaining business deals so openly, and I certainly wouldn’t consent to it.

    I wish Carsonified, Elliott and the other ex-Carsonified employeers all the luck at this difficult time.

  22. Off topic:

    This is similar to the cast of Star Wars. Harrison Ford was the only person to take a cut of profits rather than a set wage

    Not true at all – Alec Guiness was savy enough to take a cut even though he loathed the films and it made him very rich.

    Good luck with this new venture!

  23. I think it’s a very good idea. You make it strict, to protect your IP and all, but give Elliot a hefty reward upon being sold et al.

    I like it.

  24. I’ve followed you since the BareNakedApp days Ryan (and even applied to work for you, it’s unfortunate about the recession), but think about how far you’ve come in that short period of time. I definitely think you’ve made the web a better place.

    All the best!

    and @elliottkember you still owe me a beer from FOWA.. 😛

  25. Ryan,
    You are so lucky to have a father like yours, his comment above brought a tear to my eye!

    Cherish him and be the same father to your kid as he was to you. The world will be a much better place!

    🙂
    anna

  26. Unlike Elliott, I’m a web apps programmer with a large Mortgage (and many other “outgoings”). I would love to take an opportunity like the one Elliott has; but for me, it’s too risky.

    The bottom line is; programmers are not stupid. They are capable of making their own decisions and the majority can smell a good business plan.

    Elliott has weighed up his options, weighed up the potential rewards and made a good decision in my book. I would have probably done exactly the same in his position.

    I’m sure Elliott will get his teeth into this and make it a success, probably working overtime in the process.

    I say Good luck to you, I hope you at least cover your costs!

  27. Hey.

    I am from Colombia and I think you are going to be success, that is becouse you guys have all the successful entrepreneur characteristics.

    I am happy to read this post, good luck.

  28. We wish you guys the best of luck! We have always enjoyed all of your projects / apps (and we use them too!). You have supporters in Bethlehem, Pennsylvania. Good luck once again and happy holidays!

  29. Oh, and one final thing to add.

    These sorts of contracts invariably don’t work well with larger companies. The reason for this is the same problem that cloud computing creates by converting capex to opex. Large companies tend to have serious difficulties when it comes to variable budgeting.

    Anyway, I’ve dug up a tongue in cheek post on worth based development.

  30. This idea of worth based development, where the fee paid for the development services is not a fixed or time based cost but a % of some measure of success is one that I’ve used in anger several times over the last 12 years.

    Whilst worth based development techniques can be very good for getting the client and provider aligned around achieving some measure of success rather than fighting over the details of a contract, the gotcha’s are:-

    ** Both parties have to be committed to achieving that success.

    ** There has to be a high level of trust between the parties.

    ** Both parties have to be fully aware of the risks,

    I’ve had projects in the past, where the upside was a % of revenue and when the project became highly successful the client tried to re-negotiate and then other projects where the client failed to promote the service.

    Overall it’s a very useful, well established and often under utilised technique. Worth based development is what you’re doing with your agreement with Elliot. I talked about such techniques, along with commoditisation of IT at EuroFoo in 2004 – maybe I should dust off that old work.

    Now contracts are only there for when things go wrong or change in a relationship. Whilst the intention is good and Ryan you’re a decent guy, Elliot needs to think what would happen if some company bought out Carsonified and he found himself face to face with some sour faced money man.

    The termination clauses are unreasonable and undermine the equity-like nature of the relationship, the open endedness of the support agreement with no limitation on time is unreasonable, the … it goes on.

    Good idea, good intention and it wouldn’t take much to make it a good agreement.

  31. I’d be interested to know what the deal is with copyright of the code. In this instance, would Elliott retain some ownership?
    Speaking as a developer, I find that every project involves me creating lots of componants that are re-usable for other projects.

  32. @ Scott and @ Andrew

    Thanks for the support and kind words.

  33. @ John ‘diff’

    “Ryan, you bought the Truvay domain in November meaning the idea was in place a while before the registration. This tells us that you knew you would be launching a new app before you made the redundancies. Purely out of interest (and this is not a criticism), why make the developer redundant if you were confident this app would make lots of money?”

    We don’t know if Truvay is going to be a success. If it was a sure thing then we wouldn’t have made Elliott redundant.

  34. John 'diff' on December 19, 2008 at 11:04 am said:

    I do have a question that may help me make similar business savvy decisions in the future.

    Ryan, you bought the Truvay domain in November meaning the idea was in place a while before the registration. This tells us that you knew you would be launching a new app before you made the redundancies. Purely out of interest (and this is not a criticism), why make the developer redundant if you were confident this app would make lots of money?

    If you choose not to answer I understand but I am interested in the thought process behind this.

  35. Andrew Timberlake on December 19, 2008 at 10:02 am said:

    I really like Chance Carson’s post – a great balance to the conversation.

    It is so easy to point fingers, make up our minds and/or criticise someone else’s deal when in reality we know very little of the facts.
    Ryan has given us the highlights of the deal but there is no way we have all the facts. All the facts including the unseen personality element are often very sorely lacking on the internet and it would take a book instead of a post to present them adequately.

    Let’s try and cut everyone some slack and focus on learning from those who put themselves out there for us to learn from.

    I particularly enjoy the fact that through blogs like Ryan’s I am able to avoid making mistakes (or can make better decisions) because of their transparency and openness.

    Thank you Ryan!

  36. I have been a long time supporter of Carsonified. Whilst I haven’t really had the chance to meet the guys in person I value the openness of the way they work.

    Sure Carsonified have had failures, they’ve also had successes. Nobody is perfect and I appreciate the effort that Ryan takes to assessing what went wrong/right and sharing it with others.

    With regards to the whole redundancy situation, it’s unfortunate that it does happen. I don’t expect for a minute that Ryan is the kind of guy that takes any delight in making people redundant. In fact I think that it is very kind of him to offer Elliott what could lead to be a lucrative contract. How many other employers that are making people redundant offers similar deals to those made redundant?

    Everyone seems to assume that Ryan is taking Elliott for a ride. Well if that’s the case, Elliott is his own person and has the right to turn down the offer if he doesn’t think it fair.

    I wish the Carsonified team and Elliott all the best, and I hope that Truvay is a success.

  37. There’s nothing new about these kind of deals. I’ve been making them for the past 15 years or so. In this case I agree with most commenters that the split and risk are not well balanced.

    Ryan, you nicely sum up the possible gains for Elliott, but you fail to properly compare this to his own gains. While the deal may be acceptable for now, it will may well get you into trouble in the long run when Elliott may have second thoughts about it. In this kind of deals it is crucial to avoid conflict of interest. But being so inbalanced, this deal will likely cause tension in due course.

    In most of my own deals I have more or less Ryan’s role. But only recently my small company entered into a deal with a very large media company which involves way more money than the deal that is discussed here. In this case we have a role that might be compared to Elliott’s. I can’t disclose the details, but rest assured that our deal was way better than Elliott’s. We got a much higher revshare against not that much risk. And I was still hesitant to sign the deal…

    @ Matt
    “commercial enterprises exist for one reason, and one reason only: to make the profit that the market will return”.
    Well, I can only speak for myself, but I’m not in this business for the profit. And while you can’t have business without profit, it’s still no more than a means to an end. I think Elliott put it nicely:
    “I didn’t get into this industry to make buckets of money, although it is a nice perk – I did it because I enjoy it…”

  38. Your Dad’s comments have made up my mind.

    I think I was on the side of the contract being unfair against Elliott but the very fact that your Dad even bothered to post and what he said has completely changed my view of you on this.

    I think it’s wonderful what your Dad said; and no doubt he’s probably undersold you. I totally agree with the honesty part of your business ethos, Ryan. I know you’ve taken a beating on this one, but I can now see your intentions were good even if others (including me) may have interpreted them as being less than honerable, initially.

    Remain who you are and continue doing what you do, Ryan, it is appreciated.

  39. Dad! You’re amazing. Thanks so much for you unwavering support for me through the years. I couldn’t have gotten to where I am without you. I love you! Let’s catch up on the phone today.

  40. Most of these posts have discussed the merits(or lack thereof) of Ryan and Elliot’s contractual arrangement…many posts have been critical and some supportive. Although as an entrepreneur/investor in the US, I could easily add my remarks about the “fairness” of Ryan and Elliott’s contract (to me, it seems to be quite fair and well constructed in the context of most traditional “risk capital/new venture” arrangements I’ve seen in my 36 years as a financial adviser.)

    But I have a unique perspective that none of you has.. I am Ryan Carson’s father. Although being Ryan’s dad makes my comments subject to the usual criticism of parental bias, I want to offer my unique perspective- not on the business merits of Elliott and Ryan’s arrangement, but rather on the integrity, honesty and good heart of Ryan, my only son. You see, I raised him to be a man of unflinching courage, undaunted work ethic, unwavering honesty and deep compassion for family, friends and associates. He has never let me down, nor will he fail you should you have the opportunity to know him as a friend, associate or business contact.

    More simply stated, Ryan is honest..perhaps to his detriment at times. Wouldn’t it have been easier to simply have the app developed without public scrutiny? Ryan is just that kind of man..he values openness, transparency and fairness in all of his dealings. He genuinely wants to help others to learn and improve themselves as a by-product of his own successes and failures.

    And who knows..this app launch may fail..and if it does, both he and Elliott will gain immeasurable experience from that school of hard knocks. And yes they will lose both time and money, but these perceived “losses” to the pessimists among us will pale in comparison to the intangible gains in knowledge and experience that the optimists amongst will enjoy. Succeed or fail financially, I’m predicting that Ryan, Elliott and the open-minded among all of you, will benefit by the journey of this application’s development and launch….All because the process is in fact transparent.

    Bravo Carsonified! Ryan, your sharing in your trials and tribulations..as well as in your many successes to come, will make all of better men and women. Thank you for sharing your journey..the good, the bad and the ugly.

    I love what you do and more importantly, who you’ve become…a man of the utmost integrity and compassion. Thank you for who you are. The world is truly a better place because of your contributions to it.

    You are truly a Man of Steel and Velvet!

    I love you,

    Dad

  41. Winnie M. on December 18, 2008 at 9:23 pm said:

    Ryan wrote: “* I anticipate reaching $25,000 in revenue per month in around 18 months. At that point, Elliott will have made around $33,000. Then his cut goes up to 25%, which will make him roughly $6,000 per month, for four days work. That’s $1500 a day folks.

    Call me crazy, but that’s anything but exploitation. ”

    ok crazy – what I cant understand is – if it is all so fabulous, and you have all this anticipated revenue headed carsonified’s way then why did you let him go in the first place? *scratches head*

  42. As a developer in a similar position to Elliott, in that I’m 23 and don’t have a mortgage or family to support, I can fully understand his reasoning. In the last year, I accepted a similar project which was equity based (in comparison it actually had a couple of ‘milestone’ payments in the contract and more equity for me, but much less exposure than Truvay will have) and I took this on simply because I was really keen to work on the app. As long as my other freelance work paid the bills, I was more than happy. I know that in a sense it’s a luxury being able to chose a highly interesting but financially risky project but I appreciate the opportunity to do this and fully intend to make the most of it, as I’m sure Elliott will too.

  43. Really crap deal for Elliot. Your £300 being deducted before the revenue split is particularly shitty. Not knocking you for it – it’s business after all and you might find a suitable schmuck to take you up on this contract. If it’s Elliot though he’s a fool.

  44. Yes, I suppose the fact is both Elliot and Ryan are happy with the deal.

    Best of luck with the application anyway. It’s certainly some great free publicity.

    I’ve written a blog post as I found this debate so very interesting.

  45. This is all personal preference on whether Elliott wants to get involved, the more people say that he’s mad the more he’s going to do it anyway.

    Im intrigued to think how it works for Mike mind, if he’s designing the site is he just taking his normal wage or is he getting a little extra?

    Is it being setup as a completely new business or part of Carsonified?

    How many other people are involved apart from Elliott, Ryan and Mike and the PR people?

    Is Keir taking any part of it?

    Gavin

  46. @Elliott: Thanks for your post, it’s like the missing piece to this thing.

    @Ryan: You seem to have great talent for starting controversies, but also for surrounding yourself with great and loyal people.

    See you in Dublin! Best of luck!

  47. @Ryan Cumley – Thanks for chipping in mate 🙂

  48. Ryan Cumley on December 18, 2008 at 5:25 pm said:

    Not a lot of capital raising experience out there it seems!

    When you’re using more then sweat equity to build something, the capital comes from somewhere. Whoever provides the capital takes the lions share of benefit, until (if ever) you can buy them out. Doesn’t really matter if it’s bank debt, private equity, your own money, or corporate sponsorship (which is what this deal is).

    Carsonified is paying all the up front costs with cash, succeed or fail, and is giving away a substantial portion of the return. Elliot is contributing sweat equity, and receiving cash flow and terminal equity in return.

    I’m not familiar with common arrangements in the web development world, (I just model investment returns for these guys http://www.carlyle.com) but Carsonified seems to be losing a significant amount of IRR (internal rate of return) in this deal. Elliot’s potential returns appear to be way higher than the CEO of my firm, who takes no salary, and had to invest money up front to secure his profit sharing arrangement.

    Thanks again for the transparency Ryan and Elliott! It would be really cool if some of the other people listed the details of contracts or arrangements they have worked on too. Who knows, maybe all the transparency might give people new ideas to use in their own deals.

  49. Well done Elliott, you have a good outlook on things . . . enjoying what you do is pretty fundamental.

  50. “I understand where you guys are coming from, but personally, I’m out to horde friends and experience, not money”

    great perspective, you definitely have my respect (for what it’s worth”).

    Do what you love, and do it well man!

    Aaron I

  51. ELLIOTT 4 EVA

    good post dude. this has all gone a bit ridiculous if you ask me.

  52. elliot,

    top post…to be fair, your the only one who has the right to really comment on it..

    Ryan has tried to be honest and open, some people will always take a pot shot…

    I hope it works out for you guys…

    C

  53. Well, I promised I’d comment at 100 replies, so here goes.

    I am not really a businessman.

    I understand where you guys are coming from, but personally, I’m out to horde friends and experience, not money – this is an investment decision that I think will pay off over time. I didn’t get into this industry to make buckets of money, although it is a nice perk – I did it because I enjoy it and I don’t want to do anything else ever again, ever. My situation is quite fortunate, in that I’m 22, and I have some time to burn – no mortgage, no kids and no loans. I’ve been poor and happy, and I’ve also been wealthy and miserable. I think I’d forgotten that with all this talk of percentages.

    I don’t think Ryan is out to pull a fast one on me. Having worked with him for six months, I feel confident saying so. If I don’t succeed, I don’t lose all that much – but what I gain in publicity and twitter followers, to me, is worth my time. If I get rich, you’re all welcome to come visit me on my yacht in the Caracas and we can all go snorkeling.

    I think it’s a damn good project, and I think Carsonified are well placed to make it work. Either way, it’s entertaining, and fun, and as long as I can continue to wrap my feet in the skin of Italy’s finest livestock from time to time, I’m not that fussed. Then, next time I try, you can all watch me succeed – or fail. Either way, it’s like dinner theatre — and you’ve all got a free seat! Unfortunately the venue is BYO. Plus, if I do end up being royally screwed, you can all look forward to one grumpy-ass blog post every week.

    To everyone who’s given us advice, thank you – so much. It’s always valuable, no matter what anybody says. To anybody who really dislikes this, or us, and says so – thank you too. Why? I found this quote the other day:

    What we need is hatred. From it our ideas are born.
    – Jean Genet

  54. I’ve always admired your transparency, especially when sharing opens you up to more criticism than you’d otherwise receive. That said I agree with others that this deal is pretty one-sided.

    This doesn’t make sense: “Carsonified is ‘risking’ that Truvay will be a huge success and we’ll lose out on revenue that we would’ve been able to keep.”

    You’re saying that if it’s a huge success, you’ll be making LOTS of money but losing out on making even more? Keep in Elliott gave you the “LOTS” in the first place.

    Good luck with it, both you and Elliot.

  55. I love that everyone is missing the fact that Elliott *chose* to work with Carsonified, and accepted what may seem like a small percentage to some people, instead of going down the road of making his own app from scratch and owning 100% of the IP.

    As a developer, I would do _exactly_ the same thing. Carsonified would be a f’ing amazing platform to launch an application on, and the percentage Carsonified is taking is completely fair in relation to the reward.

    Ryan: Keep doing what you’re doing. Opening up to the world like this is ridiculously bold, and you’re always going to get the people to whom this sort of information is a shock. Ignore them and soldier on; you’re doing the right thing. Looking forward to hearing more about Truvay.

    Richard

  56. How much conjecture is being thrown about here!? On both sides.

    The future for Truvay is so uncertain at the moment that all this arguing is frankly stupid.

    Truvay might be the best thing since sliced bread and make all involved very very rich… or it might tank so hard that it blows Ryan’s massive cycling induced legs off. Elliott might be a partner for 10 years or he might say “screw this!” and leave after 3 months… come to think of it, Ryan might do the same thing and terminate the contract at his end. Who knows?

    With the financial climate how it is, nothing is certain and with that in mind, the outlined contract offers both parties a lot of flexibility from a business stand-point. Obviously Ryan stands to gain (or lose) the most money on this but he is the boss after all and that’s his right. At least he’s being open about it and not doing everything on some shady under the table deal.

  57. I’m definitely mixed on this, Elliott knows the idea so you have to factor that in to why he would agree to any terms. Also consider if he spends 150-200 hours on this project at a reasonable rate, say $80 per hour that is $16,000 at the highend. So if everything goes according to plan he could get paid for his work plus a healthy flow of cash. Plus if the numbers are accurate Elliott should have time to work on other projects that have more traditional pay structures to balance everything out.

    The one thing I’m confused about, is why Elliott working for free and Ryan doesn’t. With a 90/10 split I would assume that Ryan’s nominal management fee doesn’t need to be taken out off the top. Ryan’s time imo should not be considered a loan to the project because of the 90/10 split.

    All in all success will quiet these issue, Elliott I’m sure will do a great job and Caronified will work hard to make it a success.

  58. “Do you think highly profitable companies like Apple or Porsche price their products based on a what is a “fair” margin? Do you think they should?”

    John said, “Yes, I do. But that doesn’t mean they will and I accept there is value which a high price places on a product or service which lifts it into exclusivity, nevertheless I do not believe companies should exploit staff or customers in anyway. I do not believe in the “free market economy” as you may understand it as I think the global credit crisis shows this a system which does not work (going off topic here).?”

    This is clearly where we disagree; I believe full-heartedly in the free market economy, and believe that history has demonstrated that, while not a perfect system (no system is), its results are better than any alternative we’ve tried so far.

    You say, “The point I return to here is not so much about whether Elliott is happy or indeed whether Ryan is. It is about whether this kind of inbalance in a contract should even be considered and whether it is correct to ask someone to work for free and reward them only on the basis of commercial success later on down the line. Especially when the other party is taking expenses from the project BEFORE hand.”

    The problem I have with your position is this: Who is the arbitrator? Who can better determine the “fairness” of the terms, than Ryan and Elliott themselves? Who determines at which point “this level of imbalance” no longer exists? You? Why not Elliott?

    You said, “If you knew your politics, Matt, you would know that 90% profit for someone represents far greater injustices than simply a flawed marketplace.”

    Having spent nearly 20 years living, working as an employee and later operating businesses in both relatively free societies, and relatively socialist societies, my personal experiences and observations strongly support the belief in free market economies, and the belief that attempts (granted, good intentioned) by third parties to define and impose “fairness” within markets and societies more often than not fail, and, furthermore, deteriorate the very circumstances they try to improve.

  59. Whatever happens, Elliott you’re an inspiration!

    (99 yet?)

  60. Just helping Elliott get the 100th comment.

  61. #Sorry I spelled your name incorrectly earlier Elliott. Two Ts it is.

  62. Looking forward to seeing what you guys have up your sleeves.

  63. Once again, thanks for the transparency! Are we at 99 yet, @elliottkember? 🙂

  64. Just bumping up the numbers to hear what Elliott has to say on the whole debate. 🙂

  65. I’m surprised you released the contract details online – it’s certainly a bold move to do so, but very interesting all the same!

    As far as this support discussion goes, I think that the amount of support emails you will receive will be directly linked to the audience – if you have a very tech-savvy user base then you won’t have too many problems.

    Whatever it is, it’s variable.

  66. Andrew Whitehouse on December 18, 2008 at 4:08 pm said:

    Very interesting, although as described the arrangement looks somewhat risky from Elliot’s point of view. Some points that could be improved:
    1. I would be inclined to tweak the one-month notice clause to include a minimum contract duration before notice can be given
    2. Does Elliot have any control/veto over variable monthly costs?
    3. Can any of the ongoing work (e.g. support) be delegated to a suitably qualified replacement?

    I hope that this works out for all concerned, and know that you’re a decent bunch. The point about contracts, though, is that you tend to use them when only things go wrong.

  67. “Plus the time doing support every single day to meet the 24hr turn-around time (again, one would assume you have a fair number of customers if you’re bringing in $25,0000).”

    DropSend currently receives only about four support email requests a day. I’m not allowed to share the number of users (because the buyer won’t let me) but trust me, it’s quite a few.

    Truvay support (providing we build it right and pay attention to the UX) should only take about 20 minutes a day.

  68. Maybe the contract termination if done by Carsonified should be a buy out instead, possibly setting a minimum figure now in the contract that is adjusted to a percentage of the revenue received when the app starts earning over a certain level of profits.

    This removes the possibility of Carsonified screwing Elliott over, which i’m not convinced would ever happen intentionally.

  69. No lawyer saw this contract. Seems it stretches UK employment law in a number of ways. Posting it on a blog constitutes a pretty big disclosure.

    oh – and it can’t be a very interesting app if it can be built so cheaply: haven’t you just demonstrated to competitors how easy it would be to copy it?

  70. I think the discussion on this situation is unwarranted. It’s quite simple, really. All the anti-Ryan/Carsonified comments here are assuming that Elliott is a naive child who is going along with the deal because Ryan told him it’d be good.

    None of us are positioned correctly to assess his business acumen and I very much doubt he agreed to this contract without first considering all the options and weighing up the pros and cons.

    And beyond all else, who granted “the internet” the position of Elliott’s guardian angel? If he wants to take a contract that says he can get 5 packs of oreos a week in return for 60 hours of development time, that’s his choice.

    I’m beginning to wonder if Ryan might tire of being open about these subjects. I find it interesting seeing how the decisions are made that would normally be behind closed doors, so I think it’d be a shame if we saw less of posts like these.

  71. Holden McGroin on December 18, 2008 at 3:36 pm said:

    I anticipate reaching $25,000 in revenue per month in around 18 months. At that point, Elliott will have made around $33,000. Then his cut goes up to 25%, which will make him roughly $6,000 per month, for four days work. That’s $1500 a day folks.

    Don’t forget to subtract the cost of book-keeping from that $25,000. And hosting, etc. And the payment for your time. And the marketing cost (which without knowing the nature of the app I can’t say for sure, but will probably be a fair amount to be reaching those numbers).

    Also, don’t forget to add the time it takes to write his weekly blog post to that four days. Plus the time doing support every single day to meet the 24hr turn-around time (again, one would assume you have a fair number of customers if you’re bringing in $25,0000).

    What does that leave his daily rate at? In 18 months. If your predictions are correct (unlike, one assumes, your predictions for how Amigo would turn out. And for the ease with which you’d sell DropSend. And your predictions when you hired the three people you subsequently had to fire.)

    Elliott – good luck. Ryan – you’re a genius.

  72. http://www.no-spec.com/ – can be applied to development aswell as design work…

  73. Matt said: “Your comment that a 90% profit margin is “unethical” reflects, IMHO, quite a lack of understanding of markets and free societies.”
    – it’s NOT a free society if you are exploiting someone so that you make a profit.

    “Do you think highly profitable companies like Apple or Porsche price their products based on a what is a “fair” margin? Do you think they should?”

    Yes, I do. But that doesn’t mean they will and I accept there is value which a high price places on a product or service which lifts it into exclusivity, nevertheless I do not believe companies should exploit staff or customers in anyway. I do not believe in the “free market economy” as you may understand it as I think the global credit crisis shows this a system which does not work (going off topic here).

    The point I return to here is not so much about whether Elliott is happy or indeed whether Ryan is. It is about whether this kind of inbalance in a contract should even be considered and whether it is correct to ask someone to work for free and reward them only on the basis of commercial success later on down the line. Especially when the other party is taking expenses from the project BEFORE hand.

    In your free market, the only people who would agree to this are those who know no better or those who perhaps have nothing and so have nothing to lose (in the hope of some gain).

    If you knew your politics, Matt, you would know that 90% profit for someone represents far greater injustices than simply a flawed marketplace. Have you heard of the Fair Trade schemes and what they attempt to replace and put right? There are big implications socially for NOT exploiting anyone to make yourself a nice fat profit.

    That is what bothers me about this arrangement from a young, forward thinking and influential company like Carsonified in that the spirit of this contract is rather too colonial for my liking.

  74. As a developer the only thing I’d be nervous about here is the “either party can terminate” clause. That means that Elliot could build the app and support it until it hits the $25K/month milestone and Carsonified could then terminate the contract and bring in someone much cheaper to maintain it. I don’t expect that to happen since there seems to be a solid relationship between Elliot and Carsonified, but sometimes a business loses sight of those relationships when focus shifts to the bottom line.

  75. I think it’s an awesome way to work- good on you.

  76. Despite Carsonified’s reputation a contractor would have to be insane to get involved in a project with those terms!

    I wouldn’t risk it…

  77. John said, “Ethics, in this case are very important why on earth would they not be? In your example, are you being unfair, the answer is simply “yes”. You are exploiting your neighbour by charging too higher price and your employee by not paying the correct rate for the task in hand. You are entitled as a manager to earn a fee for facilitating this but not 90% of the total profit. That is unethical. Can you legally do it; “Yes”. Should you do it; “No”.”

    John, commercial enterprises exist for one reason, and one reason only: to make the profit that the market will return. If two parties, on the basis of good faith, come to an agreement, then there is no such thing as a “fair” or “ethical” profit percentage.

    Your comment that a 90% profit margin is “unethical” reflects, IMHO, quite a lack of understanding of markets and free societies. A 90% profit margin certainly represents an inefficient market (and opportunity for better competition), but nothing more. Do you think highly profitable companies like Apple or Porsche price their products based on a what is a “fair” margin? Do you think they should?

    Again, Ryan has made an offer. Period. Elliott can consider that offer, and accept or reject it. Period. If they come to an agreement, the market, as it should, has brought together two parties. There’s absolutely _nothing_ unfair or unethical about it.

  78. Just thought this whole controversy would make a nice conference title: “The Futurue of Business Ethics”

    Obviously we have two (or more?) paradigms clashing where people talk about the same subject, but have very different concepts of “right” and “wrong”. Reminds me of the “work-life-balance” discussion at FOWA London this year.

  79. You don’t half put yourself on the spot with difficult public situations these days, Ryan. You could fool us into thinking you’re doing it on purpose, mate! 😉

    I think it’s an exciting challenge for Elliott, an interesting project to work on one day a week (in theory) but it’s also an awfully risky project.

    Elliott trusts you, I trust you, but if we put the fact that we’re all respectable individuals who wouldn’t screw others over (Right?), legally he’s at an obvious disadvantage by bearing so much risk if it fails.

    I was once young and naive, signed a similar development agreement. The deal was: We developed the site architecture, they handled the marketing which would bring money in and we shared the revenue.

    We did our share of the work, but they discovered they were too busy to market it, and the app never made a penny.

    Thankfully we had a clause saying that if in 12 months the app had not earned us at least a minimum amount, they needed to pay us that minimum. We ended up settling on that after 12 months, and ended the relationship.

    We learned a bloody tough lesson, as the marketing of the site had been entirely out of our hands. We were left severely out of pocket and this is a type of deal I would not agree to again.

    So Elliott, I hope that you plan to fill your 4 other days a week wisely so that you don’t find yourself at loose ends if the project doesn’t pan out as hoped. But at the same time, if it’s a 1 day/wk project, then have a blast and let your creativity flow!

  80. There sure is a good range of comments in here. I’d like to see Elliot’s take on all of this (I didn’t see his name in the comments).

    I personally would go for this with things being the way they are in England at the moment. Firstly, it’s Christmas. This gives Elliot two weeks where he can get a good start inbetween all the stuffing his face with Christmas treats if he feels like it. He could even get himself a little ahead on the work to give himself a break later on (assuming this would be OK).

    My biggest concern with this kind of contract would be “But how do I pay the bills now?”. Unemployment in England is at the lowest it’s been for something like 20 years. So it’s going to be quite tough for Elliot to find a job at the moment. That’s not me doubting his technical capabilities, it’s me doubting that many companies would fork out for new staff at the moment. So that leaves him with trying to fill the time with freelance projects. If this project only takes up one day a week then he’s certainly got enough days left to be able to make a living off of.

    Like many people have commented on, I think the line about support emails needs a little expanding. Once the app is launched, this could turn into a full time job for Elliot. He’d turn from a developer to someone who answers the phones & emails.

    So with that said, I’d say Elliot should go for it. He does get the exposure, he gets the chance of a recurring income in a time where finding/keeping a job is far from a certainty and it keeps him ticking over while he seeks out other freelance work.

    As a developer you always have side projects on the go to keep yourself sharp. Elliot’s side project just happens to be someone elses idea.

  81. Nice idea, keep us posted as to how it all works out! Good look to all involved.

  82. Where to start??
    1. I applaud Ryan for being transparent, it will always generate controversy and only he will take the flak.
    2. On the fair/unfair argument. If both parties are happy with the deal then that is all that matters. You may not have accepted the same yourself, that doesn’t make it unfair.
    3. On the deal itself. If it was me, I would not want the Monday set in stone. What if I had to take a full time job to pay the bills?
    4. Ryan states that it is only a rough contract so I’m sure all these comments will have both Elliot and Ryan thinking.

    That’s it really. I’ve been on the wrong side of a similar deal that went South. But I learnt from it. I’m sure Elliot will gain from this venture, financially rewarding or not.

    Good luck both of you…

  83. This is similar to the cast of Star Wars. Harrison Ford was the only person to take a cut of profits rather than a set wage. He obviously believed in the product otherwise would NEVER have done it. Now look. I mean seriously. He is the most successful of all the actors and must be pulling in the profit in shocking values.

    It’s all about your experience, your belief in the product, your belief in the team behind the product, and your ability to pull off the deal.

    Elliot is no fool, and he knows his ability, he knows the team, he knows how they work, and unlike the rest of us posting, he knows the product.

    I would say good luck, but to be honest I don’t believe in ‘luck’. I’m sure he will do well as will Carsonified.

  84. There are a few points worth remembering here:

    1) Carsonified are in a much better position to market an app – to get visits, subscriptions, revenue – than Elliott alone. Just the act of this post has placed ‘Trouver’ into the consciousness of people in the industry. I’m sure we’ll all be following its progress for good or bad. Some of us will blog about it, link to it, etc.

    2) There’s an awful lot more to running a business than simply developing the product. As I’m sure anyone who’s ever run a business can attest; the time simply disappears, little things add up.

    3) Were Elliott to still be working for Carsonified, it would be his job to develop this app. Let’s say (for argument’s sake) that Elliott was on 30k pa. With a launch date of April 2009, he has four months development time at a rate of 2.5k per month = 10k.
    Elliott continues to support and develop the app for as long as he’s with Carsonified – during which time the company rakes in, as stated, around $25,000 (£16,250) per month.
    Assuming that the sale of the app is end game, Elliott gets nothing.
    If Elliott decides to leave, He gets nothing.
    If Carsonified lets him go, He gets nothing.

    4) Assuming again that end game is the sale of the app for big money – could Elliott find a buyer and broker that kind of deal?

    In essence, the point is that if Elliott believes that the app will be a success, this deal is a great way of ensuring he gets far more for his time than he would as an employee, or freelancer.

    A lot of people have been making the point that 10% (up to 25%) isn’t enough of a share, and that point is valid – however there’s a lot of time and effort that I’m sure we don’t see. Only Ryan and Elliott know if that is a fair deal.

    One thing I do very much disagree on however, is Ryan’s $300 per day ‘fee’ for managing his own app. Surely Carson Systems Ltd. pays Ryan a monthly wage – I don’t see why he (or the company) should get paid extra for him to work in the best interests of the company.

  85. The thing I find a little worrying is you fired your only developer. What does Carsonified do again?

  86. Ryan,

    As a business owner i have to say that you have bigger cojones then me. Not only for making that offer but to make that offer (which i think is exploitive and crap) but to publish it with my sh*t don’t stink attitude …and then wonder why people would push back….

    I have sat back and watched all your other success and snafus and never said a word but this is a joke. I don’t care how you justify it long term ….

    In my books someone works an hour they get an hour pay. What is this app doesn’t make the 25k a month that sir carson thinks? or it takes 36 months ….

    @matt henderson …. i don’t think he would have thrown in the following cavet “4. One day of Ryan’s time per week for management (normally charged out at £800 per day, but reduced to £300)”

    If he is putting all that out there for carson …then he should be given a cut on the whole shebang. Why should crason hold the complete rights on ip?

    Good luck with it ….. merry christmas elliot

    Cheers

    scott

  87. Matt Henderson said: “If my neighbor offers me 1000 Euros to paint her house, I accept the job, and then find someone who will paint it for me for 100 Euros (so that I pocket the 900 Euros for doing nothing), is that “unfair”? The right answer is, of course, “It’s not a relevant question.” This is not a situation of ethics.”

    With respect Matt, you know nothing about Ethics.

    Ethics, in this case are very important why on earth would they not be? In your example, are you being unfair, the answer is simply “yes”. You are exploiting your neighbour by charging too higher price and your employee by not paying the correct rate for the task in hand. You are entitled as a manager to earn a fee for facilitating this but not 90% of the total profit. That is unethical. Can you legally do it; “Yes”. Should you do it; “No”.

  88. Ah, I’ve now re-read the bit about the one month notice period. I know people have said that it’s an awful lot of trust for Elliot to be placing in Ryan not to cancel as soon as this starts bringing in money but think about it like this; Imagine if that happened. Ryan’s name would be Mud. No one would want to work for or with him again…. ever… Even ex-Dragons Den stars.

  89. Mantis is very ugly, but is signup free. http://www.mantisbt.org/ I use in our office to track bugs and requests from clients. Is very useful, but ugly, I repeat.

    About the participation of developer in project, is very normal when you think in commercial projects, and the compensation comes at finish of the project. But a web service, has a monthly fee, this is not normal, but is interesting to Elliott (I don’t forget the 2 T’s on name) and respectful with him and his work. I’m proud of you Ryan.
    I wish success with this app for you all.

  90. I anticipate reaching $25,000 in revenue per month in around 18 months. At that point, Elliott will have been paid $33,000. Then his cut goes up to 25%, which will make him roughly $6,000 per month, for four days work. That’s $1500 a day.

    If Elliot has been paid 15% ($33,000) then carsonified will have been paid $187,000 (85%) as well as all the days that Ryan spends marketing will have already been paid for at a rate of approximately $600 per day.

    Seems a little one sided to me.

  91. Dear, oh dear. You really have caught hell over the past few weeks haven’t you Ryan? Well done for not losing your cool.

    There are two sides to every story and to those of you who are saying he’s exploiting Elliot I say; Ryan may have proposed this arrangement but Elliot agreed to it. I’m sure Elliot isn’t an idiot. If he thought the deal was unfair or too much of a risk, he’d have just said no.

    Fact is, He’s not working at the moment so why shouldn’t he invest some time in something that could generate future income. He’s got nothing to lose and plenty to gain. If the app tanks then Elliot’s lost some development time, Who cares? He’s unemployed right now so wouldn’t have been earning anyway. If developing Ryan’s app meant he had to neglect some paid freelance work then, as I already said, I’m sure Elliot would have just said no.

    My only hope is that building this app doesn’t hinder Elliot in finding another full-time gig. i.e. I hope he hasn’t signed into a contract that will work him into an early grave if he finds another employer before the app is complete.

  92. If my neighbor offers me 1000 Euros to paint her house, I accept the job, and then find someone who will paint it for me for 100 Euros (so that I pocket the 900 Euros for doing nothing), is that “unfair”? The right answer is, of course, “It’s not a relevant question.” This is not a situation of ethics.

    Ryan could make an offer to Elliott to build the app for free, support it for life, and in return buy him a lunch on the day that the app is ever sold to Google. That’s neither a fair nor unfair offer. It’s just an offer. Period. It’s a free market, Ryan can make any offer he wishes. Elliott is free to accept or reject the offer.

    I’d like to ask those of you saying this is all “unfair” the following question: If Ryan had asked Elliott to propose a contract, and Elliott had proposed the above, would you then still accuse Ryan of being “unfair”? Is the burden and responsibility of finding a “fair” agreement on Ryan?

  93. There has been a lot of very interesting comment on the difference between, American, British and proper European start ups in the fall out from Le Web conference. Here we have a situation with an American founder with a highly talented British team and a Kiwi developer. I know all of these people, and applaud this arrangement. It is perfect for the human dynamic of all the people working on the app. Ryan has a very American point of view, as shown in the set up of this deal. Most British and European entrepreneurs would not think of weighting a deal in this way.

    Elliott is young and very savy. He will have weighed up the idea of app and clearly believes it to be marketable. This is an ideal project for Elliott to build what will undoubtedly be a high profile project. Should it succeed and meet it’s targets this will cement the legend of the Kember to world wide web. There is much to gain for Elliott from this project and he is free enough to commit a few months to an idea he believes in without jeopardising anything in his life.

    Wishing Truvay the best of British, I shall be watching this space.

  94. I’m sorry Ryan, but there’s no risk on Carsonified side.

    If the app succeeds Elliot gets 10% share of the “revenue” – which isn’t a true figure as the bottom line is defined on trust by Carsonified.

    If the app fails Elliot loses the opportunity cost of his time, Carsonified lose nothing other than a day of Ryan’s time per month.

    It’s hardly a fair risk/reward spread.

  95. Ryan

    I think that you have received a lot of unfair criticism on this as the intention was clearly to be fair.

    The deal does seem one-sided in Carsonified’s favour, but in any agreement the devil is in the detail and the detailed agreement may well be more balanced that the outline suggests.

    The amount of equity that you have offered Elliot is about the same as VC backed companies put into an options pool for early employees. That compensates the employees for taking the risk of joining a start-up. However, those early employees also get paid a salary.

    Elliot is taking two big risks: First, he is taking a major role in a start-up for which he should get an equity interest anyway. Second, he is forgoing salary, which should be compensated separately.

    Perhaps the way to solve this is to keep the equity stake as agreed but add two things:
    A. Pay Elliot a day rate for the time he spends, but build that up as a debt owed to him. That way if the company is sold it has to pay him for his time before the shareholders get their payout.
    B. Don’t cap Elliot’s time to one day a week. If he needs to spend more time on the project he can do so even if his initial reward is in the debt that the company owes him.

  96. Douglas Boyce on December 18, 2008 at 12:35 pm said:

    Hey Ryan –

    Great idea ! You’ve done a lot of research of giving a balanced approach to lowering your risk, lowering your initial investment while still giving the potential for enormous profits to Elliot.

    However, after looking at your plan, I think you over looked one area. As you know, a lot the success of a webapp happens from how the launch of a product is handled. I would recommend adding a clause about tying a bonus payment around the number of beta users you get, but more importantly, how many turn into paying customers. So, if you have a free edition, they wouldn’t count.

    As teh launch would near, this puts an additional incentive for Elliot to help out with PR, Marketing, Podcasts, Interviews, and Press Release. I’ve seen too many companies develop really great products only to drop the ball at the end and become a failure.

    Something to chew on.

    – D3

  97. Whoops, seemed to have miss-quoted the “no financial risk” thing. Not sure where I got that from now but the point is still the same.

  98. I anticipate reaching $25,000 in revenue per month in around 18 months. At that point, Elliott will have made around $33,000. Then his cut goes up to 25%, which will make him roughly $6,000 per month, for four days work. That’s $1500 a day folks.

    This time next year Rodney… we’ll be millionaires!

    The reason why you say Elliot has “no financial risk” is because he doesn’t have a job. His real risk is exactly the same as yours: he has an opportunity cost of whatever he can sell those 8hrs/day for (call it $500/day), and however long it takes him to build the app in the first place (call it 20 days, $10,000). Doing my own beer-mat calculations, in the first 18-months Elliot’s opportunity cost is $39k worth of mondays plus the $10k upfront. So to get to 18-months, his investment is $50k.

    Elliot: I’m sure you respect Ryan a lot. Ryan doesn’t want to risk “$50k” of his own money on this project. There’s a reason for that.

    Elliott was our only developer so there isn’t anyone else in-house to do it.

    I laughed.

    I can’t believe you sack the guy, then get him to build and maintain your application for free!

  99. What a lot of you nay-sayers are missing here is that there is risk on both sides of this equation.

    Elliott could build a web app for someone else for a fee. A well-paid fee for building a web app like Truvay would be around £8K. Then he would get no further benefit from the financial success of the app (presuming it succeeded).

    However, he’s willing to take a risk to make more money. If Truvay is a success, then he stands to make a lot more money.

    It’s his choice and if it works out he’ll benefit financially. If it doesn’t then he loses out. That’s the very nature of taking risks.

    Carsonified is ‘risking’ that Truvay will be a huge success and we’ll lose out on revenue that we would’ve been able to keep.

    @John you said “Greed is not good, it is greed. Making money is fine, great in fact if it is done fairly with all parties in mind not at the exploitation of others.”

    I beg you to look at the numbers I posted before. This can’t be called greed or exploitation. Here they are again, in case you missed them:

    I anticipate reaching $25,000 in revenue per month in around 18 months. At that point, Elliott will have been paid $33,000. Then his cut goes up to 25%, which will make him roughly $6,000 per month, for four days work. That’s $1500 a day.

  100. “Never attribute that to malice which can be adequately explained by naïveté”.

    OK, I’m happy to believe that it’s not Ryan’s intent to rip Elliot off, because I happen to believe he’s a nice guy.

    He has, however, intentionally or otherwise, written a stinker of a contract.

    For a start, requiring that Elliot work 8 consecutive hours a day is, I believe, illegal. There are laws on rest breaks and so on for a start. Probably unintentional, but it’s a loophole that makes it impossible for Elliot to technically fulfill the contract, or Ryan to enforce it. “At least 6 hours in one day” might be more appropriate.

    Elliot is agreeing to work perpetually on this contract, which will impact his ability to find other work. If the contract terminates or collapses, Ryan stands to gain, and Elliot to lose.

    The “either side can terminate without penalty” clause is a complete clanger, too.

    Yes, there’s a large potential gain in this for Elliot, and with some modifications to the contract it could be a good or fair deal. But right now, Ryan’s written this one with his foot in his mouth, and Elliot is relying purely on the fact that “Ryan’s a nice guy” rather than on the letter of his contract.

    Ryan – this is not intended as an attack. But I’d urge you not to be defensive about this contract because your intent was good, but rather to recognise that it’s not ideal, and that you can maintain both your reputation and your deal with Elliot by re-working the contract somewhat.

  101. Certainly a unique way of doing things. If it works elliot is set to make a lot of money but if it fails he is set to loose allot but I supose that is the same for you guys as well.

    Good luck

    @prydie

  102. I’m sorry Ryan, but I think you’ve got this one wrong.

    The recent very public laying off of Elliott and this equally public exploitation of him shortly after really does not put Carsonified – a company which had a very good reputation up until a month ago – in a good light.

    I would also advise Elliott to reconsider. A developer building any site without payment for a share of the profits deserves far more than 10%. The idea without the ability to implement it is worth nothing.

    Especially considering he’s lumbered with a support contract that could potentially take up all his time, which he needs to continue to service to maintain his effective 10% ownership.

    60/40 shared ownership in Carsonified’s favour seems a far fairer split to me.

  103. “Carsonified must be sailing pretty close to the wind if they aren’t able to develop this in house. Anything more you want to share with us?”

    Elliott was our only developer so there isn’t anyone else in-house to do it.

  104. “This time next year, Rodney, we’ll be miwwionaires!” – Delboy, Only Fools & Horses

    I sincerely hope the Truvay project works out along your projections, Ryan, because if it does, Elliot will be handsomely rewarded and you’ll be able to bail out small banks.

    Seriously though, what’s in this for Elliot if the revenue falls short of your expectations?

  105. Ryan,

    Tashacres and I have a similar agreement, which is where I assume your inspiration came from.

    As she mentions above, I think a minimum monthly salary is important, no matter how small – personally I wouldn’t have accepted without it.

    I’m sure you trust Elliot, but I’m also sure that if push came to shove, he’ll find it hard not to prioritise ‘proper’ paid work over yours.

  106. Wow!

    Lay off THEN exploit the laid off.

    Another wonderful Carsonified ‘We’re Transparent’ public relations FUBAR moment.

    In the space of one month i’ve gone from a Carsonified groupie to a disenchanted and disappointed individual, who wonders about the ethics of a certain Mr Carson.

    Shame.

  107. Then his cut goes up to 25%, which will make him roughly $6,000 per month, for four days work. That’s $1500 a day folks.

    It’s four days development work per month. You’re forgetting the “answering all support emails within 24 hours”, which could easily turn into quite a few days a month, and bring that day rate tumbling down.

  108. Tashacres on December 18, 2008 at 10:40 am said:

    WOW! Ryan, that’s another controversial moment! I think this deal can work because you both know each other and can trust the effort that will come from each side. Personally, I would have added a minimum monthly salary, and then given the scaled bonus schemes, but as others have said Elliot will do what he does best and you will bring the strong marketing edge. If you are both happy with the deal then you both have a lot to gain.
    Thanks for the hat tip as well Ryan, mucho appreciated!

  109. Marcell Kiss-Toth on December 18, 2008 at 10:38 am said:

    Hey Ryan,

    I recommend the Mantis Bug Tracker (www.mantisbt.org) for you, I believe it’s pretty cool.

    Marcell

  110. not sure if this has been raised but what happens if god forbid the money doesn’t come in and the venture makes a loss?

    Is elliot liable and does he have to cough up?

  111. Thanks for posting about this in so much detail Ryan – it’s fascinating to get these kinds of insights.

    I’m interested to read all the comments here about how Carsonified are getting 90% of the profit for doing no work. In my opinion, that’s a very naive view. The development of an app doesn’t just involve coding – there are so many other things which have to be bought to the table: branding, architecture design, marketing, PR, project management, hosting – all can take up substantial amounts of time and effort, I can’t imagine that these are all things which are going to be left solely at Elliot’s door.

    I think that regardless of whether you think it’s a fair deal or not, the main thing to consider here is ownership. Elliot is being asked to contribute his technical and logistical skills in return for a share of profit. Carsonified ultimately own and run the project and contribut skills of their own (Mike and Ryan’s time and experience for a start). Everyone trusts one another, and are taking ownership of something they can get excited about – a much better motivation for making something a success in my experience.

  112. It sounds like a great idea, though I wouldn’t have given out contract details. It’s a little unfair on Elliott don’t you think?

  113. I too would not want to see this arrangement as “normal” for any business relationship, whatever the industry and that is what I worry about most of all.

  114. John 'diff' on December 18, 2008 at 10:28 am said:

    Very interesting offer for Elliott and a shrewd move by Carsonified. Make someone redundant and then offer them this sort of deal a week later.

    If it fails, like Amigo, then Elliott will get nothing and Carsonified will not be affected at all. Also, if Elliott is as good as Ryan goes on about, then this project will consume him. He will work full time on it and will put everything into it to make it work – not work 1 day a week on it. Carsonified know this and therefore this is an amazing deal for them.

    Personally I wouldn’t touch it but if Elliott has thought it through then that is his choice.

    Ryan, I am unsure of this move. Carsonified must be sailing pretty close to the wind if they aren’t able to develop this in house. Anything more you want to share with us?

  115. Ryan said:
    “* I anticipate reaching $25,000 in revenue per month in around 18 months. At that point, Elliott will have made around $33,000. Then his cut goes up to 25%, which will make him roughly $6,000 per month, for four days work. That’s $1500 a day folks.

    And if it make next to no profit Elliot gets . . . nothing for the initial 12 days of work and for all the time put in up to the point at which he bails out. Carsonified get all their costs BEFORE the profit is calculated including Ryan’s £300 per day fee. I don’t see that as being fair or balanced.

    I do understand that Elliot gains non financial aspects like PR/experience/exposure etc. and he may claim that these balance the relationship. I would argue the non-financial rewards would need to be massive to compensate for the poor deal he is getting on this project.

    I do respect the fact that this is in the open and we are able to comment on it.

  116. I can’t believe Elliot has agreed to this.
    I have heard alot about Ryan and Carsonified and all has been highly positive. This changes my perception of Ryan somewhat.
    I absolutely admire Ryan’s entrepreneurism and I have recently structured a couple of ventures on a “sweat equity” basis myself, but Ryan is seriously exploiting someone who clearly has no business acumen.

    Ryan,
    1) How can you justify charing £300/day for your time (I very much doubt you’ll invest 1 day of your 4 day week on this project) yet expect Elliot to work the same 1 day/week without pay?

    2) What are you/carsonified doing for your £300/day and 90% stake? whilst Elliot is building the app AND incredibly agreeing to support it!

    Oh hang on, I think we’re all missing the point here….including me.
    It’s not Ryan we should be questioning, his just agreed the deal of the century. Elliot, wake up and smell the custard buddy.

  117. Dave Kirk on December 18, 2008 at 10:09 am said:

    Well Ryan/Carsonified and Elliot have certainly caused a couple of storms recently 🙂

    Personally I would not have agreed to this contract, however that is for 2 main reasons:

    1) I have no idea what this app is and what industry/problem/market it is going to service. Therefore I have no way of even trying to establish what the potential revenue could be.

    2) I don’t know Ryan, or indeed anybody at Carsonified, and therefore would not have the required trust level for this, as I am sure Carsonified would not have in me.

    Also, I doubt we have seen the complete agreement and contract here in this post, only a brief overview of the main points. There could be all sorts of other clauses.

    However it does concern me that if a well known company such as Carsonified are doing this, other companies will do the same. This may work occasionally, possibly it will for Elliot this time, however it is not the kind of thing I would like to become the norm.

  118. Ross Williams said “Would it be fairer on Elliot if they paid him a few grand for a project which then went on to be worth millions?” – no it would be fairer if they paid him what the task he is doing is worth. If he wants to share in the profits that share needs to be fair and equate to the risk/effort he puts in, particularly compared to others in the partnership. It’s obvious really.

    Ross Williams said “Developers are developers, not marketeers – and whatever Carsonified would spend on development, they’d spend twenty times more on marketing, customer support, etc.”

    Elliot is also doing (some of) the marketing (blogging)and all the support so where’s your argument? Carsonified are not putting in as much as Elliot but are taking out more in profit. This is exploiting Elliot in unpaid wages/profit share.

    Elliot may well not mind this – but other workers who might not understand the economics of this kind of capitalism, don’t even begin to understand how their labour is being used to benefit others.

    Greed is not good, it is greed. Making money is fine, great in fact if it is done fairly with all parties in mind not at the exploitation of others. This is some of the basis of sub-prime etc. You make money from others less able to understand the complexities of the deal you are setting up – but that’s off topic.

    What I am against here is the idea that you have an idea, you get someone else to provide the labour at no cost, you give them a small return (10%/15%) and ONLY if the risk pays off. I’m not saying Carsonified shouldn’t get anything – they are providing somethings – just not 90% of the project (and 100% of the IPR).
    The real rub is in actually offering this as a deal. It’s just not setting a good standard.

  119. James Weiner on December 18, 2008 at 10:05 am said:

    I hope Elliott hasn’t signed anything yet.

    He should really get some business/legal advice on this contract. It seems extremely exploitative of him and puts all the risk and work on his shoulders.

    Great to see this kind of thing being discussed out in the open, but shame on Carsonified for trying to get away with this sort of borderline immoral practise.

  120. Some of you are saying we’re “exploiting” Elliott. I think you’re missing a couple important points:

    * Elliott will gain very valuable exposure because of this. Exposure that he is not capable of generating without a partnership like the one we’ve offered. This has non-monetary benefits which he is receiving.

    * We are sharing a lot more of the sale price than is typical. The developer who built DropSend got a payout of 2% of the final sale price, where we are offering Elliott 10% here.

    * Why do we own the IP? Because it’s our idea. He’s more than capable of launching his own web app which he can own 100% of the IP.

    * I anticipate reaching $25,000 in revenue per month in around 18 months. At that point, Elliott will have made around $33,000. Then his cut goes up to 25%, which will make him roughly $6,000 per month, for four days work. That’s $1500 a day folks.

    Call me crazy, but that’s anything but exploitation.

  121. The people calling this contract “unfair” need to go watch some Milton Friedman. This is called “the free market”. Ryan has made an offer, and Elliott has accepted. That’s it. If Elliott doesn’t accept — which he’s perfectly free to do — then Ryan can improve the offer, or look around to see whether someone This isn’t a “right/wrong”, or “fair/unfair” context at all.

  122. Perhaps Elliott is too young to remember similar work-for-equity contracts during the late-90s dotcom bubble.

    “Those who cannot learn from history are doomed to repeat it.”
    George Santayana

  123. J.F.Sebastian on December 18, 2008 at 9:47 am said:

    In many european countries contracts like this are illegal (adhesion contract) and would be terminated by a court of justice

  124. That’s an idea many companies have in times like these. Outsource the risk to the employee and take the money if it succeeds. I think it’s a “capialist” (read “dick”) move and I don’t care for it.

    A 10-15% share is simply unfair. You take 85-90% for doing what? Providing the idea?

    Its a shame and makes your slogan “Creativity with integrity” sound absurd…

  125. What is all this talk of it being a bad deal for Elliot?

    Developers are developers, not marketeers – and whatever Carsonified would spend on development, they’d spend twenty times more on marketing, customer support, etc.

    If the app does well, Elliot will get a nice recurring revenue which no doubt gives him a nice way to cover his costs so he can have an opportunity to focus on more technically challenging and rewarding projects.

    It’s a very smart move by Elliot in particular – developers are going to have to be smart and flexible when it comes to payment opportunities.

    My guys are very lucky that we’ve got solid, profitable revenue streams which are pretty-much recession proof (in fact they’ve gone up in the recession!!) but most companies aren’t like that and certainly won’t be in 2009.

    Would it be fairer on Elliot if they paid him a few grand for a project which then went on to be worth millions? It’s ridiculous to suggest that Elliot is being bullied – he doesn’t have to do the work, he’s a guy in demand and this is a great chance for him to be rewarded.

    You can’t have reward without risk – either start your own app, take all the risk and have all the reward, work for someone else where there’s no risk but minimal reward – or do what Carsonified and Elliot have done where there’s a fair share of risk and reward for both.

    I think it’s a great idea and you’ll see a lot more of these kind of deals in 2009 – or you won’t have a job.

    Ross

  126. Good luck on your new project!

    For bug tracking, you might want to try 16bugs.
    It’s a bug tracker I launched almost three years ago and so far it has been used by thousands of people.
    If you don’t like a Trac-like, or worse a Bugzilla-like, solution, 16bugs might be the right tool for you. 🙂

  127. One more thing – IR35 – you can’t return to work for your previous employer under a contract without falling under IR35 which goes someway, in this case, to protecting people from being made redundant one week and re-employed with less favourable terms the next.

  128. Thanks for sharing this information. People get exploited everyday in business. It’s good to see that Carsonified are no exception when it comes to bullying contractors.

    This is a terrible deal for Elliot on every level, unless he is just so bored he needs something to keep him off the street. I am deeply angered by this shameless exploitation of another individual – but I also accept that he has agreed to it, although perhaps the circumstances of being made redundant by Carsonfied somewhat coloured his thinking and reduced his options.

    Anyway, how can Carsonified justify doing no actial work on an application and claim all the IP rights and offer only a 10/15% stake in it.

    You should at least pay for the developers time. Otherwise you are undermining the entire industry/profession. I can see that next time a developer goes to pitch for work or a contract they will be faced with well do it for free and take a small percentage stake in the equity.

    Would Ryan come and work for me for free for 1 day a month for the next three months, because I need some publicity for an big conference I am arranging. I’ll let him have 10% share of the profit – there is a chance no one’ll come though – I really couldn’t see Ryan agreeing to that on any level. And you no what, I would never even ask someone to do things that were so unfairly biased in my favour. This is the reason we’re in the state we’re in at the moment.

    Thatcher would be proud of you Ryan, and I have to say as a Brit that’s a pretty big insult.

    Carsonified and any business should pay a fair days wage for fair days labour. This is arrangement is not much better than the cockle-pickers, with individuals exploiting vulnerable, needy workers.

    No one should have to work for free or an promise. Where there is risk then there must be a reasonable return against that risk and obviously each person must weigh up the likelyhood of that return being paid out.

    You are a good businessman for negotiating this contract Ryan. I give you that. And I salute your ability to seize an opportunity. I abhore that fact that you are acting and exploiting others financially that are in a less strong position that yourself. But it is not against the law, bankers, and some business people have been doing it for years. I had thought we were slowly moving away from that though. Into a place where people worked under more ethical circumstances. Where contributions were fairly valued and rewarded.

    It will be interesting to see everyone adjusting their contracts with developers in order to place the risk onto those doing the work and away from those making the money.

  129. It’s a reasonable standard deal (in terms of percentages). Obviously I think it’s fairer if the contractor gets a better cut, as they’re actually delivering the work… I’m less clear on what Carsonified are doing for a 90%-75% share. However, I’m also not criticising Ryan for working in the way that the rest of the market works. The business needs to make money for itself.

    I do second Danvers’ concern re: layoff after one month though – again, not that I suspet Ryan/Carsonified of being underhand, but that both of you will feel more confident in your position if it’s down in writing.

    Oh, and for issue tracking, Fixx FTW, as the cool kids say.

  130. Like many commenters, I’m seriously questionning the 10/90 or even 20/80 split. Granted, Carsonified has some very good word of mouth behind it and will be able to get some huge visibility much quicker than Elliot could on his own and you do have some very useful expertise but still, hard to see that as being worth 80-90%, especially considering the face that the time Ryan will spend leveraging that will also be payed out of the profit.

    Also, since this follows the cutting of three people, including Elliot and you mention you don’t want to take on that risk, I find it disapointing that not only do you cut people pre-emptively to reduce risk for yourself but you then have the guy taking the vast majority of the risk on himself building the app at a time where he also has to find other revenue sources to compensate for his lost job.

    Almost all agencies I contract for, at one time or another, ask me if I can wait for the end of the contract and their client’s payment to get payed myself. So the huge client doesn’t pay until the end, the agency doesn’t pay until the end and in the mean time I do (or would do if I let them get their way) all the work with no money coming in.

    It’s the same model here, the bigger outfit with the most money takes virtually no risk and the little guy who just lost his job builds the thing on his own dime for hypothetical futur revenues. Weird.

    I really appreciate that you are posting the details for all to see and I think it’s certainly an interesting model to investigate but the split and the risk don’t seem well balanced to me.

  131. Wow! What is Carsonified bringing to the table to deserve 90% and all intellectual property rights? That’s not a rhetorical question; I’m just not clear on it. As someone already pointed out, ideas are a dime a dozen. Executing them and maintaining the resulting product/service is where the real work is. And for that Elliot’s getting 10%?

    Why shouldn’t he just launch out by himself and do something like this, keeping 100% of the IP and profit — or loss? And I don’t mean the very same product/service; just create a web app and attempt to monetize it. Carsonified’s decent, though still limited, track record of successful apps doesn’t mean this one won’t fail.

    And let’s not forget the fact that the “Notice period” part is leaving him so seriously exposed, it seems downright predatory.

    So I’d expect:
    1. Fairer profit-sharing and IP ownership.
    2. Payment for the 8 hours/week at least. Possibly, more to cover a few hours of support per week. He’s an individual, you’re a company! And if you believe there’s a market for the idea, spending a little money to keep the wheels running is worth it.
    3. Smarter exit options.

  132. IMO, Elliot should turn this down (though it seems he has already agreed) for these reasons:

    1. Should any other job opportunity arise for Elliot, he is now obligated to maintain and continue to build this product for which he has all the risk, and very little reward. (Shouldn’t he start at 25% or higher and have that go down over time?)

    2. An idea is not worth ANYTHING without execution. Given that he will be the primary person executing this, his compensation/percentage should be MUCH higher.

    3. An analogy: You can play the lottery, or you can invest/save your money. One sometimes pays off, the other almost always. You can work for free, or you can work for money. One sometimes pays off, the other almost always.

    Now, as far a Carsonified is concerned, if he was willing to work with this arrangement… great! It is not your duty to make Elliot’s decisions for him or to advise him in what he should or shouldn’t do. Elliot will need to learn that himself.

  133. Like others have mentioned, this would’ve been a deal I’d have said no to. Elliott is investing a lot of time, not only to develop it, but also to maintain it and for not much reward.

    When it comes to building for equity, I normally consider it based on general level of effort (it’s hard to give exact numbers for things like marketing, etc, I know). Ideas are cheap. That’s not where the value is, imo. Is Elliott’s overall time/energy invested vs Carsonified time/energy invested actually 10/90? or is it really the other way around? I’m sure there’s more nuance to this that I’m missing but as described, I’d say no.

    I certainly wish the best of luck to Carsonified and Elliott, though. Your openness in the process is great for everybody.

  134. Interesting that people have picked up on the notice period but not on, to my mind, easily the scariest line in a contract that is, by anyone’s standards, totally animal crackers:

    Answer all support emails within 24 hours

    because if the app is remotely successful that’s a fantastic way to chew up time. Answering the emails doesn’t mean the problems get fixed, though – so fixing the problems will cut into your eight-hours-of-work next week. Meanwhile, more support emails are piling in, and they need to be not only replied to but tracked, triaged, and managed.

    Whilst I think the financial arrangement is a somewhat foolish one to enter into, the workload defined by the contract is potentially very ill defined – and if the support queue mounts up, Elliot’s going to find not only his Mondays, but potentially the rest of his week being chewed up with this project.

    You could argue that the financial situation means that if there’s that much interest in the product, he’s also going to be being paid reasonably well on that percentage – but if revenue lags behind use, that lag’s going to creep into his paycheque.

  135. “I really enjoyed bare naked app.”

    I’ll second that, and love the line.

    And, @Ryan, just to be clear I was more reacting to the contract as it stands. I certainly have deals with people I know and trust that, from the outside, might seem lopsided.

    Thanks for the insight!

  136. Thanks for all the thoughts guys – good to hear different sides.

  137. I hope you are as transparent with the building of this app as you were with amigo. I really enjoyed bare naked app.

  138. @Kean: Just because Ryan is employed, his time is still billable as he still has to take a salary and his time has to make the company money. With an internal project, you’d normally reduce this to cost.

    It’s a nice idea and sounds like a great opportunity for Elliott although, if it fails, Elliott will stand to lose much more than Carsonified as he’ll be investing lots of time, especially initially (the app won’t be built in 8 hour, weekly separated chunks). Hopefully it’ll turn out like like DropSend with a high monthly income but without the large amount of support overhead DS had.

    Re: Ticketing/Bugs – why not use the system you already have setup 😉

  139. It’s “risky” for Elliot, but bear in mind that these are people he knows and has worked closely with for some time. I really can’t see Ryan screwing Elliot on this just because he doesn’t want to share the revenue. I’m sure that if I were to send Elliot an e-mail offering the same deal, I’d receive a no, but because of his relationship with Carsonified, it’s an acceptable risk.

    The other thing to keep in mind here is that Elliot isn’t exposed to any of the risk for Truvay either. If the app really does make nothing, Carsonified is on the hook for hosting costs, payment processing fees and all of the other expenses. Sure, Elliot’s lost some time (which has been limited to 8 hours/week), but at least he isn’t out of pocket.

  140. All sounds like a good way to manage freelance web projects on the side of the company. Personally i’d shy away from a complete profit share and go for something a little more middle ground thus at least gaining something for the time put in, incase things don’t all go to plan.

    The point that really sticks out for me though is that Ryan’s time is billable to the project while Elliot’s is not, as a Carsonified app I’d have thought Ryan’s time would come for free.

  141. Kevin Stewart on December 17, 2008 at 10:43 pm said:

    Ryan,
    Interesting idea. I definitely want to see how Truvay develops. As for the issue tracker, I’m going to have to join the crowd and say go with Sifter. I think it has an even better workflow than Lighthouse, which is also a very good product.

    Good luck,

    Kevin

  142. I’ve got to agree with those people mentioning the 1 month notice period. That is a seriously risky proposition for Elliot, and it would have got a flat no from me. I guess you could say there is a level of trust on both sides, but in a contract you’ve got to take the personal out of the equation. Trust should be documented and I would have thought a 3 month get-out is the minimum.

  143. Ryan

    I think it is great that you have explained the deal with Elliott in such detail. If I were advising Elliott (and please don’t take this personally, it is just my thoughts given in the same spirit as your post, I hope), my concern would be that if for whatever reason he delivered a great app on time, there would be nothing to stop you from firing him the next day so in effect his only reward from the project would be 10% of the first month’s profit (if there is any in the first month). Having had the benefit of his development skills, you would simply have to maintain the app – for which you might be able to find someone to do it cheaper.

    Or to put it another way, when 10% of profit exceeds the market rate for Elliott’s time, you have a straightforward economic incentive to fire him. In fact, you would be acting irrationally (from an economic perspective) if you did not fire him at this point.

    I would suggest that if Elliott delivers the app within a reasonable timeframe (e.g. end of May) he is guaranteed a lump sum payment (equating to a fair rate for the hours he is expected to put in), which if he is fired within the first, say 12 months, he is paid, less any profit share already received.

    Equally, if revenue exceeds a certain figure (meaning the 10% would comfortably exceed E’s market rate) then the 30 day notice period should be extended on an agreed formula – or you should bite the bullet and put the app into its own company and E should get 10% of this.

    Not suggesting for one minute that you would act unethically, but maybe worth E thinking about it a bit further and protecting his position.

    Best regards

    Danvers

  144. Very interesting, Ryan. I’ve been thinking of doing a contract similar to this myself. Any chance can can post a template version (open source) of this? Thanks, Chris Comella

  145. J.F.Sebastian on December 17, 2008 at 10:06 pm said:

    So we learned a lot about Elliott.

    He is probably pretty bad at math. There’s no other reason I can image that somebody agrees to a contract like that. He has to work at least one day / week on the project, but from the revenue one day will be substracted? So he has to pay to work on a app from which he get as little as 10-20%? In addition he will do the support (may be he should pay for every support request?) and has to do some of the marketing (blogging) too – for free of course.

    What I don’t get from the posting is, what Carsonified does for the 80-90% of the revenue? Software testing and Email marketing ? oh great.

    I’m deeply shocked that people can get that desperate that they agree on contract like that.

  146. Sean O'Farrell on December 17, 2008 at 10:04 pm said:

    I think you’ve made a very important statement here: nothing incentivises people like Ownership. This has always been – and will always be – the case, recession or not.

    It’s important for Entrepreneurs to know that they need to get good people to help their businesses and if someone helps grow it, why not give them a piece of the action? I’d rather own 40% of something worth £10m than 100% of something worth nothing.

    Bravo to you Ryan! Thatcher would be proud!

    😉

  147. This is a pretty similar model I’ve started using for some of my web apps in production. In my case, I’m the designer/developer and I’m often approached by people with great ideas, but small budgets (usually friends/family – people that I trust and know I can work with).

    I’m curious about the notice clause though. Maybe I’m misunderstanding, but is there some kind of payout to Elliott if you cancel from your end? I wouldn’t want to be in a situation where I’ve poured a lot of time into an app up front (for little-to-no-compensation) and then be put on notice once it’s built simply because it’s successful and my stake of the revenue is more expensive than hiring another developer that has no equity stake. I’m not at all suggesting you guys would do this to him, but just looking at the contract itself, mine usually require the app to be running for a certain period of time or hitting certain financial goals for me to re-coop my costs, before the arrangement can be canceled.

  148. I would second http://sifterapp.com/ for bug tracking. I’ve only played with it but it is very well done. Some interesting posts on the blog too about the thought process behind much of it

  149. Definitely worth checking out Garret Dimon’s sifterapp.com for bug/issue tracking.

  150. Sounds like a very interesting and a rather unique way of setting about a project. I’m sure now that you’ve gone away and blogged about it other people will mention other ways people have set up partnership’s with developers.

    I also want to know what it is. Good luck, i’ll be no doubt following the progress on Twitter and on my own little project (my chance to leave you guessing).

    Andrew Yates
    http://twitter.com/andy383

  151. Ryan,
    I think that’s a great idea. Under normal circumstances I’d say that it’s a risky proposition for Elliot. But Carsonified has a lot of mindshare and history behind it launching successful apps. I think it’s a creative solution and I look forward to seeing how it shapes up.

  152. Don’t worry about me, k? k.

  153. Normally, as a contractor, you’d run screaming from this type of offer. You put in a load of hard work on a project only to lose complete control when it’s launched. You’ve got no say as to how aggressively it’s sold, how it’s marketed and how much time the “owner” spends on it. It can be pretty dicey. I think that because of Carsonified’s track record though, it’s a great arrangement. No doubt Elliot will be making some good coin on this soon.

    I love your sliding scale. Especially the 10%/15%. I assume that you’ve got something in there to take care of Elliot if the site doesn’t launch on time due to no fault of his own (like if Mike decides to take a 6 month vacation and can’t get the designs done on time)?

    Dying to hear more about what the app will actually do. Trouver… so you guys are taking on Google now, right? 😉

  154. I sort of agree it’s a good idea, and it’s also crap for Elliot in some way, he’s taking the risk and you’re taking the reward (well he gets the chance to get some reward in the future).

    He should get something up-front and if there’s a sale more at the tail.

    Obviously IMHO.

    Steve

  155. Hey Ryan,

    I’m not saying it wont make any money but what *if* it doesn’t. Elliott wouldn’t get paid for the time spent on the App? Granted you guys wouldn’t either. Its definitely a personal preference whether to go into something like this.

    Intrigued into what the app will do. Looking forward to Elliott’s write-ups.

    Gavin

  156. Ryan,

    I had to read the post twice to make sure I got it right. I think its definitely a unique way of creating an app with the contract with Elliott. I just want to know what it is.

    Good luck with building it, sounds like it could be an interesting project.

    Ollie
    http://twitter.com/ollieparsley

  157. Hey Ryan, I would look at http://www.sifterapp.com/ for a Bug Tracking solution.
    It looks really good and I will be looking to use it.
    Dan
    twitter.com/dangriffey

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