Fourteen years ago, in the late summer of 2000, we started our Web design and development agency, Pelago. We had new and shiny computers, a decent portfolio of work cobbled together, and a handful of clients.
The creative work was fun, and we were good at it. The development work was challenging, and we were good at it, too. This being our first agency, everything was humming along just fine. Until it came time to get paid.
While our agency was still in its infancy, we made several business mistakes. Most mistakes are glaring enough not to repeat them again. We are sharing our experience in the hopes you may avoid making them at all.
Trading work for equity
Did you hear the one about the taxi driver in San Francisco? He thought Startup was the name of the company where all his fares worked. Substitute the word “Dot Com” for “Startup” and you have the same story fourteen years ago. Today, everyone has a startup. Back then, everyone had a dot com.
We did one job for equity, then quickly realized it would be years before we saw any money, if we saw any at all. Given that nine out of ten businesses fail, did we really want to gamble with getting paid? We never made any equity deals after that.
We said “no” to a lot of equity offers. And not a single one of those startups is in business today. You need to pay bills and invest in your own future. Don’t speculate on the future of others.
Getting paid later
On one occasion we began a job before the client sent us an initial payment. Every time we’d ask about the check, we’d get a different story. After spending a significant amount of time on this project, we notified the client there would be no more work until we received payment. We never saw the money.
Always get paid at least a third of your payment up front. Half is even better. The client needs to demonstrate their commitment by paying you. Don’t start any work until they do. Otherwise, you may be throwing away your valuable time.
Doing work on spec
The pitch goes something like this. The client announces they will be accepting entries from several different agencies, and will be rewarding the one they choose. A lot of times it’s set up as a design contest.
We entered one such contest, submitted our entry and signed a form. Then we read the fine print, which clearly stated that the organization accepting the work would be given full rights to all entries. Sweet deal for them. Sour deal for us.
Don’t waste your time with these speculative projects. The client is hiring you for your signature style and approach to the design process. If the client is concerned they won’t like the results, they need to go elsewhere. Don’t invest your time and resources into a project unless you have some guarantee of getting paid.
Allowing the client to change the contract
The desire to earn a new client can lead to agencies making short-term concessions in their contract. We once had a client modify our contract ask us to agree to the alterations before signing it. The edits seemed harmless at the time, so we signed it.
Then we realized we were signing over exclusive rights to the project. The client intended to take our work and resell it, but needed the contract modifications to do so. We learned our lesson, and from then on refused to modify our contract.
Your agency should use the same contract for all your clients, preferably one reviewed by a lawyer. If the client wants to change the contract, or use one of their own, consult a lawyer before signing anything.
If you don’t have a contract, feel free to use ours. We have a Retainer Agreement and a Time and Materials contract both available for free download.
Signing over exclusive rights without compensation
In the previous example, we made two mistakes. The second mistake we made was giving exclusive rights over to the client without being fairly compensated. We should have asked for a higher payment in exchange for handing over the rights to our work.
Design and development agencies struggle with this one. It’s hard to justify asking for more money for more rights when it doesn’t change the scope of the project. To help put it into perspective, most agencies are re-using visual concepts and code snippets in their work. By transferring exclusive rights to the client, you are forfeiting your right to use your own work.
In the end, we modified our contracts to assign dual non-exclusive ownership of the work. This meant the client could do with the work as they please, and so could we. Neither of our rights could be forfeited by the other. But we still refused to sign any contract that required exclusive rights to be transferred to the client.
Using a weak contract, or none at all
Overlooking the contract is really easy to do, especially when you are starting out. In a hurry to bring on new clients, you may turn to friends and family and think a contract is not necessary. Maybe it’s awkward, or maybe you are just trading services.
Your cousin’s buddy is not to be trusted. This is a business, not a family reunion. When you are starting an agency you need to protect your business with good contracts. Without a contract, any disagreement will devolve into a he-said-she-said argument